The pandemic has accentuated the growing need to exploit digitalisation globally. The world has seen digitalisation accelerate at a tremendous speed for the past two years. This has forced businesses to shift and embrace digital transformation by being resilient and agile with more reliance on technology.
Thus, it becomes all the more imperative for Malaysia to find its niche in the digital economy, as well as attract and drive investment to achieve the. aspiration set in the Malaysia Digital Economy Blueprint by positioning Malaysia as a digitally-driven, high-income nation and a regional leader in the digital economy.
MIDA recognises that agile policies and regulations are important in encouraging more digital FDI. The existing regulatory framework has to be responsive to innovative next generation business models arising from the growth of digital economy and the rapidly changing digital technology.
As the digital economy morphs into a new fuel of growth, the Government has announced tax incentives under Budget 2022 to further boost digital investments including the Digital Ecosystem Acceleration (DESAC) scheme to strengthen the whole digital ecosystem of Malaysia. Through the DESAC scheme, Malaysia aims to attract quality digital projects into the country and accelerate the development of the local digital economy value chain and create high income job opportunities.
The DESAC scheme is poised to complement the existing packages offered by other Investment Promotion Agencies (IPAs) such as the Multimedia Super Corridor (MSC) by MDEC with the aim to strengthen the entire digital ecosystem, including digital infrastructure.
The scheme also adopts a-whole-of-nation approach which resonates with Malaysia’s tech strategies by encouraging investments from MNCs, SMEs, MTCs as well as startups. This will elevate local digital companies’ capabilities to become a global leader in the digital space ranging from a digital tech provider, digital infrastructure provider and producer of technologies.
The DESAC focuses on two types of digital providers namely Digital Technology Providers (DTPs) that provide digital services based on IR4.0 and digitalisation technology related to manufacturing and manufacturing related services, as well as Digital Infrastructure Providers (DIPs) such as data centres and submarine cables.
A newly established company under the DTP category may be considered for an income tax rate of 0% to 10% for up to 10 years meanwhile an existing company under the DTP category that diversifies into new service activities or new service segments is subject to a 10% income tax rate for up to ten years.
Meanwhile, those under the DIP category are eligible for an investment tax allowance (ITA) of 100% on capital expenditure for qualifying activities that can be offset against up to 100% of statutory income for a period of up to ten years.
These incentives are in addition to the thriving ecosystem that creates a conducive business environment for digital companies. Essentially. making Malaysia as a more compelling destination to attract long term quality digital investments as well as elevate local digital companies’ capabilities to become global leaders in the digital space.
DESAC also yields to aim at developing and upgrading digital infrastructure which is fundamental in advancing the digital economy. Digital infrastructure, despite being the much-needed backbone for a thriving digital economy, is still lacking as accessibility remains limited in Malaysia.
The DESAC tax incentive is effective for applications received by MIDA from 30 October 2021 until 31 December 2025.
For more information, contact Business Services and Regional Operations Division.
Source: MIDA e-Newsletter January 2022