Legal Updates

            1.            Introduction

In 1996, Malaysia launched the Multimedia Super Corridor (“MSC”) initiative, aimed to promote and boost Malaysia’s digital economy by offering a range of incentives, including tax exemptions to companies who are eligible to attain MSC status.  

This initiative was recently revamped on 4 July 2022, when the Government of Malaysia, through Malaysia Digital Economy Corporation (“MDEC”), introduced Malaysia Digital (“MD”) to replace MSC as the new national strategic initiative to encourage and attract companies, talents and investment to Malaysia’s digital economy.

Under the MD initiative, companies awarded with Malaysia Digital status (“MD Status”) shall be entitled to a set of incentives, rights and privileges more particularly set out in the Malaysia Digital Bill of Guarantees (the “BoGs”). To apply for MD Status, a company is required to complete an application process on the MDEC website here.

This article will discuss certain key aspects of the MD Status.  

            2.            Key Aspects

The Guidelines on Malaysia Digital Status (“MD Status Guidelines”) is the main document setting out the guidelines relating to MD Status, including eligibility criteria, applicable conditions, benefits and incentives as well as post approval matters.

2.1       Eligibility Criteria

A company is required to meet the following criteria to be eligible for MD status[1]:

• be incorporated under the Companies Act 2016 and resident in Malaysia;
• proposes to carry out or is currently carrying out one or more of the prescribed activities (each a “MD Approved Activity”), as more particularly set out in Paragraph 2.2 below. 

2.2       MD Approved Activities

Activities which constitute MD Approved Activities[2] are the research, development and commercialization of solution and/or provision of services in relation to any of the following technologies or areas:

• big data analytics (BDA);
• artificial intelligence (AI);
• financial technology (Fintech);
• internet of things (IoT);
• cybersecurity (technology/software/design and support);
• data centre and cloud;
• blockchain;
• creative media technology;
• sharing economy platform;
• user interface and user experience (UI/UX);
• integrated circuit (IC) design and embedded software;
• 3D printing (technology/software/design and support);
• robotics (technology/software/design);
• autonomous technologies;
• systems/network architecture design and support;
• global business services or knowledge process outsourcing;
• virtual, augmented and/or extended reality;
• drone technology;
• advance telecommunication technology; or
• other emerging technologies deemed significant for the digital ecosystem subject to approval by a committee made up of representatives from the Government of Malaysia (“Approval Committee”).

2.3       Conditions of MD Status

2.3.1  Following the award of MD Status, a company is required to adhere to the following conditions within 12 months from the date of award[3]:

•  Activity. Commence operating or undertaking its MD Approved Activity(ies) in Malaysia.
• Knowledge Workers[4]. Employ at least 2 employees (comprising knowledge workers) on a full-time basis for its MD Approved Activity(ies), each paid a minimum average monthly base salary of RM5,000.
• Operating Expenditure. Incur a minimum annual operating expenditure of RM50,000 for its MD Approved Activity(ies).
• Paid-up Capital. Have a minimum paid-up capital of RM1,000.  

2.3.2  Further to the above, MD Status company must also comply with such other applicable laws and regulations, including obtaining all required permits/licences from the relevant regulatory authority and adhering to the requirements thereunder.

2.4      Benefits of MD Status

2.4.1    BoGs

          The BoGs reflects the Government of Malaysia’s intention to provide the following incentives, rights and privileges to a MD Status company:

• BoG 1: To provide a world-class physical and information infrastructure[5].
• BoG 2: To allow employment of local and foreign knowledge workers.
• BoG 3: To ensure freedom of ownership by exempting companies with MD Status from local ownership requirements.
• BoG 4: To give freedom to source capital globally for MD infrastructure and the right to borrow funds globally.
• BoG 5: To provide competitive financial incentives, namely income tax exemption or investment tax allowance and no duties on importation of multimedia equipment.
• BoG 6: To become a regional leader in intellectual property protection and cyber laws.
• BoG 7: To ensure no censorship of the Internet.
• BoG 8: To provide globally competitive telecommunications tariffs.
• BoG 9: To tender key MD infrastructure contracts to leading companies willing to use Malaysia as their regional hub.
• BoG 10: To provide a high-powered implementation agency to act as an effective one-stop super shop.

For more details on the above, please refer to the full document of the BoGs at the following link.

2.4.2    Other benefits

A MD Status company may also be eligible for other benefits, namely (a) access to local and international market and ecosystem, (b) business matching and partnership, (c) grant and funding facilitation, and/or (d) participation in MD catalytic (PEMANGKIN) programmes.

2.5      Post Approval Compliance

The MD Status company shall be subject to continuing obligations under the MD Status Guidelines, including:

• making the necessary notifications to MDEC for any change in information such as change in the paid-up capital, equity or shareholding structure of the company, name and/or business operating address etc.[6];
• obtaining approval from the Approval Committee for any variation to the conditions of MD Status as specified in the approval letter[7];
• submitting to MDEC such information and/or documents as may be requested by MDEC for the purpose of reporting on the progress of its MD Approved Activity(ies) and/or determining compliance of the applicable conditions[8].

3.         Conclusion

3.1     The MD initiative appears to offer greater flexibility than the previous MSC regime. For instance, MD Status companies are now allowed to operate and undertake their MD Approved Activities anywhere in Malaysia and will no longer be required to operate in designated premises and/or be subject to minimum office space requirements in order to enjoy certain benefits, as was the case for MSC status companies.

3.2     With the implementation of the MD initiative, existing MSC status companies need not reapply and will be automatically accorded with MD Status to continue to enjoy the benefits and incentives under the BoGs, subject to compliance with the existing applicable conditions.

3.3    Advances in technology and shifts in consumer behaviour in recent years have resulted in an increasing number of companies tapping into fintech, blockchain or IT-related business models. Given the various benefits, privileges and support programmes provided by the Government of Malaysia under the MD initiative, it may be worthwhile for such companies to attain MD Status, where eligible.