Msc Malaysia Status 2.0
Iskandarproject, being very much involved in Industrial Revolution 4.0 adoption in Malaysia would like to offer its advisories to intending Msc Malaysia Status Applicants for the newly announced Msc Status 2.0 era.
MDEC, being a custodian of Msc Malaysia Status has approved changes to BOG 5 ( Tax Exemption ) as well as appended a new set of Approved Activities in line with the newly refurbished Msc Status 2.0 with effect from 1 January 2019.
Mdec have also begun accepting MSC Malaysia Status applications since 2 April 2019 and the process of accepting applications is on-going albeit it is only for non-IP(Intellectual Property) derived income services at the moment. However,the process of accepting IP (intellectual property)derived income models is suspended pending an advice from MDEC in the future. MSC MALAYSIA tax incentives will follow the recommendation of OECD BEPs Action 5 and that is tax exemption will now be accorded to companies' income derived from Intellectual Property (IP income) and/or income deriving from Non-Intellectual Property (non IP income).
Further to this, IP Income Business will have to adopt the Nexus Approach and a Non-IP income will have to adopt the Substantial Activity approach envisioned by OECD.
Business Models being accepted now is based on Global Business Process Outsourcing Services; modellings, analysis or research and analytic. Global Businesses will need to incorporate elements of Industry 4.0 adoptions.
The reason for these drastic changes is because of "Malaysia's Commitment in International Tax Standard (read tax erosion or profit shifting actions)" and her undertaking to be inline with the recomendation of the OECD's BEPS Action 5 (tax erosion) peer review and monitoring initiative. It is also because of this that MDEC has seen it timely to morphed into the era of Industry 4.0 whereby it will begin to associate only with advance technologies brought about by Industrial Revolution 4.0 (4IR).
Some past actions taken by Malaysia on laws regarding tax regimes
1. The Government of Malaysia on 12 June 2018, had announced that Malaysia will commit to International Tax Standards regime structured by OECD, and the subsequent announcement by MDEC on 28 December 2018, titled "Important Update and Changes on MSC Malaysia BOG 5".
2. As stated in the aforesaid announcements, the identified tax incentives of Malaysia will need to be reviewed and amended to be consistent with the international standards, which also include the MSC Malaysia Bill of Guarantee (BOG) 5. Generally, promoted activities has been categorized as either IP (intellectual property) or Non-IP derived income.
3. In accordance with the above exercise, the grant of MSC Malaysia Status and its incentives, including extension of income tax exemption period, or adding new MSC Malaysia Qualifying Activities, has been put in force since 1 January 2019.
4. Previously, the tax exemption for MSC Malaysia Status was granted for the income derived from MSC Malaysia Approved Activities. Moving forward, the tax exemption will be granted for income derived from either services activities (Services Incentive) and/or intellectual property (IP Incentive).
5. The MSC Malaysia Status Services Incentive has been approved by the Government and will be regulated under the new Income Tax (Exemption) (No. 10) Order 2018 [P.U.(A) 389/2018], which was gazetted on 31 December 2018.
6. As for the MSC Malaysia Status IP Incentive, the policy is still under review process by the Government. MDEC will be releasing further information in due course.
7. Applications (new) for MSC Malaysia Status Services Incentive can be made starting from 2nd April 2019. However, only new applications that are Non-Ip derived income business model will be accepted. Those with IP based applications wil have to wait until Mdec confirmed as to what constitutes IP derived income business model inline with OECD's thinking.
8. Applicants who had applied before but has not being approved yet will need to re-apply again (albeit with a new business model that reflects Industry 4.0 elements). As to those who had benefited from the tax exemption clause in the past will also have to re-apply for new aplications that reflects Industry 4.0 adoption; their previous tax exemption will expire come 30 June 2021.
ISSUED BY MALAYSIA DIGITAL ECONOMY CORPORATION SDN BHD (MDEC)
What is granted under the new Msc Malaysia Status 2.0 regime?
Msc Malaysia Status grant is a Msc Malaysia Status qualifictaion plus a Pioneer Status grant. In order to also obtain Pioneer Status, the company must either own an IP or have Substantive Activities
What are MDEC's Newly Approved Activities?
Under the new ruling, Msc Malaysia Status will be accorded to either IP (intellectual property) derived income business or Non-IP (services derived from non-ip) derived income business.
IP derived business:
ICT platforms in the field of Robotics, Automation, Artificial Intelligence, Additive Manufacturing and IoT and many others. Owns source code. May also license IP to others for a fee.
Non-IP derived business:
ICT business services in the field of Robotics, Automation, Artificial Intelligence, IoT and Global Business Outsourcing (knowledge process outsourcing). Company does not own any IP (source code) but use other's IP to offer services.