Msc Malaysia Status Qualifying Requirements and what it means.
Basic Requirements of obtaining MSC Status are:
* Provide or heavy user of IT & multimedia products & services.
* Employ a substantial number of local and foreign knowledge workers.
* Strong value proposition specifying how operations will contribute to the development of MSC Malaysia in the new era of IR 4.0.
* Establish separate legal entity for MSC-qualifying activities - it means establishing a private company (new) for the purpose of obtaining MSC Status.
MDEC has announced changes to BOG 5 (Tax Exemption)
In a previous iteration, the tax exemption for MSC Malaysia Status was granted for the income derived from MSC Malaysia Approved Activities. In future, beginning first January 2019, the tax exemption will be granted for income derived from either services activities (Services Incentive) and/or intellectual property (IP Incentive).
And more specifically the qualifying requirements that will determine as to whether you are granted Msc Status are:
Msc Malaysia Status Activities will be categorised into either IP (intellectual property like copyrights and patents (software)) derived income or Non-IP derived income like ICT services (using other people's IP). Additionally, qualifying business models will need to have "Industry 4.0 elements" such as Artificial Intelligence, Robotics, Automation, IoT and Big Data. Now, for Non-IP derived income business models, in lieu of them not possessing valid intellectual properties, they will need to satisfy additional conditions like Substantial Activities .
Substantial Activities (or substantive), if we were to infer from OECD group of which Malaysia is a recent associate member, means that applying companies will need to firstly increase their number of knowledge workers (will be given a period) and secondly, increase their paid-up capital (also given a period). Companies applying for Msc Malaysia Status will be given two years to raise their paid-up capital to half a million ringgit. As pioneer status is given for five plus five years periods, companies that obtained Msc Malaysia Status will need to raise their paid-up capital to 2.5 million by the fifth year if they were to seek tax relief extension for the second five year irrespective of whether they are tier one, tier two or tier three companies. Tier One companies are required to be based in Cybercities or Cybercentres -100% corporate tax relief. Tier Two companies are required to be based in other commercial premises within MSC Malaysia Cybercities - 100% corporate tax relief. Tier Tree companies can be based outside of the Cybercities or Cybercentres but will only enjoy 70% of coporate tax relief. However, whether Substantive Activities will also be applied to IP derived income business model is still a matter of speculation. We will update you on this.
As for IP derived income business models, MDEC will not accept business models that are IP (your own softcode) based for the time being. It seems that for the moment, if you are dishing out licensing, you are not entitled to tax exemption but if you are ready to buy a license from a third party (say an OECD country), then you can apply for Msc Status - this is the result of joining as a full adherent to the OECD's Council Acts!
Updated Qualifying Activities that are allowed since 1/1/2019 which would require an element of:-
* Artificial Intelligence - incorporating machine and deep learning
* Robotics - industrial automation and autonomous vehicles.
* IoT (also IIoT) - edge computing for autonomous vehicles
* Telecommunications - 5G and infrastructures.
* Block chain - framework and smart contracts including secured Covid vaccination certificates
* Big Data - analytics and insights
* Fintech - financial technology and block chains
* Edutech - artificial intelligence coaching (proposed)
* Proptech - real time 3D rendering of properties(proposed) and virtual renderings
* Agritech - precision agriculture, climate controls (proposed) for agriculture productions.
* Data centre and cloud (technology/software/design and support)
* Creative Media Content - virtual reality.
* 3D or Additive Manufacturing (technology/software/design and support)
* Sharing Economy
* User Interface and User Experience (UI/UX)
* Systems/network architecture design and support
* Cyber security (technology/software/design and support) for 5G environments.
* Integrated Circuit (IC) design and Embedded software
* Autonomous (technology/software/design and support) - Automobile AI
* Global Business Services or Knowledge Process Outsourcing excluding non- technical and/or low value call centre; data entry; and recruitment process outsourcing.
You would have noted that MDEC is now requiring applications with a business model that have an element of Industry 4.0 regime. Now what does it mean?
It is quite a subjective matter talking about element of Industry 4.0 but for the short take of it your business model must have a touch on at least one of the approved activities. Like for example if your business model is about web site development, then you must incorporate some features that have an auto response like sophisticated Chabots that are able to handle inquiries. Still you will need to be careful about what you propose in your revenue model as how you derive revenue will determine your success in obtaining Msc Status. Still confused? Get in touch with us.
Now, as a result of Malaysia's participation in the Forum on Harmful Tax Practices (FHTP), Organisation for Economic Co-operation and Development (OECD), to implement the Base Erosion and Profit Shifting (BEPS) action plans, the income tax exemption under the MSC Malaysia Bill of Guarantee No. 5 has been revised to be consistent with the taxation standards under the OECD BEPS Action 52. Thus with this amendment, it will impact greatly on those who had obtained pioneer status from MOF and also those who intend to apply for pioneer status through MDEC. You might want to take a view at the new amendments here
From the look of it and in order to qualify for Msc Malaysia Status Application, it would seem very daunting. However, there is way to go about it especially on how you structure your business model. It is of course not apparent but let us guide you to a successful application as we are well verse with Industry 4.0 elements and we will help you to design a business model that goes with what you would like to do in the first place.
In spite of all the roadblocks you have to go through, there are fruits to be plucked at the end of your msc status journey. For a start, your pioneer status company will get to enjoy 100% tax exemption on taxable income for up to 10 years (5yrs then subject to review + 5yrs after review) or Investment tax allowance which grants you 100% deduction on capital qualifying expenditure that includes hardware and software. Now, you will most probably be concerned as to the tough criteria like a large number of knowledge workers and the huge amount of paid up capital. Well, there is a place for the small guy as well only that you will have to think small for a start and not deterred by negativity. Although it is stated that you will have to employ a large work force, there is also a place for the start up. You can start off with a small number of knowledge workers and thence work towards a larger work count later on. But in case you falter on your maiden journey, you can still enjoy five years of tax exemption - not bad compared to the guy who can only do trading computer hardware. Get the idea and let us help you or let us guide you!
In case you are still confused, you may email us at firstname.lastname@example.org for a better understanding of what the new Msc Malaysia Status 2.0 is all about.