The Budget is one of the most anticipated announcements of the year. In this short article, we share our top 3 highlights and accompanying insights that are relevant to Startups and players in the wider Digital Economy.
1) Microenterprises and small and medium enterprises (MSMEs)
Tax rebate of up to RM20,000 per YA, available to new MSMEs for the first three YAs, to be extended. This will now apply to MSMEs which are incorporated and commence operations by 31 December 2022. Companies can also carry forward their losses to a maximum of 10 years compared to 7 years previously.
Insights: While the rebate amount of RM20,000 per year is not substantial, it will lower the entry cost of doing business and tax impact for MSMEs for the first 3 years of business. It could be good timing for businesses to set up new entities for risk-ring fencing, collaborations, joint ventures etc. Extending the ability to carry forward its losses longer would also favour high growth companies that incur losses in their first few years of rapid growth and development, but have a compelling path to profitability in the long run.
2) Stamp duty exemption for P2P loan/financing instruments
Full stamp duty exemption is given for P2P loan or financing agreements executed between MSMEs and their investors from 1 January 2022 to 31 December 2026. The stamp duty exemption is only available for P2P financing provided via P2P platforms registered and recognised by the Securities Commission.
Insights: P2P platforms continue to grow in popularity among companies that use them for trade/invoice financing to ease cashflows or to raise funds without suffering dilution of their equity. While this would be a welcomed move for the P2P industry generally, the stamp duty exposure on such instruments is quite insignificant compared to the incidental costs of raising funds via such P2P platforms, which primarily comprise of the fees & commissions charged by such licensed operators.
3) Tax incentives for activities under the Digital Ecosystem Acceleration Scheme (DESAC):
Saving the best for last, favourable income tax rates will be given to:
- Digital Technology Providers: 0% to 10% income tax rate for up to 10 years (new companies), or 10% for up to 10 years (existing companies).
- Digital Infrastructure Providers: Investment Tax Allowance of up to 100% on qualifying capital expenditure and for up to 10 years which can be set off against up to 100% of statutory income.
These attractive tax rates and tax incentives essentially make Malaysia more competitive in attracting longer term capital investment into developing or upgrading digital infrastructure, as well as attracting players in the digital ecosystem. At the date of writing, no details or guidelines have been issued by MIDA on the DESAC, hence, it is still unclear how the terms ‘Digital Technology Providers’ and ‘Digital Infrastructure Providers’ are actually defined.
Keep an eye out for any new guidelines by MIDA which are usually published here: https://www.mida.gov.my/forms-and-guidelines/
Insights: On 19 February 2021, the Government launched MyDIGITAL or the Malaysia Digital Economy Blueprint (2021 – 2030). The ultimate aim of the MyDIGITAL blueprint is to transform Malaysia into a digitally-driven, high-income nation and a regional leader in digital economy. NOW is an exciting time for startups and founders to ride the wave of digitalization, and to take full advantage of the numerous grants, incentives, programs and initiatives offered by the government and private sector in their Digital Journey. For the businesses that are eyeing opportunities and direction to grow, here’s a quick refresher on the key targets that the government has committed to meet by 2030:
The full Malaysia Digital Economy Blueprint (2021 – 2030) can be accessed here: https://www.epu.gov.my/sites/default/files/2021-02/malaysia-digital-economy-blueprint.pdf
This article was written by Shawn Ho. Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021. We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysian start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.