Following the recent Budget speech that was announced on 11 October 2019, here are some key highlights that we think will impact the start-up ecosystem in Malaysia:
- Revised Income Tax Treatment for SMEs
Effective from YA 2020, eligible SMEs will now be taxed at a basic rate of 17% income tax on the first RM 600,000 of chargeable income (instead of RM 500,000).
*only applicable to SMEs with a paid-up capital of not more than RM 2.5 million and annual sales of not more than RM 50 million*
- Tax Exemption on the Development of IP
100% tax exemption for up to 10 years on the income derived from Qualifying Intellectual Property (development of patents and copyright software)
The Modified Nexus Approach will be applied to ensure that only IP developed in Malaysia qualifies for income tax exemption and application must be submitted to MIDA from 1 January 2020 to 31 December 2022.
- Incentives to attract Foreign Unicorns
Customized Packaged Investment (CPI) Incentives of up to RM 1 billion annually over 5 years will be given to attract global Fortune 500 companies and ‘Global Unicorns’ in high technology, manufacturing, creative and new economic sectors, with the aim of helping transform Malaysia’s best export-oriented SMEs.
- Equity CrowdFunding (ECF) and My Co-Investment Fund (MyCIF)
To support and encourage new digital financial innovations, RM 50 million will be allocated towards the Malaysia Co-Investment Fund scheme (CIF), which will match investments into ECF and P2P platforms, to help finance the under-served startups and SMEs. This will continue to encourage startups to pursue licensed ECF and P2P platforms as an attractive fundraising channel for the coming year.
- Extension Period of Tax Incentives – Angel Investors & Venture Capital
In an effort to encourage and attract angel investors and venture capital’s contributions, the following tax incentives have been proposed to be extended:
- Angel Investors – current tax incentive application period submitted by angel investors before 31 December 2020 are to be extended for another 3 years until 31 December 2023.
- Venture Capital – applications of tax incentives for VC Management Corporation, VC Company, Investment in VC Company and VC are to be extended for 4 years until 31 December 2026.
We are excited and hopeful to see how these proposals drive growth and equitable outcomes towards a shared prosperity especially in the start-up ecosystem in Malaysia.
This article was written by Shawn Ho with assistance from Natalie Ng (pupil in chambers) . 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. We are also ranked as a Recommended Firm by IFLR1000 for 2020.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia 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.