MD Tax Incentives Overview and Expansion Incentive

Malaysia Digital (MD) tax incentives are tax incentives that the Malaysian government provides to companies that have been awarded MD Status. They are outcome-based and use a tiered assessment approach. A company that carries out R&D, commercialised solutions or services using the government-promoted technology-enabling areas may apply.

The incentive sits under the MD Status Bill of Guarantees and is designed to align with the international standards of the Organisation for Economic Co-operation and Development (OECD). Applications are assessed by MDEC and submitted to the National Investment Committee (NCI) for consideration; once approved, the Malaysian Investment Development Authority (MIDA) issues the approval letter.

The MD tax incentive comes in two types, the New Investment Incentive and the Expansion Incentive, which suit companies at different stages. Under both, a company chooses between a “Reduced Tax Rate” and an “Investment Tax Allowance”:

※The eligibility details and the conditions for the rates and allowances of each incentive are set out in the sections of Part 02 below. The figures in the table are the ceiling of each tier; the approval letter prevails.

A qualifying activity must be a new activity (enhancing or upgrading an existing product or service is not a new activity), and must be R&D, a commercialised solution or the provision of a service using the following ten government-promoted technology-enabling areas:

The following activities are not MD activities and fall outside the incentive:

Under both the New Investment Incentive and the Expansion Incentive, a company must choose one of the following two forms. The two are mutually exclusive: once approved, a company cannot switch from one to the other.

According to MDEC’s announcement of 12 February 2026, existing MD tax incentives remain unchanged until 31 December 2027; approved incentives will continue to be honoured on their approved terms, and new applications under the current framework can still be submitted up to that date. The New Incentive Framework will then progressively replace the current mechanism:

※MDEC has said that the specific eligibility and application arrangements for MD companies under the NIF will be announced closer to the 2028 implementation timeline.

The conditions of both incentives are built on the following concepts:

The Expansion Incentive is designed to encourage companies to carry out new activities or make new investments in Malaysia and to keep building their capabilities here. It is mainly offered to companies that hold MD Status or MSC Malaysia Status, have completed their existing incentive and plan to carry out a new activity. It is also offered to MSC Malaysia Status companies that have not yet received any incentive for their existing activity and plan to carry out a new activity.

Unlike the New Investment Incentive, the reduced tax rate under the Expansion Incentive is a single 15% rate, with no tiering between minimum and additional conditions; the investment tax allowance is 30% or 60% of qualifying capital expenditure. A company chooses one of the two.

Other points to note:

The reduced tax rate is 15% for 5 consecutive years of assessment (YA). To enjoy it, the company must meet all of the following conditions in each year of assessment:

Scope of IP income

Adding activities later

A company that has been approved for the reduced tax rate may, during the incentive period, apply to add a new activity to its approved incentive, subject to three requirements: the company has not issued any sales invoice in Malaysia for that activity before submitting the application; the application is submitted at least 18 months before the incentive period expires; and the incentive period for the added activity falls within the incentive period of the original approved activity, running from the year of assessment in which the application is approved to the expiry of the original incentive period. The added activity must separately satisfy the conditions above.

The investment tax allowance runs for 5 consecutive years, set at 30% or 60% of qualifying capital expenditure (QCE) against up to 100% of the statutory income of the approved qualifying activity. The conditions are as follows:

Minimum conditions

Additional conditions

The allowance is recognised in stages. The first allowance period runs from the commencement date to the date the company submits its declaration of compliance with the minimum conditions; the second allowance period runs from the day after the first allowance period ends to the end of the 5-year allowance period:

For multinational groups, choosing the Expansion Incentive also calls for an assessment of the impact of the global minimum tax (GloBE / Pillar Two):

The reduced tax rate and the investment tax allowance are alternatives, and the choice cannot be changed once approved, so we recommend weighing the following:

※Disclaimer: This page is compiled from the Guidelines on Malaysia Digital (MD) Tax Incentive (Expansion Incentive) issued by the Malaysia Digital Economy Corporation (MDEC) (issued 26 April 2024, revised 9 July 2025), MDEC’s announcement on the New Incentive Framework (NIF) of 12 February 2026, and information published on MDEC’s official website. It is for general reference only and does not constitute legal, tax or investment advice. The policy content, conditions, application deadlines and approval practices of the MD tax incentive may be adjusted by the Malaysian government and the relevant authorities. Whether a company is approved, the form of incentive granted, the tax rate or allowance percentage, the incentive period and the conditions to be met are all subject to the approval letter issued by MDEC, the National Investment Committee (NCI) and the Malaysian Investment Development Authority (MIDA) and to the relevant legislation. Please consult an adviser before applying for any specific project.