Crowe Chat Vol.2/2025

Tax Edition

Welcome to our Crowe Chat Vol.2/2025. In this issue, we will cover the following topics:

Guidelines for Global Services Hub Tax Incentive
Guidelines and Procedures for the Application of Digital Ecosystem Acceleration (DESAC) Scheme
Guidelines for Sustainable Development of Data Centre
Guidelines for the Application of Tax Incentive for Smart Logistics Complex (SLC)
Amended Gazette Orders on Allowance for Increased Exports

Guidelines for Global Services Hub Tax Incentive

Introduction

The Global Services Hub tax incentive was introduced in the 2024 Budget as an enhancement to the Principal Hub scheme which expired on 31 December 2022. A Global Services Hub is a locally incorporated company that uses Malaysia as a base for conducting its regional or global business operations to manage, control and support its key functions.

New Guidelines

The Malaysian Investment Development Authority (MIDA) has recently issued the Guidelines for Global Services Hub Tax Incentive to provide guidance for applying the tax incentives available for multinational corporations considering Malaysia as a location to operate its regional or global business support activities.

Details of the Guidelines

The applicants shall be required to undertake all the following qualifying activities:

Regional P&L / Business Management Unit
Strategic Business Planning
Corporate Development

In addition, they must undertake any two qualifying activities under the services category, which include:

Strategic services
Business services
Shared services

Summary of the tax benefits:

CATEGORY	TAX INCENTIVE	EXEMPTION PERIOD	TYPE OF INCOME EXEMPTED
New Company	Tier 1: Tax rate of 5% Tier 2: Tax rate of 10%	5 or 10 years	Services income; or Services and trading income
Existing Company	Tier 1: Tax rate of 5% on value added income Tier 2: Tax rate of 10% on value-added income	5 years	Services income; or Services and trading income
Expatriates working in Malaysia are given a flat personal income tax rate of 15% for a period of 3 consecutive years of assessment (YA); Positions are limited to 3 non-citizen individuals holding key/C-Suite positions with a monthly salary of at least RM35,000; The non-citizen individuals must be a tax resident for each YA throughout the 3 YAs.

The minimum outcome-based conditions that must be fulfilled to qualify for the Tier 2 incentives are:
- Paid-up capital of at least RM2.5 million.
- Annual operating expenditure as proposed for the first 5 years with an adequate increase for the next 5 years.
- Company must undertake Regional P&L, Strategic Business Planning and Corporate Development and additional two (2) qualifying activities.
- Company must serve at least 7 network companies which include at least 3 related companies.
- At least 50% of high value jobs with a minimum monthly basic salary of RM10,000 must be filled by Malaysians for the first 5 years, with an adequate increase for the next 5 years.
- Additional condition for trading income only is that, annual sales turnover and forex in-flow into the local banking system as proposed for the first 5 years with an adequate increase for the next 5 years.
The additional outcome-based conditions that must be fulfilled to qualify for the Tier 1 incentives are (but not limited to):
- Minimum annual expenditure for domestic ancillary services with an adequate increase for the next 5 years.
- Minimum key personnel with a minimum basic monthly salary of RM35,000 with an adequate increase for the next 5 years.
- Any other conditions related to sustainable economy development.
- Any additional conditions deemed necessary by the National Committee of Investment (NCI) committee.
Applications must be received by the MIDA from 14 October 2023 until 31 December 2027.

Guidelines and Procedures for the Application of Digital Ecosystem Acceleration (DESAC) Scheme

Introduction

The DESAC Scheme was introduced under the 2022 Budget to strengthen the whole digital ecosystem of Malaysia, with the aim to attract quality digital infrastructure projects into the country and accelerate the development of the digital economy value chain.

New Guidelines

The MIDA has recently issued the Guidelines and Procedures for the Application of DESAC Scheme. These Guidelines outline the relevant details in applying for the tax incentive scheme for companies planning to undertake digital infrastructure projects in Malaysia.

Details of the Guidelines

Qualifying activities:
- Submarine cable including cable landing station; or
- Data centre and cloud computing/ Data centre and data hosting.

Summary of the tax benefits:

DATA CATEGORY

TAX INCENTIVE

EXEMPTION PERIOD

New Company

Tier 1: Investment Tax Allowance (ITA) of 100% on the qualifying capital expenditure (QCE) (excluding land) offset against up to 100% of statutory income (SI) or Tax rate of 10% on SI

Tier 2: ITA of 60% on QCE (excluding land) offset against up to 100% of SI or Tax rate of 15% on SI

5 or 10 years

Existing Company

Tier 1: ITA of 60% on QCE (excluding land) offset against up to 70% of SI

Tier 2: ITA of 30% on QCE (excluding land) offset against up to 70% of SI

5 years

Note: The SI excludes Intellectual Property income.

The minimum outcome-based conditions that must be fulfilled to qualify for the Tier 2 incentives are:

Paid-up capital of at least RM2.5 million.
Capital expenditure (excluding land) incurred as proposed for the first 5 years with a cumulative capital expenditure (excluding land) incurred of at least RM1 billion to qualify for the next 5-year period.
Number of full-time Malaysian employees with a minimum monthly basic salary of RM5,000 where it represents at least 50% of total manpower with a substantial increase in the next 5 years.
Undertake a minimum of 2 local vendor development programs.
Adoption of Industry 4.0 elements.
Adoption of a minimum of one green technology, such as generating energy using renewable resources.

The additional outcome-based conditions that must be fulfilled to qualify for the Tier 1 incentives are (but not limited to):

Annual operational expenditure including domestic ancillary services
High Value Jobs with salary of over RM10,000 per month
Undertake a minimum of 3 local vendor development programs
Appoint a minimum of one local vendor
Collaboration with universities and technical institutions
Any other conditions related to the sustainable economy development.

Applications must be received by the MIDA from 1 January 2022 until 31 December 2027.

Guidelines for Sustainable Development of Data Centre

Introduction

Malaysia is focused on developing sustainable data centres by reducing energy consumption and carbon footprints. This initiative aligns with the country's goal of achieving net-zero emissions by 2050 through the integration of advanced technologies and sustainable practices. In order to support this vision and attract digital infrastructure projects, this Guideline was published alongside the DESAC incentive scheme.

New Guidelines

The Ministry of Investment, Trade and Industry (MITI) has recently issued the Guidelines for Sustainable Development of Data Centre.

The objective of this Guidelines is to provide a comprehensive framework for the development and operation of sustainable data centres in Malaysia.

Details of the Guidelines

The 3 key metrics to achieve sustainable data centre status in Malaysia are summarised as follows:

Power Usage Effectiveness (PUE)
- PUE is the ratio of the data centre total energy consumption to information technology (IT) equipment energy consumption, calculated, measured or assessed across the same period.
- Organisations should accelerate energy efficiency measures with best-in class technologies at the hardware and software level with the design PUE limit determined based on the different category of data centres.
- Organisations must declare the calculated design PUE value according to the international standard ISO/IEC 30134-2.
Carbon Usage Effectiveness (CUE)
- CUE is the ratio of the data centre annual CO₂ emissions and IT equipment energy demand.
- Organisations must declare the calculated design CUE value as per the international standard ISO/IEC 30134-8. Total CO₂ emissions are calculated based on energy sources and consumption, considering different carbon emission factors for different sources of energy (coal, gas, oil, renewable, etc.)
- Organisations may purchase renewable energy resources for its operation or produce or co-produce (renewable) electricity on-site or generate CO₂ through other means (e.g., maintenance operation of diesel generators).
Water Usage Effectiveness (WUE)
- WUE is the ratio of the data centre water consumption divided by the energy consumed by IT equipment.
- Organisations should avoid water-stressed areas when selecting a location for a new data center by considering areas with a Water Stress Index (WSI) of less than 0.8 within Peninsular Malaysia.
- Organisations should deploy water efficiency management practices and innovation to accelerate the efficient use of water by the data centre.
- Organisations may utilise the reclaimed or reuse water for their operation.
- Organisations must declare the calculated design WUE value according to international standard ISO/IEC 30134-9.

Applications received by MIDA for tax incentives under the DESAC scheme will be evaluated based on the conditions outlined in this Guideline.

Guidelines for the Application of Tax Incentive for Smart Logistics Complex (SLC)

Introduction

The SLC incentive was introduced under the 2025 Budget to propel Malaysia's logistics sector towards Industry 4.0 readiness and empower businesses to achieve greater efficiency and competitiveness. SLC refers to a modern warehousing facility that uses technologies such as the Internet of Things (loT), artificial intelligence (Al), Radio Frequency Identification (RFID) and automated material handling equipment to enhance efficiency, reduce costs, and improve overall supply chain performance.

New Guidelines

The MIDA has recently issued the Guidelines for the Application of Tax Incentive for SLC.

The objective of this Guidelines is to explain the details of the incentive as well as the eligibility and mechanism of applying for the SLC incentive.

Details of the Guidelines

Tax Incentive

Income Tax Exemption equivalent to ITA of 60% on the QCE incurred within a period of 5 years. The allowance can be offset against 70% of SI for each YA. Unutilised allowances can be carried forward until fully absorbed.

Eligible Applicant

New or existing company investing in smart warehouses is to carry out qualifying logistics services such as Regional Distribution Center, Integrated Logistics Services, Dangerous Goods Storage and/or Cold Chain Facility. Only one company within the same group is eligible to be considered for the SLC incentive. Related companies undertaking the same SLC activity are not eligible for this incentive.

Mechanism

Applications must be received by the MIDA before the commencement (date the first sales invoice is issued) of its proposed project. The period of eligible capital expenditure can be backdated up to 3 years from the date of application but must not be earlier than 1 January 2023 or the end date of the previous tax incentive (if any); whichever is the later.

Effective Date of Application

Online applications must be received by the MIDA from 1 January 2025 until 31 December 2027.

Qualifying Criteria

The company must be incorporated under the Companies Act 2016 and a resident in Malaysia.
Companies applying must provide at least one (1) of the qualifying logistics services.
The built-up area of the smart warehouse complex must be at least 30,000 m2.
The company must incur fixed asset investment (excluding land) as proposed for the construction of the smart warehouse complex within the incentive period.
The company must incur an adequate amount of operating expenditure annually, as proposed, throughout the tax incentive period.
The smart warehouse complex facilities must be equipped with at least three (3) enabling elements technologies under the Industry 4.0.
The smart warehouse complex must adopt at least one (1) green technologies for its facility.
The company’s full-time employees shall comprise at least 80% Malaysians.
The company must conduct Internship programs related to the field of management and/or administration of the SLC facility.
The number of staff at the managerial, technical and supervisory levels which are directly employed by the company shall consist of at least 20% of the company’s overall manpower with a minimum monthly salary of RM7,000.
The company must conduct technical training programs for the Malaysian employees who are directly employed by the company.
The company must appoint local contractors as the main contractor for the construction of the smart warehouse complex.
The company must use local seaports and/or airports and/or local transportation services for import and export transactions.
The company must establish partnerships with at least three (3) local logistics companies to carry out the integrated logistics activities
Other conditions related to the incentive shall be imposed by the NCI upon the incentive’s approval.

Guideline on the Tax Treatment on Gains from the Disposal of Capital Assets Received from Outside Malaysia

Amended Gazette Orders on Allowance for Increased Exports

Presently, all companies engaged in the manufacturing and agricultural businesses are given tax incentives for achieving incremental export sales for their manufacturing goods or agricultural produce. The allowance for increased exports incentive is given at the following rates:

Exemption of statutory income equivalent to 10% of the value of increased exports is given to manufacturers provided that the goods exported attain at least 30% of value added.
Exemption of statutory income equivalent to 15% of the value of increased exports is given to manufacturers provided that the goods exported attains at least 50% of value added.
Exemption of statutory income equivalent to 10% of the value of increased exports of agricultural produce by the company that exports agricultural produce.

Previous Gazette Order

The previous Income Tax (Exemption) (No. 5) Order 2019 and Income Tax (Exemption) (No. 6) Order 2019 were gazetted on 7 June 2019.

Amended Gazette Order

The Income Tax (Exemption) (No. 5) Order 2019 (Amendment) Order 2025 and Income Tax (Exemption) (No. 6) Order 2019 (Amendment) Order 2025 were gazetted on 13 January 2025.

Details of the Amended Gazette Order

Changes made in the new Orders are in relation to the ownership conditions. The previous Orders have a condition of at least sixty (60) per cent of the issued share capital of the qualifying company must be owned directly by Malaysian citizens.

The new Orders expand this condition to include qualifying companies owned by a body corporate which administers and manages funds such as the Employees Provident Fund, Lembaga Tabung Haji, Lembaga Angkatan Tentera, etc. and resident company incorporated under the Companies Act 2016 in which at least sixty (60) per cent of the issued share capital of the company is owned by the retirement fund.