Malaysia Revising Tax Rules to Adopt BEPS Action 5 Minimum Standard

Malaysia Revising Tax Rules to Adopt BEPS Action 5 Minimum Standard

The Government of Malaysia has said that it will not grant new approvals to companies in respect of tax incentives provided under MSC Malaysia Bill of Guarantee No.5.

The announcement comes a month after the Finance Ministry said that it is reviewing Malaysian tax incentives to meet criteria set under the OECD Forum on Harmful Tax Practices as part of the OECD’s work under Action 5 of the base erosion and profit shifting (BEPS) project.

The Malaysia Digital Economy Corporation (MDEC) announced on July 6: “No new approvals will be granted for applications for MSC Malaysia Status starting from July 1, 2018, including applications for extension of income tax exemption period or applications to add new MSC Malaysia Qualifying Activities.”

MSC Malaysia tax incentives currently exempt income deriving from the approved MSC Malaysia Qualifying Activities, which may comprise income deriving from intellectual property (IP income) and/or income deriving from non-intellectual property (non-IP income).

The MDEC said that the existing eligibility criteria and conditions for the financial incentives would be amended to be consistent with the minimum standards of BEPS Action 5. Rules would be strategically revamped to bring higher value investment into Malaysia’s digital economy.

New approvals and extension of the income tax exemption period would only be considered once the new rules come into force – expected by end of 2018. Existing MSC Malaysia Status companies with tax incentives will be given a grandfathering option.

The BEPS project was launched by the OECD in 2013 at the behest of the G-20 Finance Ministers to tackle multinational tax avoidance. In 2017, Malaysia joined the OECD’s Inclusive Framework on BEPS as an Associate Member to implement proposals contained in BEPS Action 5.