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Malaysia Digital replaces Multimedia Super Corridor

18 July 2022

Malaysia Digital (‘MD’) was launched by the Prime Minister of Malaysia, Dato’ Sri Ismail Sabri Yaakob, on 4 July 2022.
 
MD replaces the 26-year-old Multimedia Super Corridor and seeks to enhance Malaysia’s digital capabilities and boost the national digital economy.1
 
Sharing details at the launch, the Prime Minister said the Ministry of Communications and Multimedia Malaysia will establish the Malaysia Digital Coordination Committee (MD-CC) to coordinate the governance and operations of MD, including awarding Malaysia Digital status (“MD Status”) to eligible companies. Dato’ Sri Ismail Sabri also added that the aforesaid Ministry and the Malaysia Digital Economy Corporation (‘MDEC’) will be the lead agencies to spearhead the MD initiative.2
 
The nine key growth sectors that MD will be focussing on are digital tourism, Islamic digital economy, digital trade, digital agriculture, digital services, digital cities, digital health, digital finance and digital content.3
 
The Guidelines on Malaysia Digital Status (‘Guidelines’), issued on 30 June 2022, set out, inter alia: 
  1. the eligibility criteria for MD Status;
  2. the conditions of MD Status;
  3. the benefits available to a company granted MD Status (‘MD Status company’);
  4. the application process for MD Status;
  5. the continuing obligations of an MD Status company; and
  6. the revocation and surrender of MD Status. 
Set out below are some of the key areas covered under the Guidelines.
 
Eligibility criteria
 
To be eligible to apply for MD Status, a company must: 
  1. be incorporated under the Companies Act 2016 and resident in Malaysia; and
  2. propose to carry on, or is presently carrying out one or more activities set out in Appendix 1 of the Guidelines (‘MD Approved Activities’). 
The MD Approved Activities are research, development and commercialisation of solution and/or provision of services in relation to any of the following technologies or areas: (a) big data analytics (BDA); (b) artificial intelligence (AI); (c) financial technology (Fintech); (d) internet of things (IoT); (e) cybersecurity (technology/software/design and support); (f) data centre and cloud; (g) blockchain; (h) creative media technology; (i) sharing economy platform; (j) user interface and user experience (UI/UX); (k) integrated circuit (IC) design and embedded software; (l) 3D printing (technology/software/design and support); (m) robotics (technology/software/design); (n) autonomous technologies; (o) systems/network architecture design and support; (p) global business services or knowledge process outsourcing; (q) virtual, augmented and/or extended reality; (r) drone technology; (s) advance telecommunication technology; and (t) other emerging technologies deemed significant for the digital ecosystem subject to approval by the Approval Committee (as defined below).
 
Main conditions of MD Status
 
An MD Status company is required to comply with the following main conditions4 within 12 months from the date of award of its MD Status: 
  1. commence the operation or undertaking of its MD Approved Activities in Malaysia;
  2. employ a minimum of two full-time ‘knowledge workers’5, with a minimum average monthly base salary of RM5,000 per month for the MD Approved Activities;
  3. incur a minimum annual operating expenditure6 of RM50,000 for the MD Approved Activities; and
  4. have a minimum paid-up capital of RM1,000. 
It must also ensure that it complies with all other laws and regulations of Malaysia, including all applicable permits and licensing requirements.
 
Benefits to MD Status company
 
The Malaysian Government has issued the Malaysia Digital Bill of Guarantees (‘MD-BoGs’) setting out the incentives, rights and privileges that are available to an MD Status company.
 
The incentives, rights and privileges under the MD-BoGs are as follows: 
  1. BoG1: To provide a world-class physical and information infrastructure;7
  2. BoG2: To allow employment of local and foreign knowledge workers;
  3. BoG3: To ensure freedom of ownership by exempting MD Status companies from local ownership requirements;
  4. BoG4: To give the freedom to source capital globally for MD infrastructure, and the right to borrow funds globally;
  5. BoG5: To provide competitive financial incentives, namely income tax exemption or investment tax allowance and exempt imported multimedia equipment from duties;
  6. BoG6: To become a regional leader in Intellectual Property Protection and Cyber laws;
  7. BoG7: To ensure no censorship of the Internet;
  8. BoG8: To provide globally competitive telecommunications tariffs;8
  9. BoG9: To tender key MD infrastructure contracts to leading companies willing to use Malaysia as their regional hub; and
  10. BoG10: To appoint MDEC as a high-powered implementation agency to act as an effective one-stop super shop. 
An MD Status company is eligible for access to, or where applicable, apply for, the incentives, rights and privileges under the MD-BoGs. Further details of these matters, including the underlying policy objective and interpretation of each BoG as well as the ministry or agency responsible are set out in the MD-MoGs which can be accessed here.
 
Subject to fulfilling the applicable eligibility criteria, an MD Status company is also eligible to access facilitation of other benefits such as access to local and international market and ecosystem, business matching and partnership, grant and funding facilitation and participation in MD catalytic programmes.
 
Application for MD Status
 
The application process for MD Status is set out in paragraph 7.0 of the Guidelines. The salient points are as follows: 
  1. the application will be assessed by MDEC and thereafter presented to a committee comprising representatives from the Government (“Approval Committee”) for decision;
  2. a successful applicant will be required to acknowledge and accept the terms of the approval letter, whereafter an MD Status Digital Certificate will be issued to it; and
  3. the MD Status is perpetual, subject to continued compliance of all approved conditions. 
An unsuccessful applicant may re-apply by submitting a new application to MDEC, subject to meeting the eligibility criteria.
 
An MD Status company may apply to add new MD Approved Activities under its MD Status. The process and criteria are similar to submitting a new MD Status application. The approval for additional MD Approved Activities will be subject to the same original MD Status conditions.
 
Continuing obligations of an MD Status company
 
An MD Status company is required to notify MDEC of the following: 
  1. change in its paid-up capital (higher than the minimum condition), equity or shareholding structure;
  2. change in its name, business operating address, contact person(s) and/or contact details; and
  3. change in the name of the product or services (re-branding) stated under the MD Approved Activities in the approval letter. 
Any variation to the conditions of MD Status specified in the approval letter, other than the above changes, will require the approval of the Approval Committee.
 
An MD Status company is required to submit annually all true, correct and complete information and/or documents as may be requested by MDEC for the purpose of reporting on the progress of its MD Approved Activities and/or determining compliance of the applicable conditions. Such information must be verified by an independent external auditor appointed by the MD Status company, or in such other manner as may be specified by MDEC.
 
MDEC may also from time to time request an MD Status company to provide such information and/or documents in relation to its activities and operations for the purpose of monitoring the conditions of the MD Status, such as documents filed with the Companies Commission of Malaysia and annual audited accounts.
 
Revocation and Surrender of MD Status
 
The MD Status may be revoked in the event of non-compliance of MD Status conditions by an MD Status company. Upon the revocation of the MD Status, all incentives and benefits pursuant to MD-BoGs granted under the MD Status will be withdrawn in accordance with the applicable laws and regulations.
 
An MD Status company may surrender its MD Status at any time. The acceptance of the surrender request is subject to the assessment by MDEC that there is no non-compliance of MD Status conditions. In the event of non-compliance of MD Status conditions, the MD Status may be revoked. The surrender request, if accepted, shall take effect from the date of approval of such request by the Approval Committee, and result in the cessation of the incentives and benefits pursuant to MD-BoGs granted under the MD Status.
 
Automatic transition
 
Companies that have been awarded Multimedia Super Corridor status will automatically transition to an MD Status companies without the need to reapply, and the benefits will continue to subsist, subject to compliance with existing conditions.9 
 
Comments
 
The MD Status enhances the privileges provided under the previous MSC Status. It remains to be seen whether this enhancement and rebranding will help the country to make further inroads into the global digital economy space.
 
Article by Sheba Gumis (Partner) and Nur Liana Binti Mohamed (Associate) of the Corporate Practice of Skrine 
 
1 PM launches Malaysia Digital initiative to replace MSC Malaysia, The Star Online, 4 July 2022.
2 Ibid.
3 Ibid.
4 Refer to paragraph 4.0 of the Guidelines for other general conditions.
5 The expression ‘knowledge workers’ is defined in Appendix 2 of the Guidelines.
6 See footnote ii of the Guidelines for definition of operating expenditure.
7 BoG1 is only available for MD Status companies located in MD Cybercities/Cybercentres.
8 BoG8 is only available for MD Status companies located in MD Cybercities/Cybercentres.
9 MSC companies to transition to Malaysia Digital status, The Star Online, 13 June 2022.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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