Msc Status 2.0
Effective 1st January 2019, MDEC has approved changes to BOG 5 (Tax Exemption)
Status Update: Approval of MSC Malaysia Status Services Incentive (Non-IP)
As you are now aware that Mdec has suspended Msc Status Application, you should also know of the following conditions announced by MDEC.
1. Existing MSC Malaysia Status companies with tax incentives will be given option:
a. to grandfather i.e. to continue to enjoy the income tax exemption granted for IP income and/or non-IP income under their existing MSC Malaysia Status Conditions of Grant until 30 June 2021; OR
b. subject to the new legislation and guidelines coming into force, to move into the new regime and to be subjected to the new criteria/conditions.
However, for MSC Malaysia Status companies which have been granted approval on or after 17 October 2017 for non-IP income, if these companies would like to opt for grandfathering, the grandfathering period will end on 31 December 2018.
2. New approvals and extension of the income tax exemption period will only be considered once the new legislation and guidelines come into force, which is targeted to be by 31 December 2018.
What is grandfathering?
Grandfathering in MDEC's context means an MSC Malaysia Status company which is currently enjoying income tax exemption can continue to enjoy such income tax exemption under the existing BOG 5, by complying with its existing MSC Malaysia Status Conditions of Grant (COG) and the existing legislations under which the tax exemption is granted, until certain end dates as specified in the announcement. The end dates are in accordance with the grandfathering period allowed under the OECD BEPS Action 5. Upon the expiry of such end dates, the tax exemption will have to cease.
The New Msc Status Conditions that you must adhere to with effect April 2019
It must be stated here that whilst the old msc status application has been suspended (old applications would have expired), Mdec has also begun accepting new applications. However, new applications are of the type termed Non-Ip based business which do not derived their income from Intellectual Property. As for IP derived income base business, they will have to wait out until Mdec's announcement.
The below chart states the conditions for Msc Status for non IP (non IP regime so required to have substantive activities)derived incomes