KUALA LUMPUR: Malaysia will be among the first in the region to implement the global minimum tax (GMT) framework next year, along with neighbours Singapore and Vietnam.

The GMT is designed to ensure that multinational enterprises (MNEs) are taxed at a minimum level, regardless of where they operate, preventing harmful tax competition and tax base erosion. The implementation of GMT has led to neighbouring countries such as Singapore and Vietnam introducing non-tax incentives to keep and bring in foreign direct investment.

Singapore has a Refundable Investment Credit Scheme (RICS) that allows for tax credits on qualifying expenditure and consistent with the Qualifies Refundable Tax Credit (QTR) requirement under the GloBE rules, while Vietnam has the Investment Support Fund, which provides investment support for eligible taxpayers in targeted ind ustries where stipulated conditions are met.

Malaysia's efforts to comply with these standards have multiple implications, both for its fiscal strategy and its investment  climate. 

Adopting the global framework

The GMT mandates that MNEs must pay at least a minimum level of tax (currently set at 15 per cent) on the profits they report.

Malaysian International Chamber of Commerce and Industry (MICCI) president Christina Tee said the taxation rate in Malaysia is well above the minimum tax rate generally.

Lower effective rates, she said, are generally specific to companies eligible for the investment tax allowance (ITA) and pioneer status (PS). These companies include those in the manufacturing, agricultural, and hotel and tourism sectors, or other industrial or commercial sectors that participated in a promoted activity or produced a promo ted product.

The PS is given by way of exemp tion from corporate income tax (CIT) rate on 70 per cent of the statutory income for five years, with the remaining taxed at the prevailing CIT rate. The ITA is granted on 60 per cent qualifying capital expenditure incurred for a period of five years and is utilised against 70 per cent of the statutory income, while the balance 30 per cent is taxed at the prevailing CIT rate.

As mentioned in the 2025 Budget, in line with the implementation of GMT, the government will be streamlining existing incentives, introducing new nontax incentives, and exploring the feasibility of the Strategic Investment Tax Credit (SITC).

The government has agreed to introduce a New Investment Incentive Framework (NIIF) focusing on high-value activities to improve the existing practice of providing product-centric incentives.

The framework is expected to be implemented in the third quarter of next year.

Deloitte Southeast Asia international tax leader Tan Hooi Beng said Malaysia's enactment of the GMT law and accompanying guidelines positioned it as a regional leader in compliance.

"Malaysia is on the right track. The present tax law, coupled with the proposed law under the 2025 Budget and to be accompanied by the GMT guidelines, will enable Malaysia to implement the GMT in a timely manner.

"Of course, from time to time, further guidelines will be issued to provide clarification on this new regime," said Tan.

Impact on revenue, investment

While concerns exist about the GMT 's potential impact on M alaysia's ability to attract foreign direct investments (FDIs), tax experts agree that the framework is unlikely to hinder the country 's long-term revenue raising capabilities.

"The GMT does not really impact Malaysia's ability to raise tax revenue. It simply levels the playing field," said Tee.

Deloitte's Tan echoed this sentiment, saying Malaysia's competitive edge was in its non-tax attributes.

"With GMT of 15 per cent, the efficacy of tax incentives may be affected. The new low tax of the world will probably be 15 per cent. Hence, tax may not necessarily be the key factor for FDIs. Rather, other non-fiscal factors in which Malaysia has an edge, such as adequacy of land, political stability, abundance supply of workforce at all levels, among others, will be critical," he said.

PwC Malaysia tax leader Steve Chia said the proposed NIIF was a step in the right direction for its focus on value-driving activities as opposed to the current regime's product-based incentives. He noted a marked shift in the approach to attracting investments, through measures designed to enhance diversity of the electrical and electronics s ec tor and the development of artificial intelligence (AI) through special deductions to private tertiary education institutions that provide courses in this field.

"To bolster confidence in the nation's investment landscape, we observed measures that target to strengthen the local supply chain and ecosystem of key sectors, develop economic clusters across states that play on specific strengths and emphasis on economic spillover effect," Chia added.

Adapting incentive frameworks

The government is already taking proactive steps to adapt. The 2025 Budget introduced the SITC, a GMT-compliant incentive designed to encourage investments tied to research and development, technology adoption, and other high-impact activities.

However, MICCI emphasised the importance of rethinking the broader investment framework.

"Malaysia can promote itself as a gateway to Asean, as well as its ports, connectivity, technological capabilities, good regulations, political stability, effective investment promotion agencies and good facilities. It can also offer non-tax incentives to foreign inve stors," Tee added.

Opportunities for Malaysia

EY Malaysia tax leader Farah Rosley said the GMT could be an opportunity for Malaysia to strengthen its appeal by providing a stable and sustainable tax environment.

"Although the GMT will present challenges for investment promotion, it also provides opportunities as MNEs and businesses look at a more sustainable tax environment that allows long-term investment planning."

The framework encourages long-term planning by MNEs, which will benefit countries offering a balanced package of fiscal and non-fiscal incentives.

"GMT will affect the decisionmaking by MNEs and they will want to look at which country is able to provide an overall incentive package benefiting them and also what the government is willing to provide for both existing investors and the new ones," she said.

Looking ahead

As the GMT implementation looms, Malaysia remains committed to refining its tax policies and investment strategies.

With regional competitors like Singapore and Thailand also vying for FDIs under the new tax regime, experts agree that M alaysia's focus must remain on its unique advantages, from connectivity to political stability.

"Malaysia, together with Singapore, are ahead of the countries in the region in terms of legislation on GMT.

"In the 2025 Budget, it was announced that Malaysia was considering the viability of SITC, which is a form of tax incentive that is less 'harmful' from a GMT perspective. At the same time, Malaysia is expected to align certain tax incentives in light of the GMT.

"On non-tax factors, Malaysia will continue to work on areas such as supply of labour, intellectual property protection, digitalisation, political stability, and other areas of doing business in the country," said Tan.

Ultimately, Malaysia's ability to attract and retain investors in a post-GMT world will depend on its agility in addressing challenges and leveraging its s trengths. An example of that is the country 's aggressive digital transformation policy, which has secured investments totalling US$16.9 billion for the period up to 2038 from global technology giants such as Amazon Web Services, Microsoft, Google and Oracle.

This reflects the confidence in Malaysia's potential as a gateway for regional cloud infrastructure.

The 2025 Budget's RM10 million allocation for a National Artificial Intelligence Office to increase the adoption of AI through collaborations with academia and industry and its bold step to champion the regional digital economy through the declaration of the establishment of the Asean AI Safety Network, will only work to build on this.

The GMT era, while complex, presents an unprecedented opportunity for Malaysia to reposition itself as a premier investment destination.

https://www.nst.com.my/business/corporate/2024/12/1153669/compliance-boost-competitiveness