Malaysia extends tax incentives for VCs, angel investors to 2023

The Malaysian government is extending tax incentives given to venture capital (VC) and angel investors until 2023 to further spur startup funding and attract more foreign investment in the country.

The extension is among a slew of measures included by Finance Minister Lim Guan Eng in his Budget 2020 proposal.

The budget also seeks to boost private equity (PE) investments in the country, with the government seeking to provide a 1 billion ringgit ($239 million) 1:5 matching guarantee for PE funds to invest in Malaysian consortia.

According to Security Commission (SC) Malaysia’s 2018 annual report, investments in startups in 2018 accounted for an abysmal 0.8 per cent of total funding, while early and growth-stage companies garnered a majority of the capital.

There were 105 registered VC firms in Malaysia at the end of 2018 and these firms had invested a total of 613.3 million ringgit ($150.1 million) in the entire year.

Budget 2020 also promises to support and encourage new financing options such as Equity CrowdFunding (ECF) and Peer-to-Peer (P2P) platforms. These two platforms had collectively raised more than 430 million ringgit ($102.8 million) as of June 2019.

“Building on this early success, the government will further allocate an additional RM50 million to My Co-Investment Fund (MyCIF) under the Securities Commission Malaysia to leverage such platforms to help finance the underserved SMEs,” said the budget proposal.

To keep pace with the latest developments in the global financial technology space, Malaysia is also finalising a licencing framework for digital banks. According to the budget proposal, the framework will be released by the end of this year for public consultation.

The final framework will be issued by the first half of 2020 when the central bank, Bank Negara Malaysia, will start inviting applicants for the country’s first digital bank licences.

Bank Negara’s financial development and innovation department director Suhaimi Ali was earlier quoted as saying that at least 10 parties have already expressed interest in setting up digital banks in the country.

Budget 2020 also reiterated that the Digital Services Tax, which was first announced in the previous budget, will be implemented from January 1 2020. The said tax will cover services such as downloaded software, music, video, or digital advertising.

The Malaysian government is allocating 297 billion ringgit ($71 billion) for Budget 2020, an increase of 19.5 billion ringgit ($4.7 billion) compared to 2019.