Microsoft commits US $ 1 billion investment for data center in Malaysia

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  • Microsoft is establishing its first data center in Malaysia, which is expected to create 19,000 jobs and generate $ 4.6 billion in revenue for the country.
  • The government hopes this initiative will help qualify an additional million Malaysians for jobs in IT, artificial intelligence (AI) and cloud services by 2030.
  • The government aims to put in place a favorable tax system to stimulate high-tech and digital foreign investments. For now, companies can benefit from green incentives for data centers.

The Malaysian Investment Development Authority (MIDA) announced on April 20 this year that Microsoft will establish its first data center in the Greater Kuala Lumpur region. The cost of the project is estimated at US $ 1 billion.

The data center is at the heart of the “Bersama Malaysia” initiative (with Malaysia) launched by the IT giant to support Malaysia’s economic growth.

What is the MyDigital plan launched by the Malaysian government?

Microsoft’s $ 1 billion investment is one of the first concrete steps to support the Malaysian government’s program – “MyDigital” – to digitize the country’s economic and social sectors and transform Malaysia into a regional leader of the digital economy.

One of the objectives of the MyDigital plan is to establish a transparent tax framework adapted to needs in order to broaden the tax base of the tax authorities, as well as to better capture the revenues of the digital economy.

The government plans to release a tax incentive package to attract more digital investment by 2025, in addition to the environmental incentives already granted for green data centers.

Microsoft’s turnkey data center project – based on a public-private partnership – is expected to generate approximately $ 4.6 billion in revenue for the ecosystem of cloud-consuming customers and local partners over the next four years .

This should be an encouraging sign for future investors; In addition, for Malaysia, this influx of investment will be welcomed after the pandemic caused a 56% drop in FDI in 2020.

How will Microsoft’s data center impact future technology investments in Malaysia?

Allowing the installation of a data center is one way to keep pace with the targets, as Malaysia will benefit from technology transfers from Microsoft.

In addition, the country expects to see a significant increase in the number of qualified Malaysians as a direct result of Microsoft’s decision.

As part of the MyDigital plan, the Malaysian government aims to improve digital literacy, create high income jobs and enable business sectors to compete better on the global stage through efficient operations.

The pandemic has greatly accelerated the global transition from physical to electronic commerce. COVID-19 has led to faster internet penetration around the world and the shift to cloud and digital business has become imperative. According to the E-conomy 2020 report by Bain & Co, Temasek and Google, Malaysia’s internet economy was valued at $ 11.4 billion in gross goods value (GMV) in 2020, compared to $ 10.7 billion in 2019. By 2025, the country’s internet economy is expected to reach US $ 30 billion in GMV.

To ensure the smooth continuity of economic activities in Malaysia, the government has helped tech giants increase their local data and cloud technology capabilities.

Strengthen the skills of the local workforce

Malaysia offers significant comparative advantages in terms of human resources; labor is relatively inexpensive and skills are continually improving. However, the lack of qualified talents in the field of digital technology remains a problem to be overcome.

Therefore, in addition to the short-term creation of 19,000 jobs, Microsoft is expected – by 2030 – to train one million Malaysians in the cloud, artificial intelligence (AI) and IT services. The government is counting on the growing number of qualified scientists, specialists and developers in the territory to increase innovation and productivity.

Collaboration with local businesses

The installation of Microsoft’s data center will rely on both public and private sector partnerships, with the government hoping this will lead to a resilient, innovative and inclusive digital Malaysia.

The collaboration between the government and Microsoft first led to the creation of the MyDigital Alliance Leadership Council – a platform with shared interests whose goal is to put in place digital policies and recommendations for high-tech companies. Its main objective will be to transform the Malaysian digital legislative environment while taking into account the demands, concerns and expertise of the private sector.

Microsoft is also working alongside Malaysian state-owned companies – such as oil giant Petronas and mobile telecommunications provider Celcom – to meet the power and resource needs of the data center. Likewise, the electricity needed for the structure will be supplied by local companies.

The project will also respond to the government’s aspiration to accelerate the digitization of its state apparatus, as Microsoft has already signed contracts with the Malaysian utilities for the provision of IT and cloud services.

Malaysia’s potential to become a regional data center

In the long term, Malaysia plans to become a regional leader in data centers, with enhanced capacities and capacities in Big Data, AI and Internet of Things (IoT) to compete with Singapore, Thailand and the ‘Indonesia. This ambition is already supported by specific green incentives and should soon be accompanied by a whole new package of incentives to attract more investment in high technologies.

Microsoft’s data center is expected to pave the way for increased foreign investment in high-tech. And, as Malaysia strives to become the next regional provider of digital products and solutions, data center investments in Southeast Asia are expected to increase by 8% between 2021 and 2025.

Given these trends and government-industry goals, Malaysia is also banking on the entry of more high-tech giants into its territory. Kuala Lumpur already hosted several data centers owned by Zenlayer, AIMS and NTT Ltd, three major providers of IT and technology services. However, Microsoft’s investment will improve Malaysia’s position in the region’s highly competitive data center market.

To ensure fair competition, Malaysia also granted conditional approvals in February this year to Amazon Web Services, Google Cloud and Telekom Malaysia to set up data centers and cloud services in the country. In addition, Malaysia plans to attract five unicorns – domestic and foreign – to its digital industrial cluster by 2030.

However, to become a regional digital leader, Malaysia must strengthen its attractiveness to foreign investors. The country has a tremendous opportunity to strengthen itself as a premier destination for technology companies and capture part of the region’s US $ 100 billion internet economy.

What are the current benefits for green data centers?

There are specific incentives that support green high tech activities, which benefit the Malaysian economy. Companies that undertake data center projects involving certified green products, energy, equipment and solutions can benefit from attractive tax deductions on the investment – if the request is made before the end of 2023.

As part of the green technology incentive package, investors can receive:

  • A Green Investment Tax Deduction (GITA) of 100 percent of qualifying capital expenditure for three years versus 70 percent of statutory income in each fiscal year. A company is entitled to GITA assets when it purchases green assets listed in the MyHIJAU directory – such as electric vehicles, thermal or solar-air appliances, or an energy efficient transformer.
  • A Green Investment Tax Deduction (GITA) (GITA) for companies undertaking a green technology project. Such projects must be certified by a “Green Building Certificate” and involve the purchase of green energy or solutions.
  • A Green Income Tax (GITE) exemption of 70% of statutory income for three years for qualifying green service companies The GITE is for services listed in the MyHIJAU directory – such as system design, study feasibility, consultancy, consultancy, testing and commissioning services.

Further information can be found in the Guide to the Tax Incentive for Green Technology of the Malaysian Center for Green Technology and Climate Change.

As a result, Microsoft could benefit from green incentives, with the data center to be managed by local power companies.

A targeted digital incentive investment plan expected

To overcome the experienced FDI deficit in 2020, Malaysia plans to revise its tax system by 2025, targeting international data companies willing to set up data hosting facilities – as promoted by the initiative. MyDigital.

It will encourage businesses – especially micro, small and medium enterprises (MSMEs) – to invest in cybersecurity, by offering tax cuts.

In addition, by 2023-2025, companies that improve the skills of their Malaysian workforce in cybersecurity, AI, data analytics, systems integration and other relevant digital skills will benefit from tax advantages.


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