In the bowl of a stand mixer fitted with the paddle attachment or using a large bowl and handheld electric mixer, beat the butter and sugar at medium speed until light and fluffy, about 3 minutes.

Beat in the coconut extract and vanilla. Add the eggs, one at a time, mixing well after each addition. Stop to scrape down the sides of the bowl as needed.

Add half the flour mixture and mix on low speed until just combined. Add the coconut milk, followed by the remaining flour mixture and mix on low speed until just combined.

Gently stir in the shredded coconut.

Fill the prepared muffin cups 2/3 full with batter. Bake for 20-30 minutes, until a toothpick inserted in the center comes out with only a few moist crumbs attached.

Let the cupcakes cool in the pan for 5 minutes then transfer to a wire rack to cool completely before frosting.

In the bowl of a stand mixer fitted with the paddle attachment or using a large bowl and handheld electric mixer, beat the butter and cream cheese at medium speed until smooth and free of lumps.

Gradually add the powdered sugar mixing well after each addition, until fully combined and smooth.

Add the coconut extract, vanilla, and coconut milk, and mix on medium-low speed until frosting is light and fluffy, about 1 minute.

Frost cupcakes as desired then sprinkle with shredded coconut.