Preheat your oven to 170ºC (340ºF) and line two 20 cm (8-inch) baking pans with parchment paper.

Pulse the unsweetened shredded coconut in a food processor until it resembles flour. Sift it with the flour, baking powder, baking soda, and salt.

Cream together the butter and sugar in a mixing bowl until light and fluffy, about 3-5 minutes.

Add the eggs two at a time, mixing well after each addition until fully incorporated.

Gradually mix half of the dry ingredients into the wet mixture, then add sour cream, coconut milk, vegetable oil, and vanilla extract. Stir until smooth, then fold in the remaining dry ingredients.

Divide the batter between the prepared pans and smooth the tops. Bake for 20-23 minutes until a toothpick comes out clean.

Let the cakes cool in their pans for about 10 minutes before transferring to wire racks.

Beat the butter in a mixing bowl until creamy, then add cream cheese and mix until smooth. Gradually incorporate powdered sugar.

Place one cake layer on a plate and spread frosting over the top. Place the second layer on top and apply a crumb coat of frosting.

Chill the cake for about 30 minutes, then apply the remaining frosting and decorate with toasted coconut flakes.