Part 01 · NIF Overview

The New Incentive Framework for Manufacturing: An Overview

Before turning to the Special Tax Rate (STR) and the Investment Tax Allowance (ITA), get clear on what the NIF is, who can apply, how projects are tiered, and the rules common to both incentives.

— Policy Background

1. What Is the NIF?

The New Incentive Framework (NIF) is a new tax incentive mechanism for the manufacturing sector, introduced by the Malaysian government through Budget 2026. Applications have been accepted since 1 March 2026, and for now the framework covers manufacturing only. It is tiered and outcome-based: rather than granting fixed incentives by encouraged category, it ties the level of incentive to a project's scorecard rating and its actual performance.

The framework is guided by two national strategies: the National Investment Aspirations (NIA) and the New Industrial Master Plan 2030 (NIMP 2030).

01

Attract high-growth, high-value investment

Quality Investment

Links tax incentives to specific, measurable outcomes, so that incentive resources flow to investments with real strategic value.

02

Strengthen economic resilience

Economic Resilience

Supports Malaysia in moving up in global value chains and reduces reliance on low value-added manufacturing.

03

Outcome-based regulation

Result-oriented

The NIA Scorecard quantifies each project's contribution to national priorities, and this is verified throughout the incentive period.

How it differs from the old framework: Approval does not mean the top tier for good. After approval, the company must meet the conditions in the approval letter year by year (or phase by phase). Meeting only the minimum earns a lower tier, and failing even the minimum means no incentive for that period.

— Eligibility

2. Who Can Apply

 
Applicant: A company incorporated under the Companies Act 2016 and resident in Malaysia for tax purposes.
 
Nature of investment: A new or existing company undertaking a new investment in manufacturing. A new company is one that is newly incorporated or has not yet commenced commercial operations, and that has no related entity in Malaysia before applying (or whose related entity carries on a different project). An existing company is one that already operates in Malaysia and is about to undertake a different project.
 
Related entity: Generally determined by direct or indirect control, including a shareholding of 20% or more.
 
Timing of application: The application must be submitted to MIDA before the commencement of operation, which is defined as the date of the first sales invoice issued for the proposed product or activity.
 
Accounts: Separate accounts must be kept for the activities approved with a tax incentive and the activities without one.
 
Acceptance date: MIDA has accepted applications under the new incentive framework since 1 March 2026.

— Eligible Sectors

3. Qualifying Sectors and Exclusions

The following 15 manufacturing sub-sectors may apply. Companies producing biotechnology-based or recycled products may apply under the sub-sector to which their product belongs, but must not import waste directly or indirectly, and may only use waste obtained within Malaysia (including Free Zones / Licensed Manufacturing Warehouses). The following products or activities within these sectors are excluded:

Qualifying manufacturing sector
Excluded products / activities
Electrical and Electronics (E&E)
E-cigarettes and vape products
Chemicals and Chemical Products
Mixing and blending activities
Pharmaceuticals
Fill-and-finish activities
Medical Devices
No specific exclusion
Aerospace
No specific exclusion
Machinery and Equipment (M&E)
No specific exclusion
Automotive
No specific exclusion
Petroleum Products and Petrochemicals
All petroleum products (except petroleum product projects located at the RAPID complex, and integrated projects that also produce petrochemical products)
Oleochemicals and Their Derivatives
No specific exclusion
Food Production and Processing
Liquor and alcoholic beverages
Wood, Paper and Furniture
All types of paper (except security paper; waste raw materials may not be imported)
Textiles, Apparel and Footwear
No specific exclusion
Strategic Minerals-based Products
Upstream mining and quarrying
Rubber-based Products
Glove products and passenger vehicle tyres
Metal
Weapons and ammunition

※The exclusion list is subject to MIDA's latest guidelines. Whether a specific product falls within an exclusion should be checked with MIDA or an advisor before applying.

— General Criteria

4. General Criteria and Sector-specific Requirements

Beyond sector scope, companies must meet the following criteria. The first applies to all applicants; the rest are requirements set for specific sub-sectors:

Requirement
Scope and details
Manufacturing Licence (ML)
All applicants. The company must have obtained, or applied for, an ML before applying for the incentive, and the ML must remain valid throughout the incentive period. Not applicable to IC design and testing activities. A company with shareholders' funds not exceeding RM2,500,000 and employing no more than 75 full-time employees must submit or hold a confirmation letter of exemption from the ML (ICA 10 letter).
Capital Investment per Employee (CIPE) ≥ RM140,000
Petrochemical products, oleochemicals, food, wood / paper / furniture, textiles / apparel / footwear, strategic minerals, rubber and metal. CIPE = fixed asset investment (including 10 years' rental of land and buildings) ÷ total number of full-time employees.
Automation / Industry 4.0 or smart systems
Petrochemical products, food, oleochemicals, wood / paper / furniture, textiles / apparel / footwear, rubber and metal.
Sustainable practices
Sustainable practices in waste management, sustainable raw materials, water consumption and energy consumption are required for: petrochemical products, oleochemicals, wood / paper / furniture, textiles / apparel / footwear, strategic minerals, rubber and metal.
Malaysian workers ≥ 80%
Wood / paper / furniture, textiles / apparel / footwear, strategic minerals, rubber and metal. Counted by Malaysian citizenship.
Design and development spending ≥ 1% of annual gross sales
Wood and furniture.

— Categories

5. Three Incentive Categories

Once the conditions above are met, the company chooses the category that fits its project from three incentive categories:

01

New Investment

Category 1

A new investment project in Malaysia that has not yet commenced actual operations, whether the manufacturing company is locally or foreign owned.

02

Less Developed Areas

Category 2

The project is located in a district whose economic, social and spatial development falls below the overall median score in the Malaysian Composite Development Index (IKPM). The list covers selected districts in Johor, Kedah, Kelantan, Negeri Sembilan, Pahang, Perak, Perlis, Sabah, Sarawak, Selangor, Terengganu and Labuan.

03

Small Companies

Category 3

Shareholders' funds of up to RM500,000 with at least 60% Malaysian equity; or shareholders' funds above RM500,000 and up to RM2,500,000 with 100% Malaysian equity; and 20% or more of the paid-up ordinary share capital must not be held, directly or indirectly, by a parent or related company whose shareholders' funds exceed these thresholds.

Small company status must be maintained: The company must continue to meet the definition of a small company for at least five years; otherwise the approved incentive may be withdrawn because the company no longer qualifies for its original category.

— Tiering & Scorecard

6. How Tiering and the NIA Scorecard Work

MIDA uses the NIA Scorecard to assess a project's commitment and potential contribution to national priorities; the higher the score, the better the incentive. The result places the project in one of three grades: High, Medium or Basic. After approval, the principal approval letter also sets out two levels of conditions for each grade:

Tier 1

Minimum + additional conditions

Minimum + Additional

Meeting both the minimum and the additional conditions earns the best incentive within the grade (the lowest tax rate or the highest allowance percentage).

Tier 2

Minimum conditions only

Minimum Only

Meeting only the minimum conditions earns the lower level of incentive within the grade.

The scorecard has six pillars, each with several indicators. A company does not need to cover every indicator, but it should clearly outperform the average on the key ones; the commitments made are written into the approval letter and become the conditions verified year by year.

01

Increase economic complexity

Pillar 1

Product complexity index, R&D spending as a share of sales, level of technology and adoption of Industry 4.0 technologies.

02

Create high-valued jobs

Pillar 2

Share of high-skilled workers, median annual salary, share of high earners, and share of Malaysians at managerial, technical and supervisory level.

03

Extend domestic linkages

Pillar 3

Share of local inputs, training spending as a share of salaries, collaboration with local academia and industry, vendor development programmes, and a regional / global treasury centre.

04

Develop industrial clusters

Pillar 4

Patents, products within NIA target sectors or NIMP 2030 core sectors, and commercialisation of local R&D findings.

05

Improve inclusivity

Pillar 5

Internships / apprenticeships / fresh graduates, share of women in top management, share of workers from vulnerable groups, and share of Malaysian workers.

06

Enhance sustainability practices

Pillar 6

Sustainable materials and services, waste management, water consumption and energy consumption.

— Process

7. How the Application Works

01

Consultation and pre-application

Consult MIDA or an advisor first to confirm that the project fits the NIF; even before the company is incorporated, you can work through the sub-sector, investment scale and scoring strategy.

02

Submit the application

Submit a complete application to MIDA, before the date of the first sales invoice.

03

NIA Scorecard evaluation

MIDA evaluates the project against the scorecard, and it is considered by the National Committee on Investment (NCI).

04

Principal approval letter issued

The letter sets out the approved incentive, the grade, and the minimum and additional conditions to be met under each tier.

05

Compliance and monitoring

The company performs against the conditions in the approval letter, and MIDA monitors it throughout the incentive period; actual performance decides the tier enjoyed.

— Two Incentives

8. Two Incentives to Choose From: STR and ITA

The NIF offers two incentives. They are mutually exclusive: a company may choose only one, and the choice cannot be changed once MIDA has accepted the application. The main differences are as follows:

Comparison
Special Tax Rate (STR)
Investment Tax Allowance (ITA)
Form of incentive
During the incentive period, taxable income is taxed at a reduced corporate income tax rate.
A percentage of qualifying capital expenditure (QCE) is offset against statutory income.
Level of incentive
New investment 0%–10%; less developed areas 0%–15%; small companies 3%–12%.
Allowance of up to 100% of QCE, which can offset up to 100% of statutory income.
Incentive period
New investment: up to 10 years; less developed areas and small companies: up to 15 years.
New investment: up to 10 years; less developed areas and small companies: periods of 3, 5 or 10 years depending on the grade.
Unused benefit
Accumulated losses incurred during the incentive period can be carried forward for seven consecutive years and deducted from post-incentive income.
Unused allowance can be carried forward to subsequent years until fully utilised.
Compliance verification
An Annual Compliance Report (ACR) is due within 7 months after the end of each year of assessment.
A declaration verified by external auditors is due within 7 months after each 5-year ITA period expires.

Part 02 · Investment Tax Allowance

Investment Tax Allowance (ITA)

The ITA is built on qualifying capital expenditure and offsets a company's statutory income, which suits capital-intensive projects with heavy upfront spending on equipment and plant.

— What is ITA

1. What Is the Investment Tax Allowance?

The Investment Tax Allowance (ITA) is a capital-expenditure-based tax incentive: a company can offset a percentage of its Qualifying Capital Expenditure (QCE) against its statutory income. The allowance is granted on QCE incurred within a specified period, and any unutilised allowance can be carried forward to subsequent years until fully utilised.

Unlike the STR, the ITA does not reduce the tax rate; it reduces tax payable by offsetting statutory income. The allowance percentage and period likewise depend on the incentive category, the grade given by the scorecard, and performance (Tier 1 or Tier 2).

100%

Maximum allowance on QCE

Up to 100% of QCE

The allowance percentage for High grade Tier 1; Tier 2 is 70%.

10 yrs

Longest period for new investment

Up to 10 Years

10 years for the High grade and 5 years for the Medium grade; no incentive for the Basic grade.

100%

Statutory income that can be offset

Statutory Income Offset

The tier tables allow up to 100% of statutory income to be offset.

※MIDA's overview of the incentives also states that the allowance can offset "between 70% and 100%" of statutory income, which is worded differently from the "up to 100%" in the tier tables. The actual offset percentage is subject to the principal approval letter.

— Allowance Table

2. Allowances by Category and Grade

Each cell below shows "allowance percentage (of QCE) + allowance period", and every cell can offset up to 100% of statutory income:

New Investment

Category 1

Grade
Tier 1
Tier 2
High
100% · 10 yrs
70% · 10 yrs
Medium
60% · 5 yrs
30% · 5 yrs
Basic
No incentive

Less Developed Areas and Small Companies

Categories 2 & 3

Grade
Tier 1
Tier 2
High
100% · 10 yrs
70% · 10 yrs
Medium
60% · 5 yrs
30% · 5 yrs
Basic
60% · 3 yrs
30% · 3 yrs

※The allowance arrangements for less developed areas and small companies are the same. The figures are the maximum available for each grade; actual entitlement is subject to the principal approval letter.

— Pillar Two

3. The ITA and the Global Minimum Tax

The global minimum tax also affects how large multinational groups choose between the ITA and the STR:

Topic
Explanation
Global minimum tax
The GloBE Rules set a global minimum effective tax rate (ETR) of 15%. Where a group's ETR in a jurisdiction falls below 15%, a top-up tax may be charged.
Implementation in Malaysia
Since 1 January 2025, through the Domestic Top-up Tax (DTT) mechanism under Part XI of the Income Tax Act 1967.
Companies affected
Multinational groups with annual global consolidated revenue of EUR 750 million or more.
Effect on the choice of incentive
Top-up tax depends on how the group's overall effective tax rate is calculated, so the ITA and the STR should be compared under the same global minimum tax model, rather than by headline incentive percentages alone.

Recommended approach: Because both the NIF and Malaysia's global minimum tax are still new, we recommend comparing the ITA and the STR under the global minimum tax using financial projections of at least 10 years, and discussing the position further with MIDA.

— Choosing

4. What to Assess Before Choosing the ITA

The STR and the ITA are mutually exclusive and cannot be changed once approved, so we recommend weighing the following before you choose:

 
Capital intensity: The ITA is based on QCE. Only projects with heavy investment in plant and equipment will generate enough allowance; asset-light projects may have limited allowance.
 
Profit timing: The allowance can only be offset against statutory income, and any unused portion can be carried forward until fully used, which suits projects with heavy upfront investment and profits that come later.
 
Investment timetable: The allowance is calculated on QCE incurred within the incentive period. For projects invested in several phases, plan together with the allowance period and the phased confirmation of the allowance.
 
The group's global minimum tax position: Large multinational groups should include top-up tax in their calculations.
 
Compliance and audit: The ITA requires a declaration verified by external auditors, so build a QCE ledger and supporting evidence that the conditions are met in advance.

※Disclaimer: This article is compiled from the Guidelines of Tax Incentives for New Investment in the Manufacturing Sector under the NIF issued by the Malaysian Investment Development Authority (MIDA) (version dated 10 July 2026) and the NIF Policy Handbook of Yingke Malaysia (first edition, May 2026). It is for general reference only and does not constitute legal, tax or investment advice. NIF policy content, the level of incentive and conditions for each tier, and approval practice may change as the Malaysian government and the authorities adjust them. Whether a company is approved, and the approved incentive category, grade, incentive quantum and conditions to be met, are subject to the principal approval letter issued by MIDA and the National Committee on Investment (NCI) and the relevant legislation. Please consult an advisor before applying for any specific project.