Part 01 · NIF Overview

The New Incentive Framework for Manufacturing: An Overview

Before looking at the Special Tax Rate (STR) and the Investment Tax Allowance (ITA), this part explains what the NIF is, who can apply, how tiering works, and the rules that apply 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 the Budget 2026. Applications have been accepted since 1 March 2026, and the NIF currently applies to the manufacturing sector only. It works on a tiered, outcome-based approach: instead of granting a fixed incentive by promoted category, it links the level of incentive to a project's score and its performance in delivering what it committed to.

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

01

Attracting High-growth, High-value Investment

Quality Investment

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

02

Strengthening Economic Resilience

Economic Resilience

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

03

Outcome-based Oversight

Result-oriented

Uses the NIA scorecard to quantify each project's contribution to national priorities, and keeps verifying it throughout the incentive period.

How this differs from the previous framework: Approval does not mean enjoying the top tier throughout. After approval, the company must meet the conditions in the approval letter year by year (or stage by stage). Meeting only the minimum requirements earns only the lower tier, and failing even the minimum requirements means no incentive for that period.

— Eligibility

2. Who Can Apply

 
Company: A company incorporated under the Companies Act 2016 and tax resident in Malaysia.
 
Nature of investment: A new or existing company undertaking a new investment in manufacturing. A new company is one that has been newly incorporated or has not yet commenced commercial operations, and has no related entity in Malaysia before the application (or whose related entity operates a different project). An existing company is one already operating in Malaysia and about to undertake a different project.
 
Related entities: Generally determined by direct or indirect control through a shareholding of 20% or more.
 
Timing of application: The application must be submitted to MIDA before "commencement of operations", which is measured by the date of the first sales invoice issued by the company for the product or activity to be incentivised.
 
Accounting requirements: Separate accounts must be prepared and kept for the incentivised business and for any non-incentivised business.
 
Acceptance of applications: MIDA has accepted applications since 1 March 2026. A complete set of documents must be submitted through MIDA's online platform, and incomplete applications will be returned.

— Eligible Sectors

3. Qualifying Sectors and Exclusions

Companies in the following 15 manufacturing sub-sectors may apply. Companies producing biotechnology products 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 and licensed manufacturing warehouses). The following products or activities within these sectors are not covered by the incentive:

Qualifying Manufacturing Sector
Products / Activities Not Eligible
Electrical & Electronics (E&E)
E-cigarettes and vaping products
Chemicals & Chemical Products
Mixing and blending activities
Pharmaceuticals
Fill-and-finish activities
Medical Devices
No specific exclusions
Aerospace
No specific exclusions
Machinery & Equipment (M&E)
No specific exclusions
Automotive
No specific exclusions
Petroleum Products & Petrochemicals
All petroleum products (except petroleum product projects in the RAPID integrated complex, and integrated projects that also produce petrochemical products)
Oleochemicals & Derivatives
No specific exclusions
Food Production & Processing
Spirits and alcoholic beverages
Wood, Paper & Furniture
All types of paper (except security paper, and waste may not be imported as raw material)
Textiles, Apparel & Footwear
No specific exclusions
Strategic Mineral-based Products
Upstream mining and quarrying
Rubber-based Products
Gloves and passenger car tyres
Metals
Weapons and ammunition

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

— General Criteria

4. General Criteria and Sector-specific Requirements

In addition to the sector scope, a company must meet the following criteria. Item 1 applies to all applicants; the rest are specific requirements set by sub-sector:

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 keep it valid throughout the incentive period. Not applicable to IC design and testing activities. A company with shareholders' funds not exceeding RM2,500,000 and not more than 75 full-time employees must submit or hold a confirmation letter of exemption from applying for an ML (the ICA 10 letter).
Capital Investment per Employee (CIPE) ≥ RM140,000
Petrochemical products, oleochemicals, food, wood / paper / furniture, textiles / apparel / footwear, strategic minerals, rubber, metals. CIPE = fixed asset investment (including 10 years' rent for land and buildings) ÷ total number of full-time employees.
Adoption of automation / Industry 4.0 or smart systems
Petrochemical products, food, oleochemicals, wood / paper / furniture, textiles / apparel / footwear, rubber, metals.
Implementation of sustainable practices
Sustainable practices in waste management, sustainable raw materials, water use and energy use: petrochemical products, oleochemicals, wood / paper / furniture, textiles / apparel / footwear, strategic minerals, rubber, metals.
Malaysian employees ≥ 80%
Wood / paper / furniture, textiles / apparel / footwear, strategic minerals, rubber, metals. Calculated on Malaysian citizenship.
Design and development expenditure ≥ 1% of annual total sales
Wood and furniture.

— Categories

5. Three Incentive Categories

Once the above criteria are met, the company chooses the one of the three incentive categories that fits the project:

01

New Investment Projects

Category 1

New investment projects in Malaysia that have not yet commenced actual operations, whether by a locally owned or a foreign-owned manufacturing company.

02

Less Developed Areas

Category 2

Projects located in districts whose economic, social and spatial development is below the overall median under Malaysia's Composite Development Index (IKPM). The list covers certain districts in Johor, Kedah, Kelantan, Negeri Sembilan, Pahang, Perak, Perlis, Sabah, Sarawak, Selangor, Terengganu and Labuan.

03

Small Companies

Category 3

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

Small company status must be maintained: The company must meet the definition of a "small company" continuously for at least five years. Otherwise, the approved incentive may be withdrawn because the company no longer fits its original category.

— Tiering & Scorecard

6. How Tiering and the NIA Scorecard Work

MIDA uses the NIA scorecard to assess a project's commitment to, and potential contribution to, national priorities: the higher the score, the better the incentive. The assessment 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 rate).

Tier 2

Minimum Conditions Only

Minimum Only

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

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

01

Raising Economic Complexity

Pillar 1

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

02

Creating High-valued Jobs

Pillar 2

Share of high-skilled employees, median annual salary, share of high-paid employees, and share of Malaysians in management / technical / supervisory roles.

03

Expanding Domestic Linkages

Pillar 3

Share of local raw materials, training spend as a share of payroll, cooperation with local institutions and industry, supplier development programmes, and regional / global treasury centres.

04

Developing Industrial Clusters

Pillar 4

Patents, products in national target industries or NIMP 2030 core industries, and commercialisation of local R&D results.

05

Promoting Inclusivity

Pillar 5

Interns / apprentices / fresh graduates, women in senior management, employees from disadvantaged groups, and share of Malaysian employees.

06

Strengthening Sustainability

Pillar 6

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

— Process

7. How the Application Works

01

Consultation and pre-application

You may consult MIDA or an advisor first to confirm that the project meets the NIF requirements; the sub-sector, investment scale and scoring strategy can be worked out even before the company is incorporated.

02

Submit the application

Submit a complete application through MIDA's online platform, before the date of the first sales invoice.

03

NIA scorecard assessment

MIDA assesses the project against the scorecard, and the National Committee on Investment (NCI) reviews it.

04

Issue of the principal approval letter

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

05

Compliance and monitoring

The company performs according to the conditions in the approval letter, and MIDA monitors it throughout the incentive period; actual performance determines 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 the application has been accepted by MIDA. The main differences are as follows:

Item
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 allowed as an 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, offsetting up to 100% of statutory income.
Incentive period
Up to 10 years for new investment; up to 15 years for less developed areas and small companies.
Up to 10 years for new investment; for less developed areas and small companies, other periods of 3, 5 and 10 years apply within the grades.
Unutilised portion
Accumulated losses incurred during the incentive period can be carried forward for 7 consecutive years of assessment and set off against income after the incentive period.
Unutilised allowances can be carried forward to later years until fully utilised.
Compliance verification
An Annual Compliance Report (ACR) is submitted within 7 months after the end of each year of assessment.
A compliance declaration verified by an external auditor is submitted within 7 months after the end of each 5-year allowance period.

Part 02 · Special Tax Rate

Special Tax Rate (STR)

The STR directly lowers the tax burden during the incentive period through a reduced corporate income tax rate, which suits projects that generate taxable profit early in the incentive period.

— What is STR

1. What Is the Special Tax Rate?

The Special Tax Rate (STR) applies a reduced corporate income tax rate to a company's chargeable income for a specified period. For reference, the current statutory corporate income tax rate is 24%.

The rate and the number of years that actually apply depend on three things: the project's incentive category, the grade assigned by the scorecard, and the company's performance (Tier 1 or Tier 2) in each year of assessment.

0%–10%

New Investment

Category 1

Up to 10 years. Tier 1 of the High grade can be as low as 0%.

0%–15%

Less Developed Areas

Category 2

Up to 15 years. Projects in less developed districts enjoy a longer period, and the Basic grade is also incentivised.

3%–12%

Small Companies

Category 3

Up to 15 years. A higher rate range, but a longer incentive period.

— Rate Table

2. Tax Rates by Category and Grade

Each cell in the table below shows "incentive period + applicable tax rate":

New Investment

Category 1

Grade
Tier 1
Tier 2
High
10 yrs 0%
10 yrs 5%
Medium
5 yrs 5%
5 yrs 10%
Basic
No incentive

Less Developed Areas

Category 2

Grade
Tier 1
Tier 2
High
15 yrs 0%
15 yrs 5%
Medium
10 yrs 5%
10 yrs 10%
Basic
5 yrs 10%
5 yrs 15%

Small Companies

Category 3

Grade
Tier 1
Tier 2
High
15 yrs 3%
15 yrs 5%
Medium
10 yrs 8%
10 yrs 10%
Basic
5 yrs 12%

※The Basic grade carries no incentive under the New Investment category; the Basic grade for small companies is not split into Tier 1 / Tier 2 and is a flat 5 years at 12%. The figures in the table are the maximum available for each grade; the actual terms are subject to the principal approval letter.

— Pillar Two

3. The STR and the Global Minimum Tax

For a multinational group, the lower the STR rate, the more important it is to also assess the impact of the global minimum tax (GloBE / Pillar Two):

Topic
Explanation
Global minimum tax
The GloBE rules set a global minimum effective tax rate (ETR) of 15%. Where a group's effective tax rate in a jurisdiction is below 15%, a top-up tax may be charged.
Implementation in Malaysia
From 1 January 2025, implemented through the Domestic Top-up Tax (DTT) mechanism under Part XI of the Income Tax Act 1967.
Affected companies
Multinational groups with annual consolidated global revenue of EUR 750 million or more.
Effect on the STR
If a group enjoys a very low rate in Malaysia under the STR (for example 0% to 5%) and the effective tax rate there falls below 15%, top-up tax may be payable, and the actual benefit will be reduced.

— Choosing

4. What to Assess Before Choosing the STR

The STR and the ITA are mutually exclusive, and the choice cannot be changed after approval, so it is advisable to weigh the following before choosing:

 
Profit timing: The tax saving under the STR comes from taxable profit. If the project makes a loss or low profit in its first few years, the benefit of a low rate is limited; a project that generates profit earlier and more steadily is better placed to use up the STR incentive period.
 
Capital intensity: For projects with heavy capital outlay and concentrated depreciation and equipment investment, compare with the ITA to see whether offsetting capital expenditure against statutory income is more favourable.
 
The group's global minimum tax position: A company that belongs to a large multinational group should build top-up tax into its calculations.
 
Expansion plans: Whether later expansion will create new projects or new investments should be planned in advance, because the incentive choice for an existing project cannot be changed.
 
Ability to perform: The STR is verified year by year, so you need to assess whether the company can keep meeting both the minimum and the additional conditions.

※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.