Secrets to accessing tax incentives in the New Incentive Framework

Manufacturing Sector

Overview

The Malaysian Government has introduced the New Incentive Framework (NIF) in year 2026, signalling a major shift in the country’s investment incentive landscape.

Effective for applications submitted from 1 March 2026, the NIF replaces the traditional activity-based incentive approach, such as Investment Tax Allowance and Pioner Status under the Promotion of Investment Act 1986 (PIA), with a tiered and outcome-based framework. The incentive quantum will be determined based on the investment’s contribution to Malaysia’s economic priorities, guided by the National Investment Aspirations (NIA) and the New Industrial Master Plan 2030 (NIMP 2030).

The new framework is designed to attract high-value, technology-driven and sustainable investments into Malaysia’s manufacturing sector.

Read in PDF

Available Tax Incentives

Companies undertaking qualifying manufacturing investments may apply for one (1) of the following incentives:

Categories of Incentive	Special Tax Rate (STR)	Investment Tax Allowance (ITA)
New Investment	0% to 10% for a period of up to 15 years	ITA of up to 100% to be set off against 70% to 100% of statutory income for up to 15 years
Less Developed Areas	0% to 15% for a period of up to 15 years
Small Companies	3% to 12% for a period of up to 15 years

STR - Accumulated losses incurred during the STR period can be carried forward for seven (7) consecutive years and be deducted from the company’s post-incentive income.

ITA - Any unutilised allowance can be carried forward to subsequent years until fully utilised.

Applicants are required to select either STR or ITA, and the choice becomes final once the application is accepted.

Key Changes Under the NIF

The NIF introduces several structural changes compared with the existing incentive regime.

Area	Existing Framework (PIA 1986)	New Incentive Framework
Incentive basis	Activity-based	Outcome-based
Assessment criteria	Promoted products / activities	NIA Scorecard evaluation
Incentive Structure	Fixed incentive once approved	Tiered incentive structure
Monitoring	Limited post-approval monitoring	Ongoing compliance and performance monitoring
Policy focus	Industrial development	High-value and strategic investments

Under the NIF, the level of tax incentive granted will depend on how the proposed investment contributes to national economic priorities.

Eligible Manufacturing Subsectors

The NIF incentive currently applies to companies undertaking manufacturing activities within the following 15 priority subsectors:

1. Electrical and Electronics (E&E)

2. Chemical and Chemical Products

3. Pharmaceuticals

4. Medical Devices

5. Aerospace

6. Machinery and Equipment (M&E)

7. Automotive

8. Petroleum Products and Petrochemicals

9. Oleochemicals and their derivatives

10. Food Production and Processing

11. Wood, Paper and Furniture

12. Textile, Apparel and Footwear

13. Strategic minerals-based products

14. Rubber-based Products

15. Metal

Companies operating within these subsectors must still meet the specific eligibility criteria and outcome-based requirements under the framework. Please refer to Appendix I of the Malaysian Investment Development Authority (MIDA) guideline for general criteria and sector-specific requirements.

NIF Application Process Flow

Companies intending to apply for incentives under the NIF will generally follow the process below:

Pre-application consultation
Engage with MIDA to ensure the proposed project aligns with the NIF eligibility requirements.
Application submission
Submit a complete application through the InvestMalaysia Portal before the commencement of operations.
NIA Scorecard evaluation
The project will be assessed based on its contribution to key economic pillars such as technology adoption, high-skilled job creation and industry linkages.
Approval in principle
If approved by the National Committee on Investment (NCI), MIDA will issue a Principle Approval Letter outlining the incentive type, tier level and performance conditions.
Compliance and monitoring
Companies must comply with the conditions stipulated and submit Annual Compliance Reports throughout the incentive period.

Outcome-Based Incentive Model

The NIF utilises the NIA Scorecard as the main evaluation mechanism. The scorecard measures a project’s contribution across six (6) strategic pillars:

Increasing economic complexity and technological capability
Creating high-value employment opportunities
Strengthening domestic supply chains and industry linkages
Developing industrial clusters
Promoting workforce inclusivity
Enhancing sustainability practices

Projects with stronger contributions across these areas are more likely to qualify for higher-tier incentives. Please refer to Appendix II of the MIDA Guideline for details of the indicator and explanatory notes to each of the pillar.

Implications for Taxpayers

The introduction of the NIF signals a transition towards performance-driven investment incentives.

Key implications include:

Shift towards performance-driven incentives – Tax incentives will now depend on measurable commitments such as technology adoption, R&D expenditure, workforce quality and sustainability initiatives.
Enhanced compliance obligations – Companies will be required to continuously demonstrate compliance with the commitments stated in the approval letter. Failure to meet minimum conditions may result in loss of incentive entitlement for that year.
Alignment with global tax developments – Malaysia has implemented the Global Minimum Tax (GMT) starting from 2025 for multinational groups with consolidated revenue of at least EUR750 million. The NIF has been designed to remain competitive while aligning with international tax developments.

Key Preparations for Companies Planning to Apply

Companies planning new manufacturing investments should consider the following preparatory steps:

Evaluate eligibility early
Ensure the proposed project falls within the eligible manufacturing subsectors under the NIF.
Strengthen the investment proposal
Develop a strong value proposition aligned with the NIA pillars, including:
- automation and Industry 4.0 adoption
- research and development activities
- high-skilled employment creation
- local sourcing and vendor development
- collaboration with universities or research institutions.
Prepare supporting documentation
Applicants should be ready to provide detailed information such as:
- capital investment plans
- workforce and salary structure
- technology adoption roadmap
- sustainability initiatives
- training and development programmes.
Ensure regulatory readiness
Companies should obtain the relevant Manufacturing Licence (ML) or exemption confirmation prior to submitting the incentive application.
Establish internal monitoring systems
Given the outcome-based nature of the NIF, companies should implement internal processes to track their commitments and facilitate annual compliance reporting.

Key Takeaways for Investors

The New Incentive Framework marks a major shift from activity-based incentives to performance-driven incentives
Incentive quantum will depend on the economic impact and strategic value of the investment.
Companies should engage early with MIDA and prepare a strong proposal aligned with national investment priorities
Ongoing compliance monitoring and reporting will be an integral part of enjoying the incentives

Businesses that align their investments with Malaysia’s strategic industrial priorities are likely to be better positioned to secure higher-tier incentives under this new framework.