Through the Malaysian Budget 2026, the New Incentive Framework (NIF) was introduced. NIF was introduced in line with Malaysia’s National Investment Plan 2030 (NIMP) and National Investment Aspirations (NIA), with the primary objective to attract high-growth and high-value investment[1].

The development of NIF forms an important component of Malaysia’s broader strategy to sustain and diversify its investment inflows, including from foreign countries like China. Amongst others, China invested RM 28.2 billion in Malaysia, which accounted for approximately 16% of Malaysia’s foreign investment revenue.[2]

The NIF also seeks to strengthen the competitiveness of Malaysian manufacturing businesses by promoting technology-driven and value-added activities.

This article sets out the key points of the NIF and its impacts for Chinese investors and local Malaysian businesses in the manufacturing sector.

A. Introduction

Prior to the introduction of NIP, the two main tax incentives for the manufacturing sector were Pioneer Status (PS) and the Investment Tax Allowance (ITA), which were governed under the Promotion of Investments Act 1986 (PIA).

Under the NIF, PS is replaced by the Special Tax Rate (STR). In other words, the two main tax incentives currently under the NIP framework are stated as follows:

• STR; and
• ITA

Both STR and ITA for the manufacturing sector are administered under the Income Tax Act 1967[3]. It must be noted that both STR and ITA are mutually exclusive.

The company may submit an application for the said incentive starting from 1.3.2026.

Based on the statement[4] issued by the Malaysian Investment Development Authority (MIDA), the Government will no longer accept new tax incentive applications for the manufacturing sector under the PIA after 28.2.2026. However, the existing approvals shall remain valid according to the approved terms and conditions.

B. STR and ITA

The details of STR and ITA are summarised in the following table:

The general criteria are stated as follows:

1. The company is required to hold the manufacturing licence (ML) prior to the incentive application (except for IC design and testing activities); and
2. Such ML must remain valid throughout the incentive period.

Certain subsectors carry additional requirements, such as capital investment per employee thresholds, automation adoption, sustainable practices and Malaysian workforce composition criteria and so forth.

C. NIA Scorecard

The NIF is transforming into an outcome-based initiative with a tiering approach where the application will be evaluated based on the company’s commitment and assessment using the NIA scorecard. The NIA scorecard has 6 main pillars, which are stated below:

D. Eligible Manufacturing Sectors and Excluded Sectors

The NIF applies to 15 priority manufacturing subsectors, including the following sectors:

1. Electrical and electronics;
2. Chemicals and chemical products;
3. Pharmaceuticals;
4. Medical devices;
5. Aerospace;
6. Machinery and equipment;
7. Automotive;
8. Petroleum products and petrochemicals;
9. Oleochemicals and their derivatives;
10. Food production and processing;
11. Wood;
12. Paper and furniture;
13. Textiles;
14. Apparel and footwear;
15. Strategic minerals-based products;
16. Rubber-based products; and
17. Metal

The excluded sectors stated in the Guideline dated 15.1.2026 issued by MIDA (Guideline) are stated as follows:

However, sector eligibility alone does not determine outcome. The relevant projects must satisfy pre-qualifiers and demonstrate strength across scorecard pillars.

E. Commentary

Notably, NIF represents a fundamental shift from a product-centric model to an outcome-based model. Under the previous framework, incentive eligibility was largely determined by the nature of the product manufactured or the industry sector in which the company operated, i.e. whether the product falls within the promoted list.

NIF goes beyond the conventional tax reductions, reflecting a broader policy objective of aligning investment activities with Malaysia’s national economic transformation agenda. For companies with a longer-term outlook, such alignment may offer both tax-efficiency considerations and strategic positioning advantages within the evolving industrial landscape.

Given the outcome-based nature of NIF, companies are urged to carefully assess the approach to incentive applications in Malaysia, particularly:

1. To confirm that their intended manufacturing activity falls within one of the 15 eligible subsectors and does not engage any of the excluded categories;

2. The NIA scorecard must be taken into account at the preliminary stage, as scoring performance across the 6 pillars;

3. Local incorporation and capital expenditure commitments should not be made until sector eligibility and scorecard readiness have been assessed. Proceeding prematurely carries real financial and legal risk if approval is not subsequently obtained; and

4. To proactively plan for technology adoption, workforce upskilling, and local sourcing commitments where applicable.

Importantly, obtaining approval under the NIF is not the end of the incentive journey, as ongoing compliance throughout the incentive period is critical to preserving the approved incentives.

Both Chinese investors and local Malaysian businesses stand to derive the most comprehensive and enduring benefit from the NIF by approaching it strategically from the pre-application, application, and post-approval stages. Given that the NIF for the services sector is expected to be implemented in the near future, companies with operations spanning both manufacturing and services should monitor developments closely.

[1] https://www.mida.gov.my/wp-content/uploads/2026/01/Guideline-Tax-Incentive-NIF_Manufacturing-Only.pdf

[2] https://www.mida.gov.my/media-release/malaysia-records-historic-high-rm378-5-billion-in-investments-with-14-9-y-o-y-growth-generating-more-than-207000-jobs-in-2024/

[3] Section 65B of the Income Tax Act 1967

[4] https://www.mida.gov.my/wp-content/uploads/2026/01/Guideline-Tax-Incentive-NIF_Manufacturing-Only.pdf & https://www.miti.gov.my/NIF

[5] Section 6(1A), Section 6(1A) and Section 65B of the Income Tax Act 1967; the special tax rate varies with different categories from new investment, less developed areas and small companies

[6] https://www.mida.gov.my/wp-content/uploads/2026/01/Guideline-Tax-Incentive-NIF_Manufacturing-Only.pdf

[7] https://www.mida.gov.my/wp-content/uploads/2026/01/Guideline-Tax-Incentive-NIF_Manufacturing-Only.pdf

About the authors

Yap Wen Hui
Senior Associate
Corporate & Investor Services
Halim Hong & Quek
wh.yap@hhq.com.my

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