What Malaysia’s New Incentive Framework means for investors

Malaysia has introduced a New Incentive Framework (“NIF”) for the manufacturing sector effective 1 March 2026, with the services sector expected to be implemented by second half of 2026. More than a policy update, the NIF represents a fundamental reset in how investment incentives are assessed and awarded.

While earlier regimes were largely built around promoted activity lists and predefined tax packages, the NIF introduces a more disciplined, outcome-based approach. Incentives are no longer granted simply because a project falls within an eligible sector. They are now tied directly to measurable economic impact and strategic contribution.

This reform reflects Malaysia’s broader policy alignment with the National Investment Aspirations (NIA), the New Industrial Master Plan 2030 (NIMP 2030), and the realities of the Global Minimum Tax (GMT) environment. In practical terms, it signals a shift from entitlement-based incentives to performance-linked incentives. Investors must now demonstrate how their projects strengthen Malaysia’s industrial ecosystem, not just expand production capacity.

Previously, under the Promotion of Investments Act 1986, companies could assess eligibility based on whether their activities were listed as promoted. Approval often meant certainty, with limited recalibration over time.

Under the New Incentive Framework, this model has been fundamentally redesigned.

Instead of the promoted list mechanism the framework introduces a tiered, calibrated system assessed through the NIA Scorecard. This scorecard evaluates investment quality across six pillars:

1.      Economic complexity

2.      High-value job creation

3.      Domestic linkages

4.      Industrial cluster development

5.      Inclusivity

6.      Sustainability practices

Incentives are then granted under two mutually exclusive tax incentives:

The incentive tier enjoyed each year depends on compliance with agreed commitments. Meeting minimum conditions qualifies for Tier 2 benefits; exceeding them qualifies for Tier 1. Failure to meet commitments may result in loss of entitlement for that year of assessment.

In essence, incentives now operate as performance outcome-based arrangements rather than fixed entitlements.

The NIF applies to fifteen priority manufacturing subsectors, including Electrical and Electronics, Chemical and Chemical Products, Pharmaceuticals, Medical Devices, Aerospace, Machinery and Equipment, Automotive, Petroleum Products and Petrochemicals, Oleochemicals and their derivatives, Food Production and Processing, Wood, Paper and Furniture, Textiles, Apparel and Footwear, Strategic Minerals-based products, Rubber-based Products and Metal.

However, sector eligibility alone does not determine outcome. Projects must satisfy pre-qualifiers and demonstrate strength across scorecard pillars. Certain subsectors carry additional requirements, such as capital investment per employee thresholds, automation adoption, sustainable practices and Malaysian workforce composition criteria.

The direction is clear; Malaysia is incentivizing quality uplift rather than replication of existing industrial capacity.

The NIF is not limited to new investors. Existing companies may also apply for incentives when undertaking new or diversification projects distinct from their current operations.

However, incremental expansion alone may not score favorably. Projects must demonstrate qualitative uplifts such as 

• Higher automation,
• Greater Research and Development (R&D) intensity,
• Improved wage profiles
• Stronger domestic supply chain integration.

This creates an opportunity for current investors to reposition their Malaysian operations strategically, aligning them with the country’s long-term industrial transformation agenda.

The introduction of the Global Minimum Tax (GMT) — which sets a 15% effective tax floor for large multinational enterprises, also changes how incentives should be evaluated.

A reduced corporate tax rate may trigger top-up taxes if not structured properly, potentially reducing the intended benefit of certain incentives.

As a result, incentive selection between STR and ITA must consider group-level tax implications, cash flow timing and effective tax rate stability. NIF’s focus on substance-based incentives tied to economic outcomes now provides a more defensible framework in this evolving environment.

Malaysia’s NIF represents a deliberate shift towards greater selectivity and accountability, with incentives are now designed to reward depth, innovation, talent development and ecosystem contribution.

For investors prepared to align with this direction, the NIF offers clarity, transparency and defensibility. 

The framework does not necessarily ask investors to do more – but it requires them to demonstrate more clearly how they contribute to Malaysia’s industrial future.

With the right preparation and structured positioning, the NIF can serve not only as an incentive mechanism, but as a platform for long-term, sustainable growth.

Navigating the framework requires more than technical compliance which include a structured positioning, realistic commitment planning and disciplined execution.

Through KPMG MyAccess Hub, our integrated investment facilitation platform, we support investors throughout the entire incentive lifecycle — from strategic planning to post-approval compliance.

Our support includes:

With the right strategy and the right platform to navigate the framework, businesses can turn the NIF into more than an incentive opportunity — but a pathway to create lasting impact and Make the Difference in Malaysia’s next phase of industrial development.

KPMG. Make the Difference.