Do You Need a MIDA Manufacturing Licence in Malaysia 2026? The ICA 1975 Guide for Foreign Manufacturers: the RM2.5 Million or 75-Employee Test, the Exemption Letter, MIDA's Four Approval Criteria, the Real Penalties and How NIF Incentives Fit

Before a foreign company produces its first unit in Malaysia, it has to answer a legal question the factory drawings don't: does this project need a Manufacturing Licence under the Industrial Co-ordination Act 1975 (ICA)? The licence is issued by the Ministry of Investment, Trade and Industry (MITI), and applications go through the Malaysian Investment Development Authority (MIDA). The trigger is short (RM2.5 million of shareholders' funds or 75 full-time employees), but it catches many companies that think of themselves as "just assembling" or "just packing". This guide covers the legal test, the exemption letter smaller manufacturers should hold, the four criteria MIDA approves against, what the Act actually says about penalties (several online guides get this wrong), and where the licence sits alongside the New Incentive Framework that replaced Pioneer Status for new manufacturing projects in 2026.

What counts as "manufacturing" under the ICA

The Act defines manufacturing activity as the making, altering, blending, ornamenting, finishing or otherwise treating or adapting of any article or substance with a view to its use, sale, transport, delivery or disposal. It expressly includes the assembly of parts and ship repairing. It excludes activities normally associated with retail or wholesale trade.

The definition is deliberately wide, and the exclusion is narrow. In practice it covers:

• producing goods from raw materials or components, including contract manufacturing for a brand owner;
• assembly: electronics boards, furniture, machinery, battery packs, solar modules;
• blending and formulation: chemicals, coatings, cosmetics, food and beverage concentrates;
• finishing and treatment: plating, coating, heat treatment, printing on products;
• altering or adapting goods, such as converting, customising or re-engineering imported products.

The grey zone is logistics-adjacent work. Simple storage, sorting and picking in a warehouse is trade or logistics. Kitting, labelling, repacking into consumer units or light final assembly can move into "manufacturing". If your Malaysian entity changes the physical form or function of goods, assume the ICA applies and confirm with MIDA before operations start, not after a customs or MIDA officer asks.

The licensing threshold: RM2.5 million or 75 employees

Section 3 of the ICA says no person shall engage in any manufacturing activity unless licensed for it. By exemption, the licence requirement only applies above a size threshold. MIDA's Guideline on Application for Manufacturing Licence (version 03.11.2022) states it: a licence is required for manufacturers with shareholders' funds of RM2.5 million and above or 75 or more full-time paid employees.

How MIDA measures shareholders' funds

MIDA defines shareholders' funds as the total of paid-up capital, reserves, the balance of the share premium account and the balance of the profit and loss appropriation account. Two consequences follow:

• A newly incorporated company with RM3 million of paid-up share capital is above the threshold on day one, before hiring anyone.
• A company that started small can cross the threshold through retained profits alone, without any new capital. Check the audited balance sheet every year against RM2.5 million.

Shareholder loans are not in the definition. Some groups fund Malaysian subsidiaries partly by debt for that and other reasons, but the licence decision should not drive capital structure alone. Funding also affects bank covenants, withholding tax and paid-up capital conditions for expatriate passes. See our guide to funding a Malaysian subsidiary with equity or shareholder loans.

Who counts as a full-time paid employee

MIDA counts people normally working in the establishment for at least six hours a day and at least 20 days a month for 12 months of the year who receive their salary directly from the applicant company. The count includes travelling sales, engineering, maintenance and repair staff controlled and paid by the company, and directors, except directors paid only for attending board meetings. Workers supplied by a third-party agency and not on the company's payroll are not counted as employees for the Malaysian-workforce ratio.

The four criteria MIDA approves a licence against

Crossing the threshold means you must apply. It does not guarantee approval. The 2022 guideline sets these criteria, and MIDA's approvals page still lists the same numbers:

Two practical notes. First, the guideline's footnote gave a relaxation of the 80% Malaysian workforce condition until 31 December 2024. That window has closed, so plans that relied on it need another look. Second, CIPE uses rental over ten years, which helps companies leasing a plant. A 60-person operation needs about RM8.4 million of capital investment, and ten years of rent on a RM50,000-a-month factory contributes RM6 million of that.

The exemption letter: why small manufacturers should still apply

A manufacturer below both thresholds does not need a licence, but MIDA's Guideline on Application for Exemption from Manufacturing Licence (effective 12 May 2022) explains why it should still get an Exemption Letter. Companies confirmed as exempt are eligible to apply for:

• import duty exemption on machinery, equipment and raw materials under the Customs Duties (Exemption) Order 2017;
• sales tax exemption under the Sales Tax (Persons Exempted From Payment of Tax) Order 2018; and
• investment incentives, subject to their own criteria. The guideline refers to the Promotion of Investments Act 1986, but new manufacturing incentive applications moved to the New Incentive Framework on 1 March 2026 (see below).

Without either a licence or an exemption letter, a small manufacturer usually cannot show customs or MIDA that it is a recognised manufacturer. It then pays duty and sales tax it could have avoided. The application is also made on the InvestMalaysia portal.

Ownership: 100% foreign equity is allowed

The licence and the equity question are separate. Under MIDA's equity policy, since June 2003 foreign investors may hold 100% of the equity in all new manufacturing projects and in expansion or diversification projects by existing companies, irrespective of export levels and without excluding any product or activity. Equity and export conditions imposed before 17 June 2003 stay in force, but companies can ask MIDA to remove them case by case.

Sector rules can still apply to the business around the factory. Foreign-owned distribution, retail and some services need their own approvals, and certain products (for example vehicles, explained in our EV and automotive manufacturing licence guide) carry MITI-specific conditions. For capital rules outside manufacturing, see our overview of foreign equity and paid-up capital rules.

Applying on the InvestMalaysia portal, step by step

MIDA has assessed licence applications on its online portal since 26 March 2021, using a self-assessment and self-declaration mechanism meant to speed up approvals. The portal handles new licences and expansion or diversification projects by licensed manufacturers and by existing unlicensed manufacturers.

1. Incorporate the Malaysian company. The applicant is the Malaysian entity, normally a Sdn. Bhd. registered with SSM. Decide the paid-up capital knowing it counts towards the RM2.5 million test.
2. Secure the site and plan the other approvals. Land use, planning permission, the certificate of completion and compliance, environmental and fire approvals run in parallel with MIDA. Our end-to-end factory approval map puts them in order.
3. Register the company profile on InvestMalaysia. Authorised users register individually and are linked to the company profile (IRPM module).
4. Buy a digital certificate. It is required to submit applications and costs RM1,000 for two years (price effective 6 June 2023). Since 3 March 2025 all application and certificate payments go through the InvestMalaysia portal; the old MPayChannel is closed.
5. Complete the online form. Its sections line up with the criteria: project cost (for CIPE), project financing (shareholders' funds), manpower (Malaysian and MTS ratios) and product pricing (value added). Figures you self-declare here become the basis of your licence conditions, so make them realistic.
6. Answer MIDA's queries and accept the conditions. Section 4 lets the licensing officer impose conditions and vary them later. Read the approval letter carefully, because product scope and other conditions become legally binding.
7. Download the licence. MIDA now issues digitised Manufacturing Licence certificates through the portal, carrying MITI and MIDA trustmarks and a secure QR code for verification.

After approval: conditions, changes and returns

The licence is not a one-off. The Act gives MITI and MIDA continuing powers:

• Conditions (section 4). The approval letter can set conditions covering products, the Malaysian workforce and other matters. Breaking them is a ground for revocation.
• Revocation (section 6). A licence can be revoked for non-compliance with conditions, for ceasing the manufacturing activity or for false statements in the application. The company must first be given the chance to show cause.
• Transfer (section 7). A licence cannot be transferred without the licensing officer's prior approval. Plan for this in share or asset sales of a licensed manufacturer; see our guide to share versus asset acquisitions.
• New products and capacity. Adding products or expanding production goes through the portal as a diversification or expansion application. File before the new line starts.
• Returns (section 10). Licensed manufacturers must provide information when required. Failing to do so, or giving false information, is a separate offence.

Penalties: what the Act actually says

Some guides quote penalties of "RM2 million and one year" for manufacturing without a licence. That is not in the Act. The consolidated text of the ICA (last amended by Act A462 in 1980) sets these penalties:

The fines are small, but the real exposure is different. Revocation stops production. An unlicensed or unexempted manufacturer loses customs and sales tax exemptions and cannot support an incentive application. Buyers and banks treat a missing licence as a due-diligence red flag. In May 2024 the then MITI minister said the government was considering a review of the Act, which he described as not having been revised since 1976. Watch for amendments, because penalties are the most likely thing to change.

Where the licence sits with the New Incentive Framework

The licence (or exemption letter) is the regulatory base; tax incentives are a separate application. For manufacturing, MIDA stopped accepting new applications under the Promotion of Investments Act 1986 at 3:00 pm on 28 February 2026. From 1 March 2026 new manufacturing incentive applications are assessed under the New Incentive Framework (NIF), which replaced Pioneer Status and the old Investment Tax Allowance with a Special Tax Rate or an enhanced ITA, scored against the National Investment Aspirations scorecard. Approvals already granted under the old regime continue on their original terms.

The NIF rules, tiers, durations and pitfalls are in our complete NIF guide. If your plant is in the south, also read about the Johor–Singapore Special Economic Zone incentives.

Worked example: a Shenzhen electronics assembler in Penang

A Shenzhen PCB assembly group sets up a Penang subsidiary with RM3 million paid-up capital. It plans 60 full-time staff (52 Malaysians, 8 Chinese engineers on Employment Passes), rents a RM50,000-a-month factory and installs RM4 million of SMT lines.

• Licence needed? Yes. Shareholders' funds of RM3 million exceed RM2.5 million from incorporation, even though headcount is below 75.
• CIPE: RM4 million of machinery plus RM6 million of ten-year rental is RM10 million, divided by 60 staff = about RM166,700. Passes the RM140,000 minimum.
• Malaysian workforce: 52 ÷ 60 = 86.7%. Passes 80%, but only 4 more expatriates would push it under.
• MTS: 16 engineers, technicians and supervisors ÷ 60 = 26.7%. Passes 25%. If MTS fell short, the company could instead show 40% value added.
• Sequence: incorporate, sign the lease subject to planning and CCC checks, apply for the licence and customs duty exemptions, then submit the NIF incentive application with scorecard commitments. The company does not start trial production for customers until the licence letter is downloaded.

Mistakes that catch foreign manufacturers

• Capitalising first, thinking about the licence later. RM2.5 million of paid-up capital triggers the licence before the first hire.
• Calling assembly "trading". Assembly of parts is manufacturing by definition.
• Forgetting retained profits. An exempt company can cross the threshold on profits alone.
• Counting agency workers as local staff. Outsourced workers are excluded from the ratio, so a plant relying on agency labour may miss 80%.
• Relying on the expired relaxation. The 80% relaxation ended on 31 December 2024.
• Skipping the exemption letter. Small manufacturers without one usually lose duty and sales tax exemptions.
• Selling the company without planning the licence. Transfers need prior approval, and conditions from before June 2003 may still bind older licensees.

ONEKEY BIZ prepares Manufacturing Licence and exemption applications for foreign manufacturers, including the CIPE and workforce modelling, InvestMalaysia submissions and the SSM, tax and expatriate-pass work around them. Talk to our team, or see our Manufacturing Licence service and exemption letter service.

This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.