The recently gazetted Income Tax (Deduction for the Costs of Implementation of Flexible Work Arrangements) Rules 2026¹ (“Rules”) provide a tax incentive to encourage the implementation of flexible work arrangements (“FWA”). The Rules are effective from the year of assessment 2025.
 
Key Takeaways
 
Under the Rules, FWA is defined as flexible arrangements for an employee’s place of work, scheduling of working hours or number of hours worked – consistent with section 60P of the Employment Act 1955, which allows an employee to apply for flexible work arrangement to vary the hours of work, days of work or place of work in relation to his employment, as well as the Guidelines for Implementation of Flexible Work Arrangements published by the Department of Labour, Peninsular Malaysia². This broad scope of FWA allows employers to fully customise operational frameworks under existing employment laws, while still remaining eligible for the tax incentive under the Rules.
 
Employers can now claim a one-time deduction equivalent to 50% of the expenditure incurred to implement FWA in relation to software acquisition and capacity development (addressed in detail below), capped at RM500,000.00. This deduction is in addition to standard business deductions allowable under section 33 of the Income Tax Act 1967.
 
Deductible expenses are restricted to two core considerations: software acquisition and capacity development. Beyond purchasing digital tools and software to support FWA-related infrastructure, costs for training courses, internal trainers, examinations, training materials, and training venue rentals can also be deducted. Related travel and logistical expenses for training are also deductible but are subject to statutory limits, i.e. economy class airfare, a maximum of RM300 per day for accommodation, and a maximum of RM150 per day for meals.
 
To claim this deduction, employers must meet strict compliance and timeline requirements. 

The Rules do not apply to any employer who has already claimed a tax deduction for FWA implementation, consultation, or training costs under the previous Income Tax (Deduction for Consultation and Training Costs for the Implementation of Flexible Work Arrangements) Rules 2015³ or the Income Tax (Deduction for the Costs of Implementation of Flexible Work Arrangements) Rules 2021⁴.
 
Comments
 
The implementation of the Rules marks an extension of the Government’s efforts to ingrain flexible working models into the fabric of contemporary Malaysian workplaces. By covering the cost of software acquisition, the Rules subsidise the cost of shifting to cloud-based systems, remote-work management tools, and secure remote infrastructure. The focus on capital development likewise points to a focus on upskilling, and ensuring employees are able to maintain (and optimise) performance levels under an FWA-centric framework.
 
 
Article by Ashreyna Kaur Bhatia (Senior Associate) & Shanthigni A/P Ravindran (Paralegal) of the Employment Law Practice of Skrine
 
 

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