The Income Tax (Deduction for Costs of Implementation of Flexible Work Arrangements) Rules 2021 [P.U.(A) 377/2021] (‘Rules’) were gazetted on 4 October 2021 and are deemed to have effect from the year of assessment 2020.
 
Permitted Deductions
 
Sub-Rule 3(1) of the Rules permits a qualifying person to deduct the following expenses (collectively ‘qualifying expenses’) incurred in the implementation of flexible work arrangements in a basis period for a year of assessment for the purposes of determining the adjusted income from such person’s business in that basis period for that year of assessment:
 
(a) consultation fee;
 
(b) cost of capacity development;
 
(c) cost of software; and
 
(d) software subscription.
 
Conditions for deductions
 
To qualify for the deductions stated in sub-rule 3(1) of the Rules:
 
(a)  the implementation of flexible work arrangements or enhancements of existing flexible work arrangements by the qualifying person must be certified by Talent Corporation Malaysia Berhad (‘Talent Corporation’); and
 
(b)  the application by the qualifying person referred to in sub-paragraph (a) above must be received by Talent Corporation on or after 1 July 2020 but no later than December 2022.
 
The amount of qualifying expenses must be verified by Talent Corporation and is limited to RM500,000 for each year of assessment. The total amount of deductions allowed is an amount that is equal to twice the amount of the qualifying expenses. Notwithstanding the foregoing, the Director General of Inland Revenue may disallow an amount from being deducted if he is of opinion that such amount exceeds the amount which would reasonably be expected to be incurred in the ordinary course of business of the qualifying person.
 
The deductions shall be for a period of three consecutive years of assessment commencing from the year of assessment in the basis period in which the certification of the implementation of the flexible work arrangements is given by Talent Corporation.       
 
Any qualifying persons who claimed this double deduction cannot claim a tax deduction under section 33, any rules under section 154 or Schedule 3 of the Income Tax Act 1967.
 
Key definitions
 
The key definitions as provided for under the Rules are set out below.
 
The expression ‘flexible work arrangements’ refers to flexible arrangements for:
 
(a)  place of work;
 
(b)  scheduling of working hours; or
 
(c)  number of hours worked.
 
A ‘qualifying person’ means:
 
(a)  a company incorporated under the Companies Act 2016;
 
(b)  a limited liability partnership registered under the Limited Liability Partnerships Act 2012; or
 
(c)  a partnership registered under the Partnership Act 1961.
 
The ‘cost of capacity development’ for the implementation of flexible work arrangements referred to in sub-rule 3(1) of the Rules are:
 
(a) training course or programme fee;
 
(b) internal trainer fee;
 
(c) training material cost;
 
(d) rental of training space cost;
 
(e) examination fee; and
 
(f)   training related travelling expenses incurred by the employees and trainers as follows: 

Comments
 
The tax deductions for qualifying expenses incurred in implementing or enhancing flexible work arrangements was one of several initiatives announced by the Malaysian Government in June 2020 under the ‘PENJANA’ (Pelan Jana Semula Ekonomi Negara) Short-Term Economic Recovery Plan to encourage work from home arrangements to mitigate the spread of the SARS-CoV-2 virus during the Covid-19 pandemic.
 
Alert by Desmond Liew (Senior Associate) of the Tax Practice and Angela Hii (Associate) of the Corporate Practice of Skrine.