Tax Incentive on Flexible Work Arrangements in Malaysia

To support employers in adopting a modern, hybrid workplace environment, the Government of Malaysia has gazetted the Income Tax (Deduction for the Costs of Implementation of Flexible Work Arrangements) Rules 2026 [P.U.(A) 225/2026] on 16 June 2026. This incentive provides a tax deduction for eligible expenditures incurred by businesses transitioning towards flexible work arrangements.

This deduction was introduced to reduce the financial burden of changing traditional office operations. The implementation of flexible work arrangements supports the employees by fostering a healthier work-life balance through flexible working hours, locations and the number of hours worked. Providing these flexible options helps staff stay productive and allows companies to retain good talent. By offering this tax relief, the government aims to make flexible working a standard practice across corporate sectors.

1. Categories of Qualifying Expenditure
   
   Effective from the Year of Assessment 2025 onwards, employers are allowed a deduction of fifty per cent (50%) of the expenditure incurred during the basis period for a year of assessment for the implementation of flexible work arrangements.
   
   This tax incentive is subject to a maximum RM500,000 and shall be only allowed once, provided that the following statutory requirements have been met:
   
   

   (1)	The expenditure must be incurred strictly for the cost of capacity development, including the training cost for the employees, and the cost for the acquisition of software;
   (2)	The employer’s application for the implementation of flexible work arrangements is verified by Talent Corporation Malaysia Berhad; and
   (3)	The employer’s application for the implementation of flexible work arrangements must be received by Talent Corporation Malaysia Berhad between the period of 1 January 2025 and 31 December 2027.

   
   
2. Capacity Development Costs
   
   The cost of capacity development for the implementation of flexible work arrangements means the fee or cost of the following:
   
   

   (1)	Training course or programme;
   (2)	Internal trainer;
   (3)	Training material;
   (4)	Rental of training space;
   (5)	Examination;
   (6)	Travelling expenses incurred by trainers and employees, subject to the following conditions: (a) If travelling by air transport, both overseas and local travelling expenses will be equivalent to the economy class air fare; (b) If travelling by land transport, the local travelling expenses will be the actual cost incurred; (c) If travelling by water transport, the local travelling expenses will be the actual cost incurred; (d) Accommodation expenses not exceeding RM300 per day; and (e) Meals not exceeding RM150 per day.

   
   
3. Non-application of Incentive
   
   The employer is not allowed to claim deduction under the 2026 Rules in the basis period for the Year of Assessment if, during the same basis period, they have already submitted a claim for the implementation of flexible work arrangements under the following Rules:
   
   

   (1)	Income Tax (Deduction for Consultation and Training Costs for the Implementation of Flexible Work Arrangements) Rules 2015 [P.U.(A) 134/2015];
   (2)	Income Tax (Deduction for the Cost of Implementation of Flexible Work Arrangements) Rules 2021 [P.U.(A) 377/2021].

For further information, please visit the official website of the Inland Revenue Board of Malaysia at https://www.hasil.gov.my/en or the official website of Talent Corporation Malaysia Berhad at https://www.talentcorp.com.my/ .

KAIZEN Group, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.

Disclaimer All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

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