Flexible Work Arrangement (FWA) incentives

Flexible Work Arrangement (FWA) incentives

Under the Short-term Economic Recovery Plan (PENJANA) announced on 5 June 2020, to encourage work-from-home arrangements, the Government proposed certain flexible work arrangement (FWA) incentives. One of the incentives proposed was a double deduction to be given to employers that implement FWAs, effective 1 July 2020 (see Take 5: COVID-19: Short-term Economic Recovery Plan).

To legislate the above, the Income Tax (Deduction for the Cost of Implementation of Flexible Work Arrangements) Rules 2021 [P.U.(A) 377] were gazetted on 4 October 2021.

The Rules provide that in ascertaining a qualifying person’s adjusted income from his business for a year of assessment (YA), a double deduction shall be given for expenses incurred by the person for that YA for the implementation of FWAs. A double deduction is given for the following expenses:

(a)   Consultation fees

(b)  Cost of capacity development (defined below)

(c)   Cost of software

(d)  Software subscriptions

The implementation or enhancement of existing FWAs by the qualifying person will need to be certified by Talent Corporation Malaysia Berhad (TalentCorp). Applications must be received by TalentCorp between 1 July 2020 and 31 December 2022.

The total amount of expenses referred to in (a) to (d) above is capped at RM500,000 for each YA, and will need to be verified by TalentCorp. The deduction is given for a period of three consecutive YAs, commencing from the YA in which the certification of the implementation of FWA is given by TalentCorp.

The following terms have been defined in the Rules:

(i)    Qualifying person 

A Malaysian-resident, which is a:

(a)  Company incorporated under the Companies Act 2016

(b) Limited liability partnership registered under the Limited Liability Partnerships Act 2012, or

(c)  Partnership registered under the Partnership Act 1961

(ii)   FWA

Flexible arrangements for:

(a)  Place of work

(b) Scheduling of working hours, or

(c)  Number of hours worked

(iii) Cost of capacity development

(a)   Training courses or programme fees

(b)  Internal trainer fees

(c)   Cost of training materials

(d)  Rental of training space

(e)   Examination fees, and

(f)    Training-related travelling expenses incurred by the trainers and employees as follows:

i.            Transportation:

a. Travels from Malaysia to outside Malaysia, and vice versa
     -     Amount equal to economic class air fare

b.     Travels within Malaysia

-        Air transport: Amount equal to economic class air fare

-        Land or water transfer: Actual cost

ii.           Accommodation: Capped at RM300 per day

iii.          Meals: Capped at RM150 per day

The Rules stipulate that in a situation where the expenses which would have been allowed as a deduction under these Rules exceed the amount which, in the opinion of the Director General (DG), would reasonably be expected to have been incurred in the ordinary course of business, the DG may disallow a deduction on the excess under these Rules. The Rules also provide that no claim shall be made under Section 33 and Schedule 3 of the Income Tax Act 1967 (ITA), or any rules made under Section 154 of the ITA, for the same expenditure, where a deduction has been claimed under these Rules.

The Rules are deemed to be effective from YA 2020.