Taxation Regime

The taxation of income from petroleum operations in Malaysia is under the Petroleum (Income Tax) Act 1967, whereas the income derived from non-petroleum operations is subject under the Income Tax Act 1967.

 

Petroleum (Income Tax) Act 1967

 
  • Petroleum income tax is charged for each year of assessment on the income of a chargeable person derived from petroleum operations. The current petroleum income tax rate is 38%.
  • A chargeable person includes any other person carrying on petroleum operations in relation to each petroleum agreement. 
  • The tax scope covers activities of searching for and winning or obtaining of petroleum in Malaysia by or on behalf of any person for his own account or on a joint account with any other person by any drilling, mining, extracting or other like operations or process, in the course of business carried on by that person engaged in such operations, and all operations incidental thereto, and any sale or disposal by or on behalf of that person of petroleum so won or obtained to any point of sale or delivery or export but does not include any transportation of petroleum outside Malaysia, the process of refining or liquefying of petroleum and any dealings with the products, or services involving rigs, derricks, ocean tankers and barges.
Income Tax Act 1967
 
  • Income tax on non-petroleum operations shall be charged for each year of assessment on the income accruing in, or derived from Malaysia, or received in Malaysia from outside Malaysia.  Resident companies are taxed at the rate of 24%, except for those with paid-up capital of RM2.5 million or less which are taxed at 17% only for the first RM500,000 of income and any excess of RM500,000 at the rate of 24%.

Other tax regimes which are applicable to upstream investors (non-exhaustive):
 
Sales Tax Act 2018 and Service Tax Act 2018
 
  • Sales and Services Tax (SST) is effective from 1 September 2018 to replace Goods and Services Tax (GST). Sales tax is a single-stage tax imposed on taxable goods manufactured or imported into Malaysia, while service tax is a consumption tax levied and charged on any taxable services provided in Malaysia by a registered person.
 
Stamp Duty 1949
 
  • Stamp duty is chargeable on instruments/official written document at ranges from RM10.00 to ad-valorem rates.
 
The Inland Revenue Board (IRB), an agency of the Ministry of Finance, is responsible for the administration of direct taxes enacted under the Income Tax Act 1967, the Petroleum (Income Tax) Act 1967, the Real Property Gains Tax Act 1976, the Promotion of Investments Act 1986, the Stamp Duty Act 1949 and the Labuan Business Activity Act 1990. More details on the tax regimes are available from http://www.hasil.gov.my/. The Royal Malaysian Customs Department is responsible for the administration of the SST – more details are available from https://mysst.customs.gov.my. Investors are further advised to consult its authorized tax agents on the details and the applicability of various aspects of Malaysia taxation.


 

Tax Incentives for Upstream Petroleum Activities

 
Several incentives are currently available under the Petroleum (Income Tax) Act 1967 as follows:
 
Investment Allowance
 
  • Applicable to qualifying projects (i.e. Enhanced Oil Recovery (EOR), High CO2, High Pressure-High Temperature (HPHT) fields or deepwater area) or infrastructure asset.
  • Additional 60% investment allowance granted on qualifying capital expenditure incurred on qualifying projects and infrastructure assets.
  • Investment allowances can be set-off against 70% of the statutory income of the qualifying project. Any unutilized investment allowances can be carried forward for future utilization against the income from the qualifying project.
Marginal Fields
 
  • Applicable to marginal fields
  • Accelerated capital allowances
  • Chargeable income from marginal field(s) will be effectively subjected to tax at a lower rate of 25%
  • Waiver of export duty on oil and gas exported from marginal field development
 
Application for tax incentives are subject to the case-by-case evaluation and approval by the Ministry of Finance (MoF). Investors are advised to consult authorized tax agents on the detail and applicability of such incentives. Further information are available from the MoF at http://www.treasury.gov.my/index.php/en/tax/item/1153-industri-petroleum-huluan.html or via enquiries to upstream.committee@treasury.gov.my.