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 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 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 is chargeable on instruments/official written document at ranges from RM10.00 to ad-valorem rates.
Tax Incentives for Upstream Petroleum Activities
- 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.
- 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