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Malaysia Petroleum Management

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Regulatory

Other Governing Laws

Tax Regulations in Malaysia

  • Tax Regulatory Bodies
  • Petroleum Operations
  • Tax Regime
  • Incentive

Administrative and regulatory bodies that govern taxation in Malaysia:

The Inland Revenue Board (IRB)

The Inland Revenue Board (IRB) is, an agency of the Ministry of Finance (MOF) which, is responsible for the overall administration of direct taxes enacted under the following Acts:

  1. Income Tax Act 1967
  2. Petroleum (Income Tax) Act 1967
  3. Real Property Gains Tax 1976
  4. Promotion of Investment Act 1986
  5. Stamp Act 1949**
  6. Labuan Business Activity Tax Act 1990

**Stamp duty is chargeable on certain instruments specified in the First Schedule of the Stamp Act 1949. More details at: Act | Lembaga Hasil Dalam Negeri Malaysia.

More details on the tax regimes are available on the IRB’s website http://www.hasil.gov.my

The Royal Malaysian Customs Department

The Royal Malaysian Customs Department is responsible for the administration of taxes and duties enacted under the following Acts:

  1. Sales Tax Act 2018
  2. Service Tax Act 2018
  3. Customs Act 1967

For more details on Sales Tax and Service Tax, please visit https://mysst.customs.gov.my

For more details on customs duties, please visit https://www.customs.gov.my/en/pages/main.aspx

The Sarawak State Sales Tax is administered by the Sarawak State Comptroller while the Sabah Ministry of Finance is responsible for the administration of the Sabah State Sales Tax.

Investors are further advised to consult their authorised/appointed tax agents on the details and the applicability of various aspects of the Malaysian taxation system.

Petroleum (Income Tax) Act 1967

  • Petroleum Income Tax on petroleum operations in Malaysia is governed by the Petroleum (Income Tax) Act 1967 (“PITA”), which imposes tax on the income derived by chargeable person from petroleum operations in Malaysia (including any incidental revenue to the petroleum operations) for each year of assessment.

  • The current petroleum income tax is 38%

  • A chargeable person is defined in PITA as PETRONAS, Malaysia-Thailand Joint Authority and any other person carrying out petroleum operations in relation to each petroleum agreement.

  • Petroleum operations covers activities of searching for and winning or obtaining of petroleum in Malaysia, sale or disposal of such petroleum and transportation within Malaysia of petroleum so won or obtained to any point of sale or delivery or export.

  • Petroleum operations do not include transportation of petroleum outside Malaysia, any process of refining or liquefying of petroleum, any dealings with refined or liquified products and service involving supply and use of rigs, derricks, ocean tankers and barges.

Income Tax Act 1967

  • Tax on non-petroleum operations is governed under the Income Tax Act 1967 which imposes tax on the income accruing in, or derived from Malaysia, or received in Malaysia from outside the country for each year of assessment.

  • Resident companies are taxed at the rate of 24%, except for Small and Medium Enterprises (“SME”) companies which are taxed at 17% only for the first RM6500,000 of chargeable income and any excess of RM6500,000 at the rate of 24%.

  • SME is defined as a resident company incorporated in Malaysia with (i) paid-up capital of RM2.5 million or less at the beginning of the basis period (ii) gross income from business of not more than RM50 million for the basis period; (iii) is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM2.5 million.

  • Non-resident companies are taxed at a flat rate of 24%.

Sales Tax Act 2018 and Service Tax Act 2018

Sales Tax and Service Tax (collectively referred to as SST) are single-stage tax which was implemented with effect from 1 September 2018, replacing the Goods and Services Tax (GST).

Sales Tax
Sales Tax is imposed on taxable goods:

  • Manufactured in Malaysia by a registered manufacturer; or
  • Imported into Malaysia.

The applicable Sales Tax rates vary depending on the classification of the taxable goods and are imposed at:

  • 5%;
  • 10%; or
  • A specific rate, where prescribed.
     

Sabah State Sales Tax Enactment 1998 (SbSST)

Pursuant to the Sabah State Sales Tax Enactment 1998 (SSTE), the petroleum products that are subjected to SbSST as follow:

No.

Description

Customs HS Code

Rate of Tax

Effective Date

1.

Crude Petroleum Oil

2709.00.1000

5%

1 April 2020

2.

Natural Gas

2711.21.1000 and 2711.21.9000

5%

1 April 2020

3.

Liquefied Natural Gas

2711.11.0000

5%

1 April 2020

4.

Condensates

2709.00.2000

5%

1 April 2020

5.

Urea

3102.10.0000

5%

1 August 2022

6.

Ammonia

2814.10.0000

5%

1 August 2022

7.

Methanol

2905.11.0000

5%

1 October 2023

SbSST is applicable on taxable goods sold or provided by any person carrying on business in the State of Sabah.

Valuation

The SSTE provided the SbSST to be levied on the sale value of taxable petroleum products.

However, effective 1 October 2025, the “Reference Price (RP)” mechanism was introduced on certain taxable petroleum products for the purpose of computing SbSST. For the affected taxable petroleum products, SbSST shall be levied on the higher of:

  1. The sales value based on invoice/contract; or
  2. The sales value based on Reference Price.

Item

Taxable Goods

Sales Value

1.

Crude Petroleum Oil

The higher of between:

  1. Gazette Price1 multiplied by the Sales Volume; or
  2. Invoice Value

2.

Condensate

3.

Natural Gas to Labuan

The higher of between:

  1. Monthly Reference Price issued by Sabah MOF multiplied by 0.85 and Sales Volume; or
  2. Invoice Value

4.

Liquefied Natural Gas

The higher of between:

  1. Monthly Reference Price issued by Sabah MOF multiplied by 0.85 and Sales Volume; or
  2. Invoice Value

1 Reference Price for crude and condensates are in accordance with the Customs (Values) (Crude Petroleum Oil) Order issued on a bi-weekly basis

Exemptions

Exemptions from SbSST are currently available for the sale of natural gas:

  • Exemption is revoked with effect from 1 February 2025
  • To Sabah Energy Corporation Sdn. Bhd.

Exemption from implementing the Reference Price (“RP”) mechanism is provided to any taxable person who sells natural gas to Aggregator in Labuan, subject to written application submitted to Sabah MOF.

 

Service Tax

Service Tax is imposed on prescribed taxable services:

  • Provided in Malaysia by a registered person; or
  • Imported into Malaysia.

The applicable Service Tax rates are as follows:

  • 8% for prescribed taxable services;
  • 6% for certain specified taxable services; or
  • A fixed rate of RM25 per year for credit/charge card
     

Sarawak State Sales Tax Ordinance 1998 (SaSST)

Under the Sarawak State Sales Tax Ordinance 1998 (SSTO), the list of taxable goods was expanded with effect from 1 January 2019 to include the following taxable petroleum products:

No.

Description

Customs HS Code

Rate of Tax

1.

Crude Petroleum Oil

2709.00.1000

5%

2.

Liquefied Natural Gas

2711.11.0000

5%

3.

Urea

3102.10.0000

5%

4.

Paraffin Wax

2712.90.1000

5%

5.

Kerosene

2710.19.8300

5%

6.

Gas Oil

2710.19

5%

7.

Lubricating Oils

2710.19.4300

5%

8.

Naphthalene

2707.40.00 00

5%

9.

Lubricating Greases

2710.19.44 00

5%

10.

Condensates

2709.00.20 00

5%

Sarawak State Sales Tax is imposed on the export of taxable petroleum products out of Sarawak.

Valuation

The SSTO prescribed for SaSST to be levied on the sale value of taxable goods.

However, specifically for Crude & Condensates, SaSST shall be levied on the higher of:

  • Gazette Price1 multiplied by the Sales Volume; or
  • Invoice Value

1 Reference Price for crude and condensates are in accordance with the Customs (Values) (Crude Petroleum Oil) Order issued on a bi-weekly basis

Customs Act 1967

Customs duties, including import duty and export duty, are governed under the Customs Act 1967 and its subsidiary legislations. More details at: Act | Customs Act 1967.

Duty Rates

The applicable import and export duty rates vary depending on the classification of the goods and are prescribed under the Customs Duties Order 2025. More details at: Customs Duties Order 2025.

Exemptions

Exemptions from customs duties may be available under the Customs Duties (Exemption) Order 2017, including items listed in the Master Exemption List. More details at: Customs Duties (Exemption) Order 2017.

Where an exemption is not prescribed under the relevant exemption orders, an application for exemption may be made to the Minister of Finance pursuant to Section 14(2) of the Customs Act 1967. The application is subject to approval from Minister of Finance.

Tax Incentives for Upstream Petroleum Activities

Type of Allowance Project Definition
Marginal Field Marginal Field A field in a petroleum arrangement contract area which has potential crude oil reserves not exceeding 30 million stock tank barrels or natural gas reserves not exceeding 500 billion standard cubic feet.
Investment Allowance High Pressure High Temperature (HPHT) A project for the development of a reservoir in an undisturbed bottom hole temperature conditions of greater than 150°C or 300°F and where either the maximum anticipated pore pressure of any porous formation exceeds 0.8 psi/ ft. (more than 15.4ppg mud), or pressure control equipment with a rated working pressure in excess of 10,000 psi.
Investment Allowance High Carbon Dioxide Gas (High CO2) A project with carbon dioxide gas content of more than twenty per cent or not meeting gas plant specifications post blending and require carbon dioxide removal.
Investment Allowance Enhanced Oil Recovery (EOR) A tertiary development project which involves processes where external energy is applied to the reservoir to improve the recovery factor from producing fields.
Investment Allowance Deepwater Project A project in water depth of more than two hundred meters.
Investment Allowance Infrastructure Asset Pipeline and associated facilities, directly used for the purposes of handling and transporting petroleum by a chargeable person to any point of sale or delivery or report.
Investment Allowance High Hydrogen Sulfide Gas (H2S) A project with hydrogen sulfide gas content which  exceeds   400   parts   per   million   by   volume   or requires hydrogen sulfide gas separation unit
Late Life Assets Late Life Assets Applicable to Late Life Assets Production Sharing Contract signed from 1 January 2020 until 31 December 2029

Investment Allowance

  • Applicable to approved qualifying projects (i.e. field carries out HPHT, High CO2, or deepwater project and deepwater area) or infrastructure asset.

  • Additional 60% investment allowance granted on qualifying capital expenditure incurred on qualifying projects and infrastructure assets for a qualifying period of 10 years. 

  • Investment allowances can be utilised against a maximum of 70% of the statutory income of the chargeable person in respect of the approved qualifying project or infrastructure asset. 

  • Any unutilised investment allowances can be carried forward for future utilisation against the income from the approved qualifying project until it is fully exhausted.

Transfer of Qualifying Expenditure (QEE)

  • This incentive is subject to the following conditions:

    1. Transfer must be from an exploration Production Sharing Contract (PSC) to production PSC, and not vice versa;

    2. The original parties to both exploration and producing PSCs are the same;

    3. Limit QEE transfer to only one other production PSC; and

    4. QEE is no longer deductible to the exploration PSC

  • The above incentive is an automatic application and is not subject to prior approval from Ministry of Finance or Inland Revenue Board.

Marginal Fields

  • Applicable to field in a petroleum arrangement contract area which has potential crude oil reserves not exceeding 30 million stock tank barrels or natural gas reserves not exceeding 500 billion standard cubic feet.

  • The determination by the Ministry of Finance is on field-by-field basis and not based on the total accumulates reserves of those fields in a petroleum arrangement contract.

  • 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 a marginal field on yearly basis. A separate renewal application needs to be submitted by each Petroleum Arrangement Contractor to apply for the waiver. Such a waiver will be granted on an entity basis, not on a petroleum sharing contract basis.

  • If the accumulated production exceeds the potential threshold stated above during that particular year of assessment in respect of the approved Marginal Field, the tax incentives will no longer apply.

  • The application for tax incentives will depend on meeting all eligibility conditions and is subject to approval by Ministry of Finance. Investors are advised to consult authorised/appointed tax agents on the details and applicability of such incentives.

  • Further information is available on Ministry of Finance’s website at: Garis Panduan Permohonan Insentif Cukai Bagi Industri Petroleum Huluan

  • The application form is available at: Borang Personel: 27/99

Late Life Assets (“LLA”)

  • Applicable to LLA Production Sharing Contract signed from 1 January 2020 until 31 December 2029.
  • Reduced tax rate of 25%.
  • Accelerated capital allowance - initial allowance of 20% and annual allowance of 40%. 
  • Waiver of export duty on oil and gas exported from a LLA PSC on yearly basis. A separate renewal application needs to be submitted by each Petroleum Arrangement Contractor to apply for the waiver. Such a waiver will be granted on an entity basis, not on a petroleum sharing contract basis. 
  • Carryback losses arising from decommissioning activities to 2 immediately preceding years of assessment.

Atomic Energy Licensing Act 1984

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Communications & Multimedia Act 1998

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Continental Shelf Act 1966

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Environmental Quality Act 1974

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Excise Act 1976

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Petroleum (Safety Measures) Act 1984

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Exclusive Economic Zone Act 1984

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Factories and Machinery Act 1967

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Gas Supply (Amendment) Act 2016

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Merchant Shipping Ordinance 1952

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Occupational Safety & Health Act 1994

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