Other Governing Laws

Tax Regulations in Malaysia
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

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 http://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.

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

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%.
Tax Regimes applicable to upstream investors (non-exhaustive):

Sales Tax Act 2018 and Service Tax Act 2018

 

  • Sales Tax and Service Tax (SST) are two separate legislations normally referred to as SST. Effective from 1 September 2018, SST was introduced to replace the Goods and Services Tax (GST).
  • Sales Tax is a single-stage tax imposed on prescribed taxable goods manufactured or imported into Malaysia.
  • The tax rate for Sales Tax varies (i.e. 5%, 10% or a specific rate).
  • Service Tax is a consumption tax levied and charged on prescribed taxable services provided in Malaysia by a registered person or any imported taxable services.
  • The tax rate for Service Tax is 6%.

 


 

State Sales Tax Ordinance 1998

 

  • The Sarawak State Sales Tax list of taxable goods has been expanded with effect from 1 January 2019 to include certain petroleum products which are crude, condensate, LNG, urea, paraffin wax, kerosene, gas oil, lubricating oils, naphthalene and lubricating greases.
  • Sarawak State Sales Tax is applicable on the export of taxable petroleum products out of Sarawak.
  • The tax rate for Sarawak State Sales Tax is 5%.

 


 

State Sales Tax Enactment 1998

 

  • The Sabah State Sales Tax list of taxable goods has been expanded with effect from 1 April 2020 to include certain petroleum products which are crude, condensate, natural gas and LNG.
  • Sabah State Sales Tax is applicable on taxable goods sold or provided by any person who carries on business in the Sabah State.
  • Currently, exemption is available on sale of natural gas sold:
    • for the purpose of manufacturing into LNG in Sabah.
    • to Sabah Energy Corporation Sdn Bhd.
  • The rate for Sabah State Sales Tax is 5%.

 


 

Customs Act 1967

 

  • Customs duties such as import and export duty is levied on the import and export of dutiable goods, governed under the Customs Act 1967 and its subsidiary legislations.
  • The rate for import duty and export duty differs based on the classification of the products. The rates are set out in the Customs Duties Order 2017. More details: P.U.(A) 5 - Perintah Duti Kastam 2017
  • Currently, there are exemptions available under the Customs Duties (Exemption) Order 2017 which includes items listed in the Master Exemption List. More details: P.U.(A) 2- Perintah Duti Kastam(Pengecualian)2017 (Pindaan) 2020
  • Where exemption is not available in the Customs Duties (Exemption) Order 2017, application for exemption could be made to the Minister of Finance under Section 14 of the Customs Act 1967, The application is subject to approval from Minister of Finance.

 


 

Stamp Act 1949

 

  • Stamp duty is governed under the Stamp Act 1949.
  • Stamp duty is chargeable on certain instruments specified in the First Schedule of the Stamp Act 1949. More details at: Stamp Act 1949
  • There are two (2) types of stamp duty charges namely ad valorem duty and fixed duty at RM10.
  • An instrument is required to be stamped within thirty (30) days of its execution if executed within Malaysia. If the instrument is executed outside Malaysia, it must be stamped within 30 days after it has been first received in Malaysia.
Several incentives are currently available under the Petroleum (Income Tax) Act 1967 as follows:

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

 

  • 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.

 


 

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%.
  • Accelerated capital allowances (i.e. higher initial allowance of 25% and annual allowance of 15%) for qualifying capital expenditure (other than fixed offshore platforms) incurred in the basis period for year of assessment 2010 until year of assessment 2024.
  • Waiver of export duty on oil and gas exported from a marginal field. A separate 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 arrangement 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

 


 

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.
Other Relevant Laws

 

Besides the Petroleum Development Act 1974, there are other laws that are applicable to the industry which include but not limited to the following. Click the links below to explore.

 

ACT 304

Atomic Energy Licensing Act 1984

ACT 588

Communications & Multimedia Act 1998

ACT 83

Continental Shelf Act 1966

ACT 127

Environmental Quality Act 1974

ACT 176

Excise Act 1976

ACT 302

Petroleum (Safety Measures) Act 1984

ACT 311

Exclusive Economic Zone Act 1984

ACT 139

Factories and Machinery Act 1967

ACT A1515

Gas Supply (Amendment) Act 2016

ACT A1316

Merchant Shipping Ordinance 1952

ACT 514

Occupational Safety & Health Act 1994