Rules for Deduction of Pre-Petroleum Agreement Expenditure Gazetted
29 April 2025
The
Petroleum (Income Tax) (Deduction for Pre-Petroleum Agreement Expenditure) Rules 2025 [P.U.(A) 119/2025] (“
Rules”) were gazetted on 15 April 2025. The Rules facilitate,
inter alia, the deduction of qualifying expenses incurred before a petroleum agreement is entered into.
The Rules are deemed to have come into effect from year of assessment 2024.
Deductible expenses
The qualifying expenditure that is eligible to be deducted are the expenses incurred for data acquisition and seismic studies incurred in an area which is commissioned and verified by Malaysia’s national petroleum company, Petroliam Nasional Berhad (“
PETRONAS”) (“
qualifying pre-petroleum agreement expenditure”).
The Rules allow a deduction for qualifying pre-petroleum agreement expenditure if:
- the qualifying pre-petroleum agreement expenditure is incurred by:
- any person and the petroleum agreement is executed on or after 1 January 2024; or
- any person who is a partner to a partnership and the petroleum agreement is executed on or after 1 January 2024,
and such expenditure is verified by PETRONAS; and
- the qualifying pre-petroleum agreement expenditure must be incurred within three years immediately preceding the date of execution of the petroleum agreement.
Expenses relating to accessing data on PETRONAS’s myPROdata portal may qualify for deduction as a qualifying pre-petroleum agreement expenditure if the other conditions under the Rules are met.
The qualifying pre-petroleum agreement expenditure shall be deemed to be incurred on the date of execution of the petroleum agreement.
Deduction
The qualifying pre-petroleum agreement expenditure shall be allowed as a deduction for the purpose of ascertaining the adjusted income of a chargeable person from its petroleum operations in the basis period for a year of assessment.
The deduction shall be allowed for ten years of assessment commencing from the year of assessment in which the chargeable person sells or disposes of the chargeable petroleum for the first time. The amount of deduction for each year of assessment shall be determined in accordance with the following formula:
A
B |
| where |
| A |
is the qualifying pre-petroleum agreement expenditure; and |
| B |
is ten years of assessment |
The Rules clarify that where a chargeable person who incurs a qualifying pre-petroleum agreement expenditure carries on its petroleum operations under two or more petroleum agreements and the area under each agreement is contiguous, the period of ten years of assessment shall commence from the year of assessment in which the chargeable person sells or disposes of the chargeable petroleum for the first time relating to the area under the petroleum agreement in which the qualifying pre-petroleum agreement expenditure is incurred.
The Rules further clarify that any qualifying pre-petroleum agreement expenditure which is not fully claimed by the chargeable person under the petroleum agreement is not transferrable to another petroleum agreement.
Non-application
The Rules do not apply to:
- PETRONAS;
- Malaysia–Thailand Joint Authority (MTJA);
- a chargeable person who carries on petroleum operations in the Joint Development Area in the basis period for a year of assessment; or
- a chargeable person who carries on petroleum operations in an area under any agreement or arrangement made by the Government with the government of any territory outside Malaysia for the joint exploration and exploitation of petroleum in overlapping areas in the basis period for a year of assessment.
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