Tax subsidiary legislation for Late-Life Assets Production Sharing Contracts gazetted
29 September 2022
The following subsidiary legislation were gazetted on 27 September 2022 to set out the tax treatment of certain income and expenditure under the Petroleum (Income Tax) Act 1967 (‘
the Act’) in relation to production sharing contracts for Late-Life Assets projects (‘
Late-Life Assets PSC’):
All three subsidiary legislation are deemed to have come into operation on 1 January 2020.
Late-Life Assets project
The Minister of Finance may, for the purposes of each of the subsidiary legislation, determine a project which is a brownfield oil or gas field and has an economic lifespan not exceeding ten years from the year a Late-Life Assets PSC is signed, to be a Late-Life Assets project.
A ‘brownfield oil or gas field’ has been defined in each of the three subsidiary legislation as ‘an oil or gas field that has been developed and has reached a peak level of oil or gas production rate.’
The Accelerated Capital Allowance Rules
Application
The Accelerated Capital Allowance Rules apply to a chargeable person who satisfies both the following criteria:
- has signed a Late-Life Assets PSC within the period from 1 January 2020 to 31 December 2029; and
- in a basis period for a year of assessment (‘YA’) has incurred qualifying plant expenditure under the Second Schedule to the Act solely for the purposes of carrying out a petroleum operation in relation to that Late-Life Assets PSC.
Allowances
The Accelerated Capital Allowance Rules provide that:
- the initial allowance under paragraph 8(b) of the Second Schedule to the Act on qualifying plant expenditure shall be equal to 20%; and
- the annual allowance under paragraph 12(1)(b) of the Second Schedule to the Act on qualifying plant expenditure shall be equal to 40%.
Withdrawal of Allowance
Any allowance allowed under the Accelerated Capital Allowance Rules shall be withdrawn if an asset which qualifies for the allowance is disposed of within one year from the date of its acquisition. Such allowance shall be withdrawn in the basis period for the YA in which the asset is disposed.
Non-application
The Accelerated Capital Allowance Rules do not apply in the eight circumstances set out in paragraphs (a) to (h) of Rule 8.
The Exemption Order
The Exemption
The Exemption Order exempts a chargeable person who has signed a Late-Life Assets PSC with Petroliam Nasional Berhad (‘
PETRONAS’) within the period from 1 January 2020 to 31 December 2029 from payment of petroleum income tax in the basis period for a YA in respect of its statutory income derived from petroleum operations in relation to the Late-Life Assets PSC.
The statutory income of the chargeable person shall be determined in the manner set out in paragraph 3 of the Exemption Order.
Non-application
The Exemption Order does not apply in the eight circumstances set out in paragraphs 5(a) to 5(h) of the Exemption Order.
The Decommissioning Regulations
Assessable income
Subject to the limits set out in the rules of deduction below, the Decommissioning Regulations allow a chargeable person who has signed a Late-Life Assets PSC within the period from 1 January 2020 to 31 December 2029 to deduct the amount of adjusted loss from oil and gas field decommissioning activity in ascertaining the chargeable person’s assessable income from his petroleum operation in relation to the Late-Life Assets PSC in a basis period for a YA.
For the purposes of the Regulations:
- ‘adjusted loss from oil and gas field decommissioning activity’ means any amount of adjusted loss from oil or gas field decommissioning activity for the basis period for a YA as ascertained under section 19 of the Act; and
- ‘oil or gas field decommissioning activity’ means the removal, leave and abandonment activity of a petroleum facility which is disused or no longer needed for petroleum operations as approved by PETRONAS, taking into account the international standard specified by a competent organisation and generally accepted.
Rules on deduction
The adjusted loss from oil and gas field decommissioning activity shall be allowed as a deduction as follows:
- firstly, in ascertaining the assessable income of a chargeable person in a YA immediately preceding the YA in which the adjusted loss is ascertained under section 19 of the Act (‘Relevant YA’); and
- secondly, any balance of such adjusted loss shall be utilised as a deduction in ascertaining the assessable income of that chargeable person for the second YA immediately preceding the Relevant YA.
Any amount of adjusted loss that is not utilised in the two YAs described above shall be disregarded.
Alert by Kok Chee Kheong (Partner) and Faith Chan (Associate) of the Corporate Practice of Skrine.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.