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Accelerated Capital Allowance for Late-Life Assets projects for the Upstream Petroleum Industry

Updated: Nov 25

Late Life Asset Production Sharing Contract (PSC)

The Late Life Asset (LLA) PSC was adopted by Petronas in 2019 for specific oil and gas fields nearing the end of their productive life with resources of less than 30 MMstb.


These PSCs have better terms for Contractors, intending to extend the value of the fields until abandonment.


The first two LLA fields (the Tembungo and the MASA Cluster) were offered in the 2020 Malaysian Bidding Round.


Proposed Incentives for Late-Life Assets (LLA) Projects

In Budget 2022, it is suggested that the following measures be undertaken to persuade oil and gas investors to participate in LLA projects:

  • The income tax rate on petroleum will be set at 25%.

  • The granting of Accelerated Capital Allowances will take place throughout the next two years.

  • Losses from decommissioning activities can be carried back and set off against the income for two consecutive immediate preceding years of assessment. Any unabsorbed carry-back losses will be disregarded

  • There will be a reduction in the export duties that apply to petroleum products.

Petroleum (Income Tax) (Accelerated Capital Allowances) (Late-Life Assets Production Sharing Contract) Rules 2022

IN exercise of the powers conferred by paragraph 83(1)(a) of the Petroleum (Income Tax) Act 1967 [Act 543], the Minister makes the Petroleum (Income Tax) (Accelerated Capital Allowances) (Late-Life Assets Production Sharing Contract) Rules 2022 which was gazetted on September 27, 2022.


These Rules are deemed to have come into operation on 1 January 2020.

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.1 Petroleum (Income Tax) (Accelerated Capital Allowances) (Late-Life Assets Production
Download 1 PETROLEUM (INCOME TAX) (ACCELERATED CAPITAL ALLOWANCES) (LATE-LIFE ASSETS PRODUCTION • 895KB

Application

These Rules shall apply to a chargeable person who:

  1. has signed a Late-Life Assets production sharing contract within the period from 1 January 2020 to 31 December 2029; and

  2. in a basis period for a year of assessment has incurred qualifying plant expenditure under the Second Schedule to the Act solely to carry out a petroleum operation concerning that Late-Life Assets production sharing contract.

The Minister may determine a project as a Late-Life Assets project which is a brownfield oil or gas field [means an oil or gas field that has been developed and has reached a peak level of oil or gas production rate] and has an economic lifespan not exceeding ten years commencing from the year a Late-Life Assets production sharing contract is signed.

Accelerated Capital Allowances

Under these Rules:

  1. Initial allowance

  2. The initial allowance on qualifying plant expenditure shall be equal to 20%

  3. Annual allowance

  4. The annual allowance on qualifying plant expenditure shall be equal to 40%

Disposal

Where an asset which qualifies for the Accelerated Capital Allowances is disposed of within one year from its acquisition, the allowances which have been allowed to the chargeable person shall be withdrawn in the basis period for the year of assessment in which the asset is disposed of.



“Disposed of” has the same meaning in paragraph 40 of the Second Schedule to the Petroleum (Income Tax) Act 1967.


Non-application

These Rules shall not apply to a chargeable person in the basis period for a year of assessment where the chargeable person—

  1. has been granted accelerated capital allowance under the Petroleum (Income Tax)(Accelerated Capital Allowances) (Marginal Field) Rules 2013 [P.U. (A) 119/2013];

  2. has been granted an investment allowance under the Petroleum (Income Tax) (Investment Allowance) Regulations 2013 [P.U.(A) 120/2013];

  3. has been granted tax exemption under the Petroleum (Income Tax) (Exemption) Order 2013 [P.U. (A) 122/2013];

  4. has been granted accelerated capital allowance under the Petroleum (Income Tax) (Accelerated Capital Allowances) (PETRONAS Marginal Field) Rules 2014 [P.U. (A) 304/2014];

  5. has been granted tax exemption under the Petroleum (Income Tax) (Exemption) Order 2014 [P.U. (A) 305/2014];

  6. has been granted an investment allowance under the Petroleum (Income Tax) (Investment Allowance for PETRONAS) Regulations 2021 [P.U.(A) 336/2021];

  7. carries on petroleum operations in the Joint Development Area; or

  8. carries on petroleum operations in an area under any agreement or arrangement made by the Government with any government of any territory outside Malaysia for the joint exploration and exploitation of petroleum in overlapping areas.


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