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Taxation of offshore projects – special treatment

Due to their complexity, risks and high development costs, offshore projects demand special tax treatment. This may have been unnecessary had the Russian government opted for profit-based taxation across the whole industry, but its insistence on maintaining the current tax regime for traditional onshore fields required that a new approach was to be developed for offshore projects. The basic was been developed in government Decree No. 443-r, dated 12 April 2012, and implemented in the Tax Code from 2013:

▪All offshore fields are classified into four risk categories depending on their geological and technological complexity, climate conditions, sea depth, distance from the shore and availability of onshore infrastructure. The first “easy complexity” category includes basic projects including those in the Azov and Baltic Seas. The second “intermediary complexity” category includes shallow parts of the Black Sea (less than 100 metres depth), Caspian, Pechora and White Seas, as well as the southern part of the Okhotsk Sea (to the south of the

55th parallel), including the Sakhalin shelf. The third “high complexity” category includes deep Black Sea (more than 100 metres depth), the northern part of the Okhotsk Sea (to the north of the 55th parallel) and the southern part of the

Barents Sea (to the south of the 72nd parallel). The fourth “Arctic” category incorporates Arctic projects, including those in the Kara Sea, the northern part of the Barents Sea (to the north of the 72nd parallel) and in the Arctic east (the Laptev Sea, East-Siberian Sea, Chukotsk Sea and Bering Sea).

▪MET breaks are established for 5-15 years, depending on the risk category. MET is calculated as a percentage of the realised price, and the rate is set at 30% for five years for the first category, 15% for seven years for the second category, 10% for 10 years for the third category, and 5% for 15 years for the fourth category. Gas projects in the third category (including Gazprom’s YuzhnoKirinskoye field) will be taxed at just 1.3%, while the tax rate for the fourth category will be an even lower 1.0%, according to the Tax Code.

▪Export duty breaks are established for significant periods of time applied for a certain quantity of oil produced (see Export duty exemptions on pages 152-154).

▪VAT, import duty and property tax exemption for relevant equipment, as well as the use of accelerated depreciation for tax purposes.

▪The above criteria apply to oil and gas fields launched after 1 January 2016.

Renaissance Capital

20 June 2019

Russian oil & gas