On 7 December 2017 the Ukrainian Parliament adopted draft law 6776-д introducing significant changes to the Tax Code of Ukraine*.
Companies producing natural gas in Ukraine from “new wells” will substantially benefit from some of the changes outlined below.
We expect that these measures will boost domestic natural gas production in Ukraine and draw international investors’ attention to Ukrainian natural gas assets, as the new rates of tax make Ukraine’s fiscal regime for gas production quite competitive compared to other European jurisdictions.
| Name of mineral | |
| Currently | Draft Law 6776 |
- Natural Gas
|
| from deposits entirely or partly at a depth of up to 5,000 metres | 29%* | 12%** |
| from deposits entirely or partly at a depth of more than 5,000 metres | 14%* | 6%** |
- Condensate
|
| from deposits entirely or partly at depth of up to 5,000 metres | 45% | 29%*** |
| from deposits entirely or partly at depth of more than 5,000 metres | 21% | 14%*** |
- Production Sharing Agreements
|
| oil | 29%* | 2% |
| gas | 14%* | 1.25% |
| * applied to the “value of extracted gas”, which equals the average customs value of natural gas imported by Ukraine, calculated and published by the Ministry of Economic Development and Trade on a monthly basis. ** applied to the same “value of extracted gas”, but produced only from “new wells”. A “new well” is defined as a well where drilling began from the land surface (0-metre level as per the well design document) after 1 January 2018, which is to be confirmed by the act of commissioning a drilling rig. Does not apply to JAAs. *** starting from 1 January 2019. Applied to the average price of a barrel of Urals oil (taking into account that one tonne of Urals oil contains 7.28 barrels), determined according to the relevant data of UralsMediterranean and UralsRotterdam, calculated and published on a monthly basis by the Ministry of Economic Development and Trade. |
The Tax Code will now also contain a 5-year stabilisation clause stating that the rate of the royalty on gas from new wells will remain stable from 1.01.2018 to 1.01.2023. In particular the rate of the tax cannot be increased, adjusted or corrected in any way by the Tax Code or any other laws, that might or could lead to an actual increase of the producers’ tax obligations for the royalty tax as compared to the 12%/6% rates as calculated on 1 January 2018. If there are further changes to the legislation that governs tax incentives for natural gas production, the companies will have a right to opt in to any such new tax incentives.
The law will become effective once it is signed by the President and published in the official media.
Source: Draft Law 6776 “On Amendments to the Tax Code of Ukraine for Ensuring the Balance of Budget Revenues in 2018”
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* Information is given based on legislative drafts available as of the date of this publication. The final text of the Amendments may slightly differ from the above.
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