Law 256/2018 regarding some measures necessary for offshore titleholders implementing petroleum operations (the “Offshore Law”) has been published. It came into force on 17 November 2018.
What are the most important provisions?
1. Stability clause
Offshore oil titleholders already operational as at the date of entry into force of this law maintain the same tax model as stated in any agreements in place as at that date throughout the lifetime of such operations. That model refers to the level of oil royalties, the percentages of oil royalties, the related gross production limits and the specific tax regime applicable to exploration, development, exploitation and abandonment activities.
2. Progressive taxation of additional income
The Offshore Law provides several supplementary tax thresholds for additional income (1) based on the sale price of natural gas (2) extracted from offshore areas:
|Tax rate||Natural gas sale price|
|15%||85 RON /MWh - ≤100 RON /MWh|
|30%||100 RON / MWh - ≤115 RON /MWh|
|35%||115 RON / MWh - ≤130 RON /MWh|
|40%||130 RON / MWh - ≤145 RON /MWh|
|50%||145 RON / MWh - ≤160 RON /MWh|
|55%||160 RON / MWh - ≤175 RON /MWh|
|60%||175 RON / MWh - ≤190 RON /MWh|
|70%||> 190 RON / MWh|
(1) The additional income is determined as the difference between the weighted average price of natural gas sold from its own domestic production from offshore areas and the purchase price of natural gas from domestic production for household and non-household customers in 2012, i.e. 45.71 RON / MWh, multiplied by gas volumes sold from domestic production in offshore areas.
(2) As of 1 January 2019, prices will be adjusted each year, using the annual consumer price index.
The deadline for calculation, declaration and payment of this tax is the twenty-fifth of the month following that for which the tax is due. The National Agency for Fiscal Administration (ANAF) is to issue an Order establishing the declaration’s model and form.
3. Deduction of upstream investments
Titleholders can deduct the costs incurred on investments, up to 30% of the total tax on the additional offshore income. Investment amounts deducted from the tax on additional income are non-deductible for profit tax calculations.
The deduction applies on a monthly basis, based on the value of the upstream cumulative investments approved by the National Agency for Mineral Resources (ANRM) and recorded in accounting records.
4. Trading 50% of offshore gas extracted on a regulated market in Romania
Titleholders have to sell a minimum quantity of natural gas extracted from the Black Sea on the centralised markets in Romania. Such sales have to be conducted under a procedure approved by the National Regulatory Authority for Energy (ANRE). As that implies that ANRE should come up with a Regulation and instructions, investors still have an element of uncertainty in this regard.
5. Offshore titleholders’ non-resident subcontractors need to set up a subsidiary or branch in Romania
Titleholders’ non-resident subcontractors have to set up and maintain a subsidiary or branch in Romania throughout the duration of the contract.
6. Acquisition of goods and services from economic operators in Romania and the EU
Titleholders have to purchase goods and services from economic operators in Romania and the European Union (EU), under equivalent technical and price conditions. One specific requirement is that such purchases do not include more than 50% of products originating from third countries with which the EU does not have any multilateral or bilateral framework agreements.
7. At least 25% of the average annual number of employees have to be Romanian citizens with fiscal residence in Romania
Titleholders have to ensure that at least 25% of the average annual number of employees for offshore activities are Romanian citizens with fiscal residence in Romania.
In addition to the above-mentioned provisions, the Offshore Law also allows a deviation from Labour Code regulations by imposing a maximum of 168 work hours / month for offshore workers, with no more than 48 work hours / week. Overtime is paid at a minimum of 175% of the basic hourly wage for each additional hour worked and not compensated with time off in lieu. Daily work time can be up to 12 hours in a 24-hour period. Failure to comply with these provisions can be sanctioned by fines of RON 2,000 - 4,000.
|10% of the value of the concession contract||
|10% of turnover||
|National gross minimum salary multiplied by the number of employees for whom the statutory obligation has not been met||
The provisions of Government Ordinance no. 7/2013 and Government Ordinance no. 6/2013 no longer apply to offshore agreements as of 17 November 2018. Those provisions relate to the tax on the extra income obtained from natural gas sector price deregulation and special measures for the taxation of the exploitation of natural resources other than natural gas, respectively.
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