Special regulations on hydrocarbons extracted from offshore perimeters

Special regulations on hydrocarbons extracted offshore

On 17 November 2018, the "offshore law" came in force. This aims to provide a set of legislative solutions to adapt the existing regulatory framework to oil exploration, development and exploitation projects in offshore oil perimeters, thus ensuring their functionality. The new rules cover areas such as the procedure for authorizing work, financial, commercial, and labor law issues, compensation and compensation provisions, as well as the applicable legal regime for civil offenses and penalties. The law also regulates the tax regime applicable to offshore gas revenues and the investments that this kind of activity involves.

Dragos Doros

Partner, Tax

KPMG in Romania


Special provisions of offshore law

In the Official Journal of Romania no. 964 (November 14, 2018), Law no. 256/2018 on certain measures necessary for the implementation of oil operations by offshore oil perimeter owners was published. The key provisions include the following:

  • Under equivalent technical and price circumstances, the owners of offshore oil agreements are required to purchase goods and services from providers in Romania and the European Union under the conditions set out in Art. 223 of Law no. 99/2016 on Sector Procurement, (and subsequent modifications).
  • At least an annual average of 25% of the employees who work for owners of oil agreements relating to offshore oil perimeters for the running of agreements must be Romanian citizens with Romanian tax residency.
  • At least 50% of the natural gas obtained from offshore perimeters of the Black Sea must be sold on the Romanian market.
  • Non-resident subcontractors of the owners of oil agreements are required to establish a subsidiary or branch based in Romania, within 30 days from the conclusion of the first contract, and to maintain this throughout the duration of the contract, in accordance with the relevant legislation.
  • Offshore employees may have continuous activity for a period of up to 28 consecutive calendar days, with rest periods to be granted cumulatively. The normal average working time should be 168 hours/ month, over a period of 12 months.
  • Owners of the agreements are required by law to pay compensation for the exercise of the right of passage (e.g. when necessary for oil installations which pass over land owned by third parties or for access to such land by construction workers) and compensation for damage caused by the exercise of this right. Compensation and damages will be determined by an assessor authorized by the Ministry of Energy and should be declared to the appropriate tax authority. In order to exercise the right of passage or access in relation to property owned by national state authorities, these amounts must be paid to the state budget. In the case of exercising the right of passage or access on public or private property owned by local authorities, the compensation and the indemnities should be paid to the budget of the relevant local authority. The procedure for recovering compensation and damages is governed by the Fiscal Procedure Code.

The tax regime introduced by the offshore law

For the owners of oil agreements for offshore oil perimeters which are in operation at the time of the entry into force of the law, the level of royalties, the percentages of petroleum charge, the gross output thresholds to be applied for the entire duration of the agreements, of these amounts and the tax regime specific to these activities will be that which applies at the date of the entry into force of the new law.

Owners of agreements, including their subsidiaries or members of the same economic interest group that will carry out both extraction activities and sales activities of natural gas extracted from these perimeters, are required to calculate, declare and pay the tax on the extra offshore revenue. Additional offshore revenue means "the difference between the weighted average price of natural gas sold from its own domestic production from offshore perimeters and the purchase price of natural gas from domestic production for household and non-household customers in 2012, ie 45.71 lei / MWh, multiplied by the volumes of gas sold off from domestic production in offshore perimeters.

The new tax has the following features:

  • It is calculated, declared and paid monthly, by the 25th of the month following the month for which the tax is due.
  • The applicable tax grid includes different percentages (between 15% and 70%), depending on the gas sales price. Transactions below the reference price are taxed at the reference price.
  • Investments made in the upstream sector can be deducted from the tax resulting from the application of the grid, but this will be limited to 30% of the additional income tax.
  • Investments deducted from the extra offshore revenue tax are not deductibler in the calculation of standard corporate tax.

KPMG Comment

There is considerable controversy about the correct interpretation of certain provisions of the offshore law. Some provisions were also challenged as non-compliant with EU law during the legislative process, but were maintained in the final form. We will issue a further newsflash if these issues are clarified.

©2022 KPMG România S.R.L., o societate cu răspundere limitată de drept român, membră a organizației globale KPMG, compusă din societăți membre independente afiliate KPMG International Limited, societate privată engleză cu raspundere limitată la garanții.  Toate drepturile rezervate.

Pentru mai multe detalii despre structura globală a KPMG, accesați https://home.kpmg/governance

Connect with us

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today