Answer ... Due to the particularity of each permit or exploitation concession agreement, this question discusses only the applicable tax rules in accordance with the Hydrocarbons Code.
In this respect, the Hydrocarbons Code defines two types of tax regimes:
- the fiscal regime of the holder; and
- the fiscal regime in the case of production sharing contracts (PSCs).
Holder: The main taxes applicable in this regard are:
- corporate tax;
- royalties on production;
- registration duties;
- turnover taxes; and
- local taxes.
The fiscal regime that applies to the petroleum industry in Tunisia consists of a combination of royalties, corporate profits tax and an export duty on crude oil, oil products and natural gas. Each is described below.
Royalties: An oil and gas entity is subject to the disbursement of a portion of its production, commonly referred to as a royalty, in respect of oil production. Generally, for gas, the royalty due is paid in cash. The production percentage will vary according to the R-factor as determined in the Hydrocarbons Code.
In case of non-participation by Entreprise Tunisienne des Activités Pétrolières (ETAP) in an exploitation concession, the rate of the proportional royalty applicable to the concession may not be less than 10% for liquid hydrocarbons and 8% for gaseous hydrocarbons.
Corporate income tax: According to Article 107.2 of the Hydrocarbons Code, for oil and gas entities, the taxable income is determined for corporate income tax purposes in accordance with the rules set out in the Individual and Corporate Income Tax Code.
For hydrocarbon activities, the taxable income is calculated separately by the holder from its other activities in Tunisia, in accordance with Article 106 of the Hydrocarbons Code.
Ring fencing: Tunisia applies the ring-fencing principle in determining an entity’s corporate tax liability in relation to its oil and gas activities. In this respect, hydrocarbon income tax is determined separately for each concession.
Profits tax levied on taxable profit: A concession holder should maintain Tunisian tax records for its hydrocarbon activities in Tunisian dinars and in accordance with the local legislation for each concession. Taxable profit is equivalent to non-exempt income less deductions. Non-exempt income includes:
- sales income (determined with reference to accounting data for sales); and
- non-sales income (certain items that are specifically mentioned in the Tax Code).
Deductions include expenses to the extent that they are economically justified and documented in accordance with Tunisian legislation.
The income tax from hydrocarbon activities should be determined using a variable rate based on the R-factor, according to Article 101.3 of the Hydrocarbons Code. The corporate income tax rate used will vary according to the nature of the hydrocarbons (whether liquid or gaseous).
However, in the case of participation by ETAP in an exploitation concession at a rate equal or greater than 40%, the corporate income tax rate applicable to the profits generated from that concession is set at 50%.
During the prospecting and exploration stage, oil and gas companies will not generate any profits from their hydrocarbon activities. At the option of the holder, the exploration costs incurred can either be:
- treated as deductible expenses in the fiscal year in which they were incurred; or
- capitalised and depreciated from the first fiscal year of production at a maximum rate of 30%.
Development costs are deductible through the depreciation of constructed fixed assets.
Export duty: This is determined based on the price fixed every month by the General Directorate of Hydrocarbons. However, any amount paid as export duty levied on the export of hydrocarbons produced by a company or on its behalf is considered an advance of the corporate income tax due by that entity for the fiscal year in which the relevant amount was paid or, otherwise, for subsequent fiscal years.
Production sharing contracts: The profit oil/gas allocated to the contractor by ETAP should be adjusted according to the R-factor, increased over the period in which the contractor has recovered all of the prospecting, research and appraisal, development and exploitation expenditures it has incurred.
According to Article 114.1 of the Hydrocarbons Code, in consideration of the share of production made available to ETAP after deduction of the recovery oil and profit oil/gas, the contractor will be deemed to have paid the corporate income tax (ie, the contractor tax will be paid by ETAP). This tax is set for every fiscal year to the value of the production quantities taken by the contractor as profit oil/gas.
According to the Hydrocarbons Code, the corporate income tax due will be directly settled by ETAP on behalf of the contractor. This amount will be credited to the contractor’s corporate income tax account with the revenue authorities.