The Ukrainian Parliament has increased the subsoil use taxes, by adopting a new tax code on 2 December 2010 (the "Tax Code"). The Tax Code has already been signed by the President and will come into effect on 1 January 2011. The principal taxes (i.e. (i) charges for subsoil use, and (ii) royalty payments) imposed on subsoil users engaged in the production of hydrocarbons have been substantially increased.
1. Charges for subsoil use
The subsoil use charge is paid by subsoil users and is dependant on the type and volume of the extracted mineral resources. The subsoil charge is equal to the volume of a mineral resource multiplied by the rate established by the Tax Code for that specific type of mineral resource, and by the respective adjustment indices. These indices apply to, inter alia, the extraction of minerals from subsidised deposits by subsoil users, which had previously conducted a geological survey and performed an estimation of the reserves at a licensed area at its own expense, etc. and vary between 0.01 and 0.85.
The subsoil use charge established by the Tax Code for natural gas is UAH 37.78 [USD 4.80] per 1,000 m3; and UAH 147.63 [USD 18.60] per tonne of oil and gas condensate. In 2010, the rates were UAH 3.67 [USD 0.50] and 50.00 [USD 6.30], respectively.
2. Royalty payments
A royalty payment is calculated for each kind of hydrocarbon produced. It amounts to the volume of the produced hydrocarbons multiplied by (i) the established rent rate (hereinafter – the "Rent Rate"); and (ii) the adjusting index (hereinafter – the "Index") (if applicable).
2.1 Royalty Payment for Produced Natural Gas
The Rent Rate applicable to produced natural gas will depend on the precise category of end customers to which the natural gas is to be supplied, e.g.:
(a) if the produced natural gas (including oil and wellhead gas) is to be sold to a body authorised by the Cabinet of Ministers of Ukraine (i.e. National Joint Stock Company "Naftogaz of Ukraine") for the further supply to residential (subsidised) customers, the Rent Rate shall amount to:
(i) UAH 59.25 [USD 7.50] per 1,000m3 of natural gas extracted onshore from depths above 5,000 m (previously – UAH 50.00 [USD 6.30]);
(ii) UAH 47.40 [USD 6.00] per 1,000m3 of natural gas extracted onshore from depths below 5,000 m (previously – UAH 40.00 [USD 5.00]);
(iii) UAH 11.85 [USD 1.50] per 1,000m3 of natural gas extracted offshore (earlier – UAH 10.00 [USD 1.30]).
(b) if the produced natural gas is to be sold to other categories of customers (e.g. industrial and commercial), including natural gas sold for the purpose of forming reserves in underground storage facilities, the Rent Rate shall amount to:
(i) UAH 237.00 [USD 29.90] per 1,000m3 of natural gas extracted from depths above 5,000 m (previously – UAH 200.00 [USD 25.20]);
(ii) UAH 118.50 [USD 14.90] per 1,000m3 of natural gas extracted from depths below 5,000 m (previously – UAH 100.00 [USD 12.60].)
The Index is calculated as a correlation of the average customs price of natural gas imported into Ukraine in the previous reporting month to the base price of natural gas, which is equal to USD 179.50 per 1,000 m3. The Index does not apply to natural gas that is sold to National Joint Stock Company "Naftogaz of Ukraine". The Index is published on a monthly basis on the website of the Ministry of Economy of Ukraine not later than the tenth day of the month following the reporting period.
2.2 Royalty Payment for Produced Oil and Gas Condensate
The royalty payment for produced oil and gas condensate shall be calculated on the basis of the following Rent Rates:
(a) UAH 2141.86 [USD 269.70] per 1,000m3 of oil and gas condensate extracted from depths above 5,000 m (previously – UAH 1529.90 [USD 193.00]);
(b) UAH 792.54 [USD 99.80] per 1,000m3 of oil and gas condensate extracted from depths below 5,000 m (previously – UAH 566.10 [USD 71.00]).
The Index is calculated as a correlation between (i) the price of URALS oil at the London Stock Exchange, and (ii) the base oil price equal to UAH 560.00 [USD 70.00] per barrel. The Index is published on a monthly basis on the website of the Ministry of Economy of Ukraine not later than the tenth day of the month following the reporting period.
Law: the Tax Code of Ukraine No. 2755 dated 2 December 2012
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The original publication date for this article was 10/12/2010.