Parliament recently ratified the oil tax bill suggested by the Lebanese Petroleum Administration (LPA) and approved by the government, with a few amendments.
The new law sets the corporate tax on companies' profits exploring and operating offshore exploration at 20 percent. Regular income tax is 15 percent (it has been suggested that it be increased to 17 percent in the law currently under review by the Constitutional Council).
For the calculation of profits, all expenses paid before the actual production are considered initial investments.
The operational costs which will serve as basis to calculate the yearly profit will start to be accounted for when production starts.
According to Wissam Chbat, Chairman at LPA, the Ministry of Finance will initiate a new unit to oversee the taxation reporting of companies operating in the oil and gas sector.
The law also requires the Ministry of Energy and Water to present a progress report to the parliament periodically, detailing the exploration and production activity.
According to Rabih Yaghi, oil and gas expert, the approved tax law was essential to allow bidders to simulate their commercial offers. He said that the 20 percent tax is considered moderate compared to other countries, to encourage consortiums to submit their bids by the extended deadline, which ends October 12.
Double taxation agreements with other countries will be applied when distributing the dividends.
Companies are exempted from VAT on their equipment purchases unless they are of Lebanese origin. They are also exempted from tax on property that they use for their own activities. The law offers the companies a starting incentive: They are exempted from the fiscal stamp fees on the contract.
Chbat said that, "additional two income factors affect the government's profitability from the expected bids, beside taxes on profits." The second factor is the royalty fees, which differ between gas and oil. Royalty fees for gas are set at four percent, while an ascending rate is applied to oil, ranging between five and 12 percent, depending on the level of production. The third element is the government share of production, collected either in cash or as final product ready to be sold. This share is to be suggested by the bidders as part of their offers. It is expectedto be ascending in percentage and value.
Malek Takieddine, Partner at Al Jad law firm, said that the new law complements the decrees initially issued by the government to organize the business and taxation procedures of such companies.
An advantage for the government, is, Takieddine said, that consortiums cannot cover any loss in a certain block from other block('s) operations.
Reported by Samer Rasbey