- The Nigeria-São Tomé & Príncipe Joint Development Authority has announced the introduction of a 50 percent Investment Tax Allowance for operators on the lucrative offshore zone, jointly developed by the two countries. The fiscal regime for the zone is now ready.
The Abuja-based Nigeria-São Tomé & Príncipe Joint Development Authority (JDA) yesterday issued a statement, following "extensive consultations" with potential investors on the terms of the 2003 Joint Development Zone (JDZ) Licensing Round.
Carlos Gomes, Deputy Director of the JDA, announced the "introduction of an Investment Tax Allowance (ITA) as an integral part of the fiscal terms applicable to the Round. The ITA – 50 percent of qualifying capital costs – is an additional allowance for Tax and will enhance the overall competitiveness of the JDZ fiscal regime."
Furthermore, a variety of other tax-related issues had been reviewed and a number of clarifications were made, according to Mr Gomes. Clarifications included decisions that unsuccessful exploration costs in the zone were to be treated as capital costs and depreciated for both cost recovery and tax purposes.
Further decisions at the meeting mainly relaxed the obligations of exploring and producing oil companies, but not their taxation level. For example, it was made easier to abandon operations if they proved to have little commercial interest.
The main aspects of the fiscal regime in the Joint Development Zone had been agreed upon earlier. According to a presentation by Mr Gomes, the main objectives of the JDZ fiscal regime are to "attract investors to a new frontier exploration area in preference to competing regions with similar characteristics."
Further, the zone's tax regulations are set to "generate an appropriate share of rewards" for the Joint Development Authority from development of oil and gas fields, and thereby for the governments of São Tomé and Nigeria. Finally, the tax regime aims to "ensure that an appropriate balance of risk and reward for investors is achieved."
Tax is to be levied at a 50 percent rate. Other incomes are to include a biddable signature and production bonuses; area rentals; royalty (maximum 5 percent rate); substantial fees; and calculation of royalty.
Other main parameters of the fiscal regime include cost recovery and profit sharing on a field by field "ring fence" basis and cost recovery from up to 80 percent of production after royalty. Profit sharing is linked to post-tax field profitability rather than cumulative production or water depth.
The sole administrator of the petroleum tax regulations is the JDA, "who may do all such acts as are deemed necessary and expedient for the assessment and collection of tax," according to the Authority.
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