Tax Incentives for Gross-Split Production Sharing Contracts in Oil and Gas Sector
On June 16, 2020, the Minister of Finance (the “MOF”) issued Regulation No. 67/PMK.03/2020 of 2020 on Provision of the Incentives of Value-Added Tax or Value-Added Tax and Luxury-Goods Sales Tax, and Land and Building Tax on Upstream Oil and Gas Business Activity through Gross-Split Production Sharing Contracts (“Regulation 67/2020”). Regulation 67/2020 is an implementing regulation of Article 25 of Government Regulation No. 53 of 2017 dated December 28, 2017 on Tax Treatment for Upstream Oil and Gas Business Activity through Gross-Split Production Sharing Contracts (“GR 53/2017”).
- Tax Incentives
Regulation 67/2020 provides a comprehensive regulatory framework for the tax incentives referred to in GR 53/2017 with the aim of enticing investors to invest in the upstream oil and gas activity. The tax incentives consist of the following:
a. Exemptions from collecting value-added tax (Pajak Pertambahan Nilai or “PPN”) or PPN and luxury-goods sales tax (Pajak Penjualan Atas Barang Mewah or “PPnBM”) in relation to certain activities and objects which are used during oil operation activities, as follows: (i) procurement of taxable goods and/or taxable services; (ii) utilization of intangible taxable goods from outside the customs areas within the customs areas; and/or (iii) utilization of taxable services from outside the customs areas within the customs areas; and
b. Reduction of land and building tax (Pajak Bumi dan Bangunan or “PBB”) amounting to 100% of payable PPB, as set out under the relevant tax returns.
As an overview, Gross-Split Production Sharing Contracts (each, a “Gross-Split PSC”) were introduced under the Minister of Energy and Mineral Resources (the “MEMR”) Regulation No. 8 of 2017 dated January 16, 2017 on Gross-Split Production Sharing Contracts, as lastly amended by MEMR Regulation No. 20 of 2019 dated August 29, 2017 (“Regulation 8/2017”). A Gross-Split PSC is defined as a production sharing contract in the upstream oil and gas business activities based on the principle of distributing gross production without the mechanism of operating costs recovery.
The above tax incentives are only applicable to contractors that meet the following criteria (collectively, the “Contractors”):
a. Contractors that operate under cooperation contracts signed prior to the enactment of GR 53/2017 and which contracts were subsequently amended to adjust to GR 53/2017;
b. Contractors that operate under the Gross-Split PSCs signed before GR 53/2017, provided that the Gross-Split PSCs are consistent with GR 53/2017; or
c. Contractors that operate under the Gross-Split PSCs signed after GR 53/2017 which consistent with GR 53/2017.
Regulation 67/2020 enters into force as of July 16, 2020.
July 20, 2020
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- July 20, 2020