27 March 2015 EY Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: http://www.ey.com/gl/en/ Services/Tax/International- Tax/Tax-alert-library#date Guinea (Conakry) enacts new Petroleum Code Executive summary The new Guinean Petroleum Code (PC) introduced by the Law L/2014 /N 034/AN dated 23 December 2014 entered into force on 1 January 2015, replacing the Presidential Order N 119/PRG/86 that issued the 1986 Petroleum Code. The PC covers oil operations and activities defined as all hydrocarbons prospecting, exploration, evaluation, development, production, transportation, and sales activities, including the treatment of natural gas but excluding the activities of refining and distributing petroleum products. Oil Operations cannot be conducted without a hydrocarbons prospecting authorization or an oil contract executed in accordance with the provisions of the Petroleum Code. The new PC is applicable to all Oil Contracts that are signed from the date of its promulgation. Stabilization provisions contained in previous agreements may apply for existing oil operations. Oil contracts shall mean any contract executed by the State or a national company with one or more qualified contractors to conduct hydrocarbons exploration and exploitation on an exclusive basis. This Alert summarizes the key provisions of the new code. Detailed discussion Simplified taxation regime for oil sub-contractors The new petroleum code has implemented a simplified taxation system for subcontractors with no permanent establishment (PE) in Guinea and which have signed a 12 month maximum services contract, related specifically to oil and gas operations, with the contractor or his direct subcontractors. The simplified regime provides that the eligible subcontractors are subject to a lump sum tax at the rate of 10% of the turnover. The lump sum tax is withheld directly by the contractor at the payment of the invoice, paid up to the tax authorities at the latest the 15th of the month following the payment.
The qualification for the simplified system requires for the subcontractors a prior approval by the tax authorities (Directeur National des Impôts). Beside the simplified taxation system, the eligible subcontractors may benefit from the taxation regime and the exemptions usually granted by the Code to the contractors. Corporate income tax (CIT) Lower rate Previously set at 50% for oil companies, the rate of the corporate income tax (CIT) applicable to oil companies has been aligned to the 35% CIT rate provided by the Guinean General Tax Code (GTC). Implementation of a quarterly installment payment The new Petroleum Code has implemented a new system of payment for oil companies. Instead of the common regime of two installments provided by the GTC, oil companies pay their CIT in quarterly installments. The final payment of the CIT balance, in respect of the civil year must be made no later than 1 July (instead of 30 April for other sectors) of the following year (N + 1). If it appears that the taxpayer has paid a sum greater than the CIT he is liable for in respect of the taxable profit for a given year, the excess will be allowed as a deduction of the CIT due in respect of the calendar year or, if it s the last year of operation, reimbursed to the contractor no later than 30 June of the following year. From the first production of hydrocarbons, the contractors are required to submit to the tax authorities, a tax return together with the financial statements, no later than 30 April of the following year. The new PC offers the oil companies the possibility to choose to incorporate into the production quota of the Guinean State, the payable CIT. Such option must be provided in the oil contract. Limitation of deductible expenses Loss of equipment or assets resulting from damages, unrecoverable debt claims and indemnity paid to third parties for damage and interest will no longer be deductible for the calculation of the CIT if these damages are caused by fault or negligence of the contractor. Provisions created in order to cover clearly stated losses or expenses that current events indicate as probable must be reasonable and justified to be considered deductible expenses. However the new PC does not give any details on the criteria to consider when appreciating this reasonableness. Fines and penalties relating to expenses that are not deductible in accordance with the PC provision are also not deductible for the calculation of the CIT. Value Added Tax (VAT) Under the previous code, oil companies were exempted from the payment of any tax on the turnover relating to oil operations. The new PC provides liability to VAT for oil Companies at the standard rate (18%). Consequently: Exports of hydrocarbons are subject to VAT at the rate of 0% Local purchases of goods and services are subject to VAT Imports are subject to VAT either at the standard rate or to the temporary admission with a VAT suspension for the goods admitted to such custom regime Input VAT on local purchases and imports is refundable, with prior verification by the tax authorities, within 90 days following the application for refund made in accordance with the regulations in force Fiscal incentives The oil contractor and its foreign sub-contractors with no permanent establishment in Guinea are entitled to the following incentive unless otherwise provided by the oil contract: Withholding tax on dividends and on interest of loans Business license tax Single land tax for buildings allocated to the oil operations Registration and stamps fees 2
It should also be noted that the material, machineries, equipment, engines, vehicles, spare parts and consumables intended for the oil activities can be imported either without duty paid or via a suspension regime if they are to be reported after being used in Guinea. The listed goods should be included in an application sent to the custom authority prior to the commencement of the exploration. Other financial obligations Surface Taxes Surface taxes are mandatory and need to be provided by the oil contract. For the calculation of the corporate income tax, the surface taxes are not deductible and also are not deemed recoverable petroleum cost. Bonus A signing bonus can be provided by the oil contract but the bonus is not part of the deductible expense or recoverable petroleum cost. Annual contribution for the training of public officers and the promotion of the petroleum sector Oil companies are subject to an annual contribution for the training of the Government personnel and the promotion of the oil sector which amount and conditions of recovery will be fixed in the Oil contract. This contribution is considered as a deductible expense for the calculation of the CIT as well as a recoverable petroleum cost. Farm-in/Farm out regime The provisions of the former PC did not provide a regime for farm out. Under the new PC, capital gain arising from a farm out transaction is taxed as part of revenues subject to CIT. Extension of the verification and correction period during a tax audit The limitation period for tax audits is set at three years. However, for expenses incurred before the first year of production, the duration for verification and correction is extended at the end of the second year following the first year of production. Introduction of an annual contribution for the training of Public officers and the promotion of the petroleum sector Oil companies are now subject to an annual contribution for the training of Government personnel and the promotion of the oil sector which amount and conditions of recovery will be fixed in the Oil contract. This contribution is considered as a deductible expense for the calculation of the CIT as well as a recoverable petroleum cost. Limitation of the share on total production allocated for the recovery of petroleum costs The new PC provides that the share of total annual production to be allocated to the recovery of petroleum costs is set to a maximum of 60% for crude oil field and 65% for deposits of natural gas. The former code did not include any limitation as it was generally negotiated in the oil contract. State participation Each oil contract must contain a provision allowing the state an option to participate, either directly or by a National Company, to the rights and obligations of the contractor. The maximum percentage of participation that the state can acquire will be at least equal to 10%. 3
For additional information with respect to this Alert, please contact the following: Immeuble d Archevêché, Conakry, Guinea Badara Niang +224 628 68 30 63 badara.niang@gn.ey.com Ernst & Young Advisory Services Ltd., Africa ITS Leader, Johannesburg Justin Liebenberg +27 11 772 3907 justin.liebenberg@za.ey.com Ernst & Young Société d Avocats, African Tax Desk, Paris Deana d Almeida + 33 1 55 61 12 05 deana.dalmeida@ey-avocats.com Iris Francis + 33 1 55 61 10 18 iris.francis@ey-avocats.com 4
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