Paris, France February 2015
Contents Legal framework Oil services companies Recent legislative developments Taxation of upstream companies Regulatory approvals Page 2
Chad is located in Central Africa Page 3
Legal framework Page 4 Doing business in Mozambique 2015_Pan-African Oil and Gas Tax Workshop
Legal framework Law No. 006/PR/2007 dated 2 May 2007 pertaining to hydrocarbons Has repealed Ordinance No. 07/PC-TP-MH dated 3 February 1962 relating to the exploration, exploitation and pipeline transportation of hydrocarbons on the Chadian territory (Petroleum Code), as amended in 1997, and its implementation decree of 1967 Has repealed all previous provisions contrary to the new law Ordinance 001/PR/2010 dated 30 September 2010 Approved the standard production-sharing contract (PSC) Modified and completed the provisions of the Law of 2007 regarding operations carried out under a PSC Decree No. 796/PR/PM/MPE/2010 dated September 2010 issued for the purpose of implementing the aforementioned ordinance and law; provides details regarding notably: Financial, technical and legal requirements for the purpose of undertaking petroleum operations Conditions for the granting, renewal and transfer of mining titles (permits required to conduct petroleum operations under a concession contract and authorizations required to undertake such operations pursuant to a PSC) Page 5
Legal framework Recent important legislative changes Ordinance of 2010 Model PSC is a standard production-sharing contract approved by the law, which is the basis for the negotiation of any PSC (all the recent petroleum contracts have been negotiated and signed on the basis of the standard PSC). The mining titles (exclusive exploration authorization and exclusive exploitation authorization) are granted directly to the petroleum company under a PSC. (Before the Ordinance of 2010, the mining titles relating to petroleum operations undertaken pursuant to a PSC were granted to the Chadian National Oil Company (NOC), and foreign oil companies were supposed to act as its subcontractors.) State participation in exploitation can get up to a maximum of 25% of the rights and obligations attached to the exploitation authorization. Pursuant to Article 16 of the Ordinance of 2010, the participating interest of the state is fully carried by the oil company for a threshold of 10% of the participation. There is no corporate income tax (CIT) under a PSC. The rates of the royalties for crude oil have been reduced (minimum rate of 16.5% under the Law of 2007, versus 14.25% under the Ordinance of 2010 and maximum rate of 16.5%). Page 6
Oil services companies Page 7 Doing business in Mozambique 2015_Pan-African Oil and Gas Tax Workshop
Oil services companies Corporate structure of oil services companies Corporate and legal status: oil services companies may either be foreign companies without a permanent establishment (PE), foreign companies with a PE or locally incorporated branches or companies. Being foreign or permanently established may have an impact on the applicable tax regimes. PE is not expressly defined under Chadian legislation. However, the definition is used under the CEMAC Tax Treaty, of which Chad is a party. PE under Article 1 of the CEMAC Treaty is defined as: Fixed place of business in which the business of the enterprise is wholly or partly carried out Presence of an agent who has the right to conclude contracts on behalf of the enterprise In practice, a PE is considered constituted when the services exceed six months in Chad. Page 8
Oil services companies Taxation of oil services companies The two tax regimes are: Common tax regime is CIT at the rate of 35% on net profits Specific tax regime of 12.5% is applicable to companies that do not have a PE in Chad (Article 846 bis of the General Tax Code [GTC]) Foreign companies are subject to the specific tax regime of 12.5% provided they don t have a PE or if they carry out services for a period of less than six months (Article 846 bis of GTC). Local companies or companies that are PEs: Automatically subject to the common tax regime Possibility under Article 51 of the standard PSC to opt for the specific tax regime under Article 846 bis of the GTC mentioned above (must expressly renounce the common tax regime for this to occur) Page 9
Oil services companies Hot issues These issues are hot because they are current and because of the amount of money involved: Stock valuation Recently, a company was fined because the tax authority felt that the company, in calculating the unit cost of producing its crude oil in stock, had used the unit of production amortization method instead of using the method defined in the PSC. The authorities felt that, as a result of this, the value of the stock on the company s balance sheet was reduced, thereby reducing the amount it paid in taxes. The tax authority adjusted the company s taxes accordingly. Fixed asset depreciation In a particular case, the administration felt that a company used a different time period for the computation of depreciation instead of the day the asset was being used. In addition, the tax authority felt that the rate retained for depreciation was higher than the one provided for in the PSC. The company s taxes were modified. Page 10
Oil services companies Hot issues Interest on loans In a certain case, the tax authority held that interest paid on a loan by a particular company could not be deductible as charges because there was not sufficient evidence to show that the loan was meant for the financing of petroleum operations as provided for by the PSC. The tax authority threatened to modify the taxes unless it received proof that the loan was used to finance petroleum operations. Head-office expense/technical assistance fees Recently, the Chad tax administration felt that a company had deducted too much for headoffice expenses, so it adjusted the company s tax and asked it to pay millions of dollars. Page 11
Recent legislative developments Page 12 Doing business in Mozambique 2015_Pan-African Oil and Gas Tax Workshop
Recent legislative developments Supplementary Retirement Pension Regime (2013 Finance Act) From 1 January 2013, Chadian companies can deduct from their taxable corporate income premiums paid under the supplementary retirement pension regime. To benefit from this regime: There must be a valid legal and binding agreement between the employer and the employee. The agreement must cover all the workers or a defined category. The insurance company receiving the payment must be a different legal entity from the employer. The supplementary regime allows expatriates to receive a supplementary pension capped at 15% of base salary if the supplementary pension is paid abroad. The 2013 Finance Act allows Chadians to benefit from the option of a supplementary pension insofar as the contribution limit is CFA500,000 (US$870). Page 13
Recent legislative developments A fixed tax on transactions relating to petroleum permits has been introduced by the 2014 Finance Law. A fixed tax was instituted by the Law No. 006/PR/2007 dated 2 May 2007 pertaining to hydrocarbons, as a condition for granting petroleum permits and authorizations or approving any transaction thereof. The amount of such a levy was not determined until the coming into force of the 2014 Finance Law, which provides the following applicable amounts: Issuance or renewal of a permit or an authorization for petroleum prospection US$50,000 Issuance, renewal and extension of a permit or an exclusive exploration authorization US$50,000 Transfer of a permit or an exclusive exploration authorization US$1m Issuance, renewal or extension of a permit or exclusive exploitation authorization US$500,000 Transfer of a permit or an exclusive exploitation authorization US$3m Page 14
Recent legislative developments Intercompany loan interest (2015 Finance Act) As from 1 January 2015, interest for loans granted to a company by affiliate companies is no longer deductible from a corporate tax perspective. Interest paid to shareholders for funds made available to the company in addition to their capital contributions, regardless of the type of company, is fully deductible to the extent that: The rate applied does not exceed the Chadian Central Bank s rate plus two points. The interest is calculated on the portion of loan no higher than half of share capital. The specific oil convention signed with the Chadian State can mention the specific provisions as regards the deductibility of such interest on loans. Page 15
Taxation of upstream companies Page 16 Doing business in Mozambique 2015_Pan-African Oil and Gas Tax Workshop
Taxation of upstream companies Farm-in/farm-out agreements Tax and regulatory implications of farm-out agreements where the farmor is the party to the PSC with the Chadian Government CGT, registration duties, non-deductible tax and fixed tax Page 17
Taxation of upstream companies Farm-in/farm-out agreements Oil company (farmor) PSC Republic of Chad Farmee Page 18
Taxation of upstream companies Farm-in/farm-out agreements Taxation of capital gains resulting from any assignment by the contractor of any authorization to undertake petroleum operations under the PSC and related assets at a rate of 25% (Article 17 of the Ordinance of 30 September 2010) In practice, the Government may agree to apply this special tax only to the assignment of assets or interests relating to the exclusive exploration authorization and to grant an exemption to the capital gains resulting from the transfer of assets under an exclusive exploitation authorization (farm-in and farm-out during the exploitation period). Registration duties are applied at the rate of 3% (transfer of shares), Article 393 of GTC and Article 47.1 of PSC. A non-deductible transaction tax at the rate of 1% is applied to the amount of the transaction, payable by the transferor (Article 21.7 of Law N 008/PR/2007 of 2 May 2007). There is a payment of a fixed tax (Article 32.1 f of the Standard PSC and Article 62 of the Decree of September 2010). The rate of this fixed tax may be found on slide 14. Page 19
Regulatory approvals Page 20 Doing business in Mozambique 2015_Pan-African Oil and Gas Tax Workshop
Regulatory approvals There must be a prior approval from the Minister of Energy and Petroleum (Article 21 of Law No. 006/PR/2007). According to Article 62 of Decree No.10/796/2010 of 30 September 2010, the request for prior approval must contain the following information: The nature of the rights transferred The existing relationship between the farmor and the farmee The certificate of transfer Any agreement between the farmor and the farmee Evidence of the payment of the fixed tax The Minister of Energy and Petroleum has a deadline of 90 days from application date to approve or deny the transfer. After this deadline, the approval of the Minister is considered as having been granted. Any rejection of the transfer must be duly justified and the holder must be notified. Thereafter, the Minister submits the request and its endorsement for the approval of the Ministerial Council. The transfer is then approved by decree during the Ministerial Council. Page 21
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