Icing on the cake

New oil and gas tax law completes sector’s fiscal regime

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It came at the last minute. For two years, the Ministry of Finance and the Lebanese Petroleum Administration (LPA) have been drafting a tax law focused specifically on the oil and gas industry. In late September, Parliament approved it just in time for the law to potentially govern the first oil and gas exploration and production contracts the state hopes to sign during or before Spring 2018 (with bids due October 12).

Contract signature is not a given, but with the passage of the tax law, Lebanon’s oil and gas fiscal regime is finally complete. The new law is tailored for the oil and gas industry and imposes higher tax rates on oil and gas companies than it does on other corporations registered or operating in the country. Corporate income tax, for example, is set at 20 percent in the oil and gas tax law, as opposed to the 15 percent corporate income tax imposed by existing legislation (even higher than the approved but annulled hike to 17 percent).

The oil and gas tax law was initially slated for parliamentary debate in August, but lack of quorum scuttled the discussion. In early September, partially because the law had not yet been passed, the LPA recommended postponing the deadline for submitting bids in the country’s first offshore oil and gas licensing round from September 15 to October 12 (a new deadline officials insist will not change—see story page 16). Model contracts oil and gas companies will use to bid include a socalled stabilization clause, which protects companies from tax increases that come after contract signature. Stabilization clauses are common in the oil and gas industry as a way to hedge tax increase risk given that oil and gas exploration and production contracts typically run 30 years or more in duration. By passing the new oil and gas tax law before signing contracts, the state will increase its tax revenue under any contract, or contracts, signed as a result of the first licensing round.