9 Feb 2023 17:37

Russian Duma passes law exempting Gazprom and subsidiaries from elevated 34% profit tax for LNG exporters

MOSCOW. Feb 9 (Interfax) - The Russian State Duma has passed at third reading amendments to the Tax Code which will exempt Gazprom and its subsidiaries from the elevated profit tax of 34% introduced from January 1, 2023 for all LNG exporters.

The government introduced the amendments to the Duma for the second reading of the bill, No. 260062-8.

The profit tax rate was increased from 20% to 34% on January 1, 2023, for a period of three years, for those LNG exporters which have already exported gas and have a license for the exclusive right to export gas. According to the Law on Gas Exports, the exclusive right to export LNG shall be granted to the owner of an integrated gas supply system or its subsidiaries, in the authorized capital of which an organization owning the unified gas supply system has a 100% stake, meaning Gazprom; a number of state companies operating on the shelf with more than 50% of Russian equity capital; private companies and their subsidiaries with capital over 50% which as of January 1, 2013 were issued a license providing for construction of gas processing plants. The right to export LNG was granted to private companies as of November 1, 2013.

The amendments passed by the Duma propose to clarify the category of companies subject to the increased rate: these are the companies specified in Clause 2, Part 1, Article 3 of the Federal Law on Gas Exports, namely subsurface users at subsurface sites of federal significance, the subsurface license to which as of January 1, 2013 provide for construction of an LNG plant or delivery of extracted natural gas in a gaseous state for liquefaction to a liquefied natural gas plant which produces natural gas in a liquefied state from natural gas in a gaseous state extracted in the above subsoil areas of federal significance or in other subsoil areas of federal significance whose subsoil use licenses were issued to the above subsoil area users after January 1, 2013.

According to the law, the elevated rate will not apply to other companies which have the right to export LNG, with this norm to be applied to legal relations arising starting on January 1, 2023.

Among private companies, Novatek has large LNG projects Yamal LNG and Arctic LNG. Gazprom has the Sakhalin-2 PSA project, as well as the recently launched project at the Portovaya compressor station.

The current profit tax rate is 20%, of which 3% is paid to the federal budget in 2017-2024.

Taxes for the Sakhalin-2 project are governed by separate legislation - production sharing agreements or PSA. Cryogas-Vysotsk exports LNG under an agency agreement with Gazprom. Arctic LNG 2 is not subject to the new legislation, since it will not be launched until the end of 2023. Thus, the elevated rate is set only for Yamal LNG.

Yamal LNG benefits from a regional profit tax break - legislation allows for a reduction in the profit tax rate payable to the regional budget to 13.5% within 12 years of the date LNG production commences until cumulative production reaches 250 billion cubic meters.