The newly adopted Tax Code of Ukraine ("Code"), effective starting 1 January 2011, has significantly increased royalty payments and charges for subsoil use. Royalty payments rise approximately 16 percent for natural gas and almost 29 percent for oil and gas condensate. Charges for subsoil use increase approximately by 66 percent per ton of oil and gas condensate and almost 90 percent per 1,000 m3 for natural gas.
Royalty Payments
Royalty payments under the new Code vary depending on the depth of production. Royalty payments for natural gas also depend on whether gas is to be sold for supplying residential customers (a statutory provision for companies and joint ventures with a state interest equal to 50% or more) or other categories of customers (e.g. industrial, commercial). The Code sets the following royalty payments:
Type of Natural Resource
Terms & Conditions
Measurement and Depth
Royalty Payment
in UAH
(equivalent in USD as of 23 January 2011)
Natural Gas (including oil gas)
to be sold for supply of residential customers
per 1,000 m3 produced from depth above 5,000 m
UAH 59.25
(approx. USD 7.5)
per 1,000 m3 produced from depth below 5,000 m
UAH 47.40
(approx. USD 6)
per 1,000 m3 produced offshore
UAH 11.85
(approx. USD 1.5)
to be sold to other categories of customers
per 1,000 m3 produced from depth above 5,000 m
UAH 237
(approx. USD 30)
per 1,000 m3 produced from depth below 5,000 m
UAH 118.5
(approx. USD 15)
Oil, Gas Condensate
per ton produced from depth above 5,000 m
UAH 2141.86
(approx. USD 270)
per ton produced from depth below 5,000 m
UAH 792.54
(approx. USD 100)
Royalty payments for natural gas, except for natural gas to be sold for supply of residential customers, are subject to upward adjustment through application of a multiplier. The multiplier is calculated by dividing the average customs value of natural gas imported into Ukraine in the previous reporting month by the base price of natural gas, which is fixed by the Code (USD 179.5 per 1,000 m3).
Royalty payments for oil and gas condensate are also subject to upward adjustment. The multiplier is calculated by dividing the price of Urals oil on the London Exchange (calculated in UAH using the exchange rate set by the National Bank of Ukraine) on the first day of the month following the reporting month and the base oil price (UAH 560 or approximately USD 70 per barrel).
Charges for Subsoil Use
The Code sets charges for production of oil and of gas condensate at the level of UAH 147.63 (approx. USD 18.5) per ton and UAH 37.78 (approx. USD 5) for exploration and production of 1,000 m3 of natural gas. Charges may be subject to multipliers set by statute.
For further information please contact
Oleksiy Didkovskiy
Managing Partner
oleksiy.didkovskiy@asterslaw.com
