Answer ... Upstream operations are subject to a royalty levied at a rate of 30% on the volume of extracted hydrocarbons, which must be paid in cash or in kind, at the option of the Venezuelan government. This rate may be reduced to 20% for mature reservoirs and extra-heavy crude oil. The price for calculating the royalty is capped at $80 per barrel. An additional royalty of 3.33% typically applies to mixed companies. A production tax calculated at a rate of one-third of the value of all liquid hydrocarbons extracted from an oil field is applicable in parallel, provided that royalties are deductible from the taxable amount.
Upstream oil operators are subject to income tax at a flat rate of 50% of their net income. However, for specific projects in the Orinoco Belt, certain special treatments may be warranted, such as:
- favourable deductions;
- amortisation; and
- loss carry-forward.
Oil activities may also be subject to value added tax (VAT) at a rate of 16% on sales, services and imports. Exporters are entitled to a refund for a significant portion of VAT paid through the Venezuelan tax authorities’ issuance of tax recovery certificates which can be used to satisfy future tax liabilities. Sales of crude oil by mixed companies to Petróleos de Venezuela, SA (PDVSA) or its affiliates are subject to a rate of 0%, which may lead to an accumulation of VAT tax credits (although the tax authorities generally delay the reimbursement of such credits).
Venezuela also imposes a windfall profits tax for ‘extraordinary’ and ‘exorbitant’ prices, which is payable by exporters of natural or upgraded liquid hydrocarbons and mixed companies selling natural or upgraded liquid hydrocarbons and by-products to PDVSA or its affiliates. The windfall profits tax applies at a rate of 20% rate to the difference between the prices established in the Venezuelan national budget and the monthly average international prices for the basket of Venezuelan hydrocarbons.
Upstream mixed companies are also subject to a surface tax, calculated at an annual rate of 100 tax units per square kilometre or fraction thereof of unused concession area (with an annual increase of 2% for five years and 5% in subsequent years).
Finally, an alternative minimum ‘shadow’ tax, providing for fiscal revenues of no less than 50% of gross oil proceeds, is triggered if the tax take does not reach at least 50% of the gross profits after applying royalties, taxes and other levies.
Natural gas is subject to lighter taxation than petroleum activities, with a 20% fixed royalty and a standard income tax at the corporate rate of 34%.
Oil and gas companies are not subject to municipal business taxes.
In addition to the specific taxes and contributions applicable to the oil and gas industry, operators may be subject to the following special contributions:
- the science and technology contribution (1% of gross profits);
- the anti-drugs trafficking contribution (1% of net profits); and
- the sports contribution (1% of net profits)