Tax policy updates for the oil and gas industry
The industry saw 27.33 million tons of coal importation, a year-on-year decrease of 1.8 percent. Thus, the government recently published relevant import tax policies to intensify its support for the industry. The State Council, through Caishui (2021) No. 17 released in April 2021, announced the following policies:
Self-employed projects carrying out oil (gas) exploration and development operations in particular areas within the territory of China shall be exempted from import duties.
- Import of equipment including technical information imported with equipment under contract;
- Instruments; and
- Zero accessories and special tools (cannot be produced or whose performance cannot meet the demand).
Sino-foreign cooperation projects
A Sino-foreign cooperation project carrying out the oil (natural gas) exploration and development operations within the winning block of onshore oil (natural gas) approved by the State and the equipment (including technical materials imported with the equipment under the contract) shall be exempted from import duties.
These projects are also exempted from the corresponding import VAT if the domestic production or performance cannot meet the demand.
Projects for oil (natural gas) exploration and development operations in China’s oceans
China’s oceans include the domestic sea, territorial sea, continental shelf, and other marine resources under the jurisdiction, including shallow beaches. Such projects shall be exempt from import duties and import value-added tax (VAT). These also include “old projects” for foreign cooperation approved before December 31, 1994, as well as emergency rescue projects for offshore oil and gas pipelines.
Furthermore, the following items shall also be exempt from import duties and import VAT:
- Equipment that cannot be produced or performed in the importing country
- Equipment that cannot be used directly for exploration and development operations or emergency rescue (including technical information imported with equipment under the contract)
- Zero accessories
- Special tools
Coal seam gas exploration and development projects
Projects carrying out coal seam gas exploration and development operations in China shall also be exempt from import duties and import VAT. This condition applies to their import of the following items:
- Equipment that cannot be produced or whose performance cannot meet the demand,
- Equipment that is directly used for exploration and development operations (including technical information imported with the equipment in accordance with the contract),
- Zero accessories
- Special tools
Cross-border natural gas pipelines and imported liquified natural gas projects
The import value-added tax (VAT) of the import link shall be returned in proportion to the projects of cross-border natural gas pipelines and imported liquefied natural gas receiving storage and transportation units approved by the National Development and Reform Commission. This also includes natural gas imported from the expansion project of the import LNG receiving storage and transportation plant approved by the provincial governments.
The exact rate of return is as follows:
- Imported natural gas under the long-term trade gas contract signed before the end of 2014 and determined by the NDRC shall be returned in proportion to 70 percent of the value-added tax on imports.
- For other natural gas, if the import price is higher than the reference benchmark value, the VAT of the import link shall be returned in proportion to the import price of the item and the inverse proportion of the reference benchmark value.
The calculation formula for the inverted ratio is: the inverted ratio is 100 percent of the import price-reference reference value)/import price and the relevant calculation is based on one quarter for one cycle.
The first list of duty-free imported goods has been implemented since January 1, 2021, and the tax-exempt amount has been collected within 30 days from the date of the issuance of the first batch of duty-free imported goods. The list of duty-free imports for subsequent batches shall be implemented from the 20th day after the date of issue.
Those who are eligible to comply with the provisions on tax exemption may apply to the respective customs offices and choose to waive such exemptions from VAT on import links. After doing so, these companies may not apply for exemption from import VAT again within 36 months.