New Zealand continues tax exemption for offshore operators

New Zealand's Budget 2009 will make provision for a five-year continuation of an exemption for offshore oil and gas exploration.

Offshore staff

AUCKLAND, New Zealand -- New Zealand's Budget 2009 will make provision for a five-year continuation of an exemption for offshore oil and gas exploration.

The current exemption from tax on the profits of non-resident operators for offshore rigs and seismic vessels was introduced in 2004 and was scheduled to expire on Dec. 31 of this year.

New Zealand's domestic tax rules generally tax non-resident offshore rig operators and seismic vessels on their New Zealand sourced income. However, in some situations where non-residents come from a country with which New Zealand has a double tax agreement, the non-resident rig operators are exempt from tax in New Zealand if they stay for less than 183 days in any one-year period. If they stay for more than 183 days all income will result from the first day of presence in New Zealand and will be subject to New Zealand tax.

Because of this rule, prior to the exemption introduced in 2004, non-resident offshore rig operators and seismic vessels had tended to stay in New Zealand for a period of less than 183 days. Even if further exploration would be desirable beyond the 183 day window, there were strong incentives for rigs to leave by this time. Different rigs were then required to be brought to New Zealand to complete the work, causing extra mobilization and demobilization costs. This also disrupted sensible exploration and development program, according to the government ministers Gerry Brownlee and Peter Dunne.

The temporary taxation exemption has seen non-resident semisubmersible rigs and seismic vessels extending their length of stay in New Zealand beyond 183 days. Moreover, the numbers of offshore rigs, offshore wells drilled, and offshore gas reserves booked, have all increased.

"The international exploration industry is showing increasing interest in New Zealand following recent government initiatives," says Gerry Brownlee, New Zealand's Energy and Resources Minister. "To build on this interest, the government will be extending the exemption until Dec. 31, 2014, to further encourage exploration of New Zealand's offshore hydrocarbon basins."

05/14/2009

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