For information on acreage rental view our acreage rental page

The Falklands fiscal system comprises:

  • a variable acreage rental
  • 9% royalty on production
  • 26% corporation tax on profits, with the usual allowances, etc.

There are no signature bonuses, no production sharing contracts, no back-in rights, no local market discounts, etc.

The system is simple, transparent, extremely competitive, and encourages exploration and production.

The regime is predominantly profit-based.

The total government tax-take compares extremely favourably with other countries offering exploration opportunities.

The Falkland Islands Government is committed to ensuring that the overall tax system remains attractive and conducive to attracting future investment.

Minimum economic thresholds appear to be approximately 60 MM barrels.

Royalties

A royalty of nine per cent ( 9%) is payable on the market value of any petroleum won.

Provision has been made in the legislation for the royalty to be reduced at the discretion of the Governor if:

  1. reduced royalty payments would encourage development of smaller fields which would not otherwise be economic
  2. needed to extend the life of a producing field
  3. in any extended period of extraordinarily low petroleum prices a 9% royalty would lead to the abandonment of a field.

Royalties will be payable in respect of six-month periods ending 1st January and 1st July.

No deductions will be allowed from royalty

Corporation tax

Corporation tax is 26% (from January 2015) on all profits from exploration and extraction activities. A lower rate of 21% may be available, for other activities, on the first £1,000,000 of profits.

The jurisdiction extends to the whole of the Falklands Designated Area.

All petroleum extraction activities are taxable.

Capital gains on licence transfers are taxable.

Contractors are taxed on activities within the Designated Area, and the production licence holder is liable for taxes payable by contractors in default.

A 2-way ring-fence has been created around the designated area which restricts relief of expenditures on ring fence trade to ring fence income and relief of expenditures on non ring fence trade to non ring fence income.

Company revenue for tax purposes shall be calculated based on the market value of all petroleum won and delivered or appropriated as determined by arm’s length contracts.

Corporation tax allowances

Corporation tax allowances provide for full recovery of costs for:

  1. operating expenses
  2. exploration and appraisal
  3. intangible drilling and development
  4. royalties
  5. abandonment costs.

Interest relief is based on:

  1. arm’s length — 100% allowance;
  2. non-arm’s length — subject to a) debt/equity restrictions, b) reasonable commercial rate

Depreciation of capital assets is allowed at 25% per year, based on a declining balance method.

There is indefinite carry forward of losses.

Exceptions to no carry back of losses:

  1. post-cessation abandonment expenditure
  2. balancing allowance

Accounting Records

Accounting records are generally to be prepared in £ sterling.

A company carrying on a ring fence trade:

  1. may elect to deliver accounts in US$
  2. pay tax in US$
  3. receive tax assessment in US$
  4. have interest or penalties calculated in US$;
  5. an election is irrevocable.

Personal Tax

For 2016, personal tax on a non-resident employee’s remuneration is 21% Income Tax (IT) applied to gross remuneration. Medical Services Tax (MST) is set at 1% for an employee based on gross salary (including benefits in kind), with an additional 1.5% MST to be paid by the employer.

Employees are liable to IT on remuneration which is earned for duties performed within the designated area and in connection with those duties e.g. leave pay, bonuses.  All employers are required to make the tax deduction from their employees’ remuneration.

By concession, employees present within the designated area/Falkland Islands/Falkland waters for less than 30 days in any 12 month period will not be liable to Falkland Islands taxation.  If however, an employee reaches 30 days or over, they are liable to tax on their remuneration from the first day of entry.

A tax year is a calendar year. For further details please see the 2016 tax guide for non-resident contractors:

 

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Date 2012-08-13
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