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The Falklands fiscal system comprises:
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.
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:
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 is 26% (from January 2008) 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 provide for full recovery of costs for:
Interest relief is based on:
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:
Accounting records are generally to be prepared in £ sterling.
A company carrying on a ring fence trade:
For 2011, personal tax on a non-resident employee’s remuneration is 21% Income Tax (IT) and 1% Medical Services Tax (MST). Both of these taxes are applied to gross remuneration.
Employees are liable to IT and MST 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 deductions 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.