Russia expands tax incentive for oil companies in exchange for investments in new oil refining capacity

MOSCOW. Sept 25 (Interfax) - The Russian government has approved amendments allowing oil companies to enter into new investment agreements in order to establish new refining facilities to qualify for an investment-linked premium to the reverse excise tax on oil.

The relevant decree, dated September 22 and published on the official legal information portal, amends the government's decree No. 219, dated February 19, 2021.

The Energy Ministry told Interfax that oil companies that had not previously entered into such investment agreements are granted the opportunity to do so between January 1, 2026, and September 30, 2026 under the new rules. Furthermore, the amendments permit changes to the timeframe originally set for 2027-2033, during which an organization entering into a new agreement must commission fixed assets, as well as adjustments to the agreement's term, extending it up to the agreement's expiration date, though not sooner than January 1, 2036. The new investment agreements extend the deadline for commissioning fixed assets through 2033, inclusive.

The specified amendments do not apply to agreements concluded prior to the resolution's entry into force.

A reverse excise tax on oil feedstock mechanism was introduced in 2018 to incentivize companies to continue upgrading oil refining facilities, as originally launched in 2011. Starting in 2019, two types of contracts emerged, namely modernization agreements and investment agreements. In 2019, the Energy Ministry concluded 11 refinery modernization agreements, two of which were subsequently terminated. These agreements entitled the parties to a refund of the excise tax on oil feedstock provided one of two conditions was met, thus producing Class 5 gasoline of at least 10% of the total volume processed, or investing at least 60 billion rubles between July 1, 2014, and January 1, 2026.

In 2021, investment agreements were signed that granted entitlement to an investment-linked surcharge on the reverse excise tax as set at 30% (Kinv) minus a regional coefficient (Kreg), contingent upon fulfilling agreements requiring specific investment amounts for refinery modernization.