The Arctic a New Tax Haven

Russia has confirmed details of tax breaks lasting from between five and fifteen years for new oil projects in the Arctic shelf from 2016, including an exemption from export duty and from VAT on the purchase of equipment. Offshore projects will also benefit from a 5% “Arctic” mineral extraction tax rate, in comparison to the usual 30% rate.

Russia creates a new Tax Haven in the Arctic. The Arctic consists of the Arctic Ocean and parts of Canada, Russia, Denmark (Greenland), Norway, Sweden, Finland,  Iceland, and the United States (Alaska).

The announcement follows an agreement between Russian ministries over new incentives that had been first suggested in April 2012. At that time, then-President elect Vladimir Putin had promised a “stable and predictable” tax regime that would attract investment worth USD0.5 trillion over the next 30 years.

However, foreign companies looking to invest will have to be minority partners with Gazprom or Rosneft, as due to foreign investment laws licenses are available only to the two state-owned companies. Given the lamentable history of Russian state participation in oil and gas projects, it may be difficult for them to find partners.