A5.3 Vietnamese PSC

Oil and gas production activities in Vietnam are currently governed by the terms of Production Sharing Contracts (PSC). The key components of Vietnamese PSC for oil and natural gas development include Royalties, Cost Recovery, Profit Sharing, Withholding Tax, Export Duty and Income Tax.

Royalty

Royalty is levied as a percentage of Gross Revenue. It is calculated on an incremental sliding scale based on the rate of production. Before 1 July 2000, the minimum and maximum royalty rates are 6% and 25% for crude oil and 0% and 10% for gas. The sliding scale of royalties is shown in Table 41.

Table 41 – Royalty rates in Vietnamese PSC

Average daily production Royalty rate
Oil (Mbbl/d) Gas (MMscf/d)
0 – 20 8%
20 – 50 8%
50 – 75 - 10%
75 – 100 15%
100 – 150 20%
over 150 25%
0 – 175 0%
- 175 – 350 5%
over 350 10%

Cost Recovery

After Royalty, the contractors are allowed to recover costs from the Gross Revenue, subject to a negotiated cost recovery ceiling. In the 1990s, the ceilings were in the range of 30% to 45%. Costs can be recovered under Vietnamese PSCs include all exploration, appraisal, development and production costs incurred within the contract area. All costs are expensed and recovered immediately.

Profit Sharing

The revenue remaining after royalty and cost recovery is Profit Petroleum which is shared between the contractors and the State at negotiable rates on an incremental sliding scale depending on the production rate. Table 42 gives the indicative profit shares for crude oil.

For profit gas, the contractors' share is indicatively a fixed 50%.

Export Duty

There is an export duty at the rate of 4% of the market price of the cost recovery oil and profit oil exported outside Vietnam. The rate is 0% for exported natural gas.

Table 42 – Profit Sharing in Vietnamese PSC

Increment of Production (Mbbl/d) Contractors' share of Profit Petroleum
0 – 75 50%
75 – 100 45%
100 – 150 40% – 45%
over 150 30% – 40%

Withholding Tax

Withholding tax is 3%, 5% or 7% of the profit transferred, depending on the level of capital contribution of such foreign investor.

Income Tax

The income tax rate set out in the 1993 Petroleum Law is 50%. However, income tax might be exempt or reduced for special cases. At the discretion of the government, the contractors can be exempt from paying income tax for a maximum of two years.