You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

June 30, 2017

Thailand: Amendments to the Petroleum Act and Petroleum Income Tax Act

Subscribe to Updates

On June 17, 2017, the Petroleum Act (No. 7) B.E. 2560 and the Petroleum Income Tax Act (No. 7) B.E. 2560 were both enacted, amending their predecessor laws. The amendments to both statutes entered into force on June 23, 2017. The amendments had been anticipated for some time, introducing production sharing agreements (PSAs) and service contracts as alternative host government instruments by which upstream oil and gas producers may invest in Thailand.

Traditionally, the concession has been the sole means by which oil and gas could be explored for or produced in Thailand. Acting similarly to a license, the Thai concession stipulates that petroleum is the property of the state, though ownership transfers to the concessionaire at the wellhead. The amendments to the Petroleum Act do not eliminate the potential use of concessions, but rather provide two new instruments for the Ministry of Energy (MOE) to utilize when contracting with petroleum producers.

Production Sharing Agreements

The MOE will now be permitted to define appropriate blocks to be explored and produced by way of a PSA. Sections 53/1 through 53/8 of the Petroleum Act now outline a number of basic principles relating to PSAs and clauses to be found in the PSA itself, including the following:

  • Minimum amounts of capital to be injected by the private oil and gas producer;
  • Allocation of ownership interests in produced petroleum between the private oil and gas producer and the Thai state, including provision for the private oil and gas producer to dispose of petroleum on behalf of the state;
  • Duty of the private oil and gas producer to submit a plan and budget for approval to the Petroleum Committee before starting the project; and
  • Clauses pertaining to management of operations, penalties in the event of noncompliance, and termination of the PSA.

Unlike concessions, under the PSA the Thai state will retain ownership over a portion of the petroleum after it has been produced.

Service Contracts

Similar to PSAs, the MOE will now be permitted to determine appropriate blocks to be exploited via a service contract. Unlike the PSA or the concession, where the private oil and gas producer obtains ownership in some or all of the produced petroleum, produced petroleum under the service contract belongs exclusively to the Thai state. Sections 53/9 through 53/18 of the Petroleum Act outline a number of key aspects of the service contracts to be used in Thailand, including:

  • Greater government control over exploration and production decision-making; and
  • A maximum duration of three years for any service contract.

Amendments to Petroleum Income Tax Act

The amended Petroleum Income Tax Act accommodates the addition of PSAs to the Petroleum Act and makes other revisions to the taxation regime for upstream producers. Production sharing producers will be taxed at the rate of 20 percent of net profits, subject to other provisions of the Petroleum Income Tax Act. Amendments to the general taxation regime for upstream producers include the ability to deduct certain parent company expenditures on the Thai subsidiary’s behalf, as to be prescribed in further detail in forthcoming Ministerial Regulations.

Conclusions and Looking Forward

The MOE has been granted the authority to prescribe detailed rules relating to PSAs and service contracts by adopting Ministerial Regulations pursuant to Sections 53/1 and 53/9 of the Petroleum Act. As the MOE and its Department of Mineral Fuels determine appropriate blocks where either arrangement would be suitable, we can anticipate form agreements to be prescribed and utilized in practice.

Related Professionals

Industries

Energy

Location

RELATED INSIGHTS​ 

October 14, 2021
As part of its membership in Lex Mundi, Tilleke & Gibbins has published an updated edition of its Guide to Doing Business in Thailand for 2021. This guide outlines all of the key factors for starting and operating a business in the Thai market. Issues covered include: Investment incentives Financial facilities Exchange controls Import and export regulations Structures for doing business Requirements for the Establishment of a Business Operation of the Business Cessation or Termination of the Business Labor legislation, relations, and supply Tax Immigration requirements This publication is part of Lex Mundi’s Guides to Doing Business series prepared by member firms in more than 100 jurisdictions worldwide. The guides serve as a useful resource when planning an international business strategy or researching a new market.
Read More
April 19, 2021
Thailand has made significant changes to its statutory interest rate framework for the first time in almost a century. Since 1925, the statutory interest rate codified in Thailand’s Civil and Commercial Code (the CCC) has remained at 7.5% per year. But with Covid-19 having an unprecedented impact on the Thai economy, the Thai Government, via emergency decree, has reduced the statutory rate. While the decree is largely aimed at providing relief to hard-hit SMEs and individual debtors, the amendments have broader implications for doing business in Thailand. Main Changes The new interest rate revisions are contained within the Emergency Decree Amending the Civil and Commercial Code B.E. 2564 (2021) (the Emergency Decree), which was published in the Government Gazette on April 10, 2021 and came into effect on April 11, 2021. The Emergency Decree amends Sections 7 and 224 of the CCC, which stated the previous statutory interest rate of 7.5% per year. The Emergency Decree makes three major changes. The first involves a reduction of the statutory interest rate from 7.5% per year to 3% per year in Section 7. The new 3% annual rate is subject to review every three years by the Ministry of Finance. The interest rate is subject to further change later by a royal decree. The second change concerns money debts under Section 224 of the CCC. The previous version of Section 224 stated, among other things, that a money debt based on a default bears interest of 7.5% per year. Under the Emergency Decree, the new actual statutory default interest rate is the statutory interest rate stated in Section 7 with an additional rate of 2% per year. The result is a 5% annual statutory default interest rate. Since the statutory default interest rate is based in part on the Section 7
Read More