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Discovery of natural gas deposits in Cyprus

Cyprus
2 May 2012
In late 2011, the Noble Energy Company announced the discovery of 5-7 Tcf of natural gas in Block 12 of the Exclusive Economic Zone of Cyprus. The importance of this discovery is further enhanced by the fact that these are the estimated results from one single Block, whereas drilling in the other remaining 12 Blocks is expected to reveal the existence of additional natural gas deposits and even the existence of oil.

In 2007, the Government of Cyprus introduced a new oil and gas law fully harmonized with the EU Directive 94/22/EC. This new law, ‘Hydrocarbons (Prospection, Exploration and Exploitation) Law’, in combination with the ‘Hydrocarbons (Prospection, Exploration and Exploitation) Regulations’ of 2007 and 2009 form the legal framework which regulates the granting of licenses for the prospection, exploration  and exploitation of natural gas.  No new tax laws have been introduced as regards the taxation of the energy sector but the already established laws continue to apply.  

  • A standard corporate tax rate of 10%.
  • No Capital Gains Tax with the exception of real estate located in Cyprus
  • Unilateral tax-relief for foreign tax suffered is given to all Cypriot companies.
  • Interest deduction is provided for borrowing costs.
  • Tax losses can be carried forward indefinitely and can also be surrendered as group relief.  Mergers, takeovers and other re-organizations can take place within groups with no tax consequences. 

Supplementary shipping regulations were also introduced relating to the prospection, exploration and exploitation of natural gas with Circular 15/2005.  

Circular 15/2005 of the Department of Merchant Shipping clarified the meaning of Mobile Offshore Drilling Units, Research Ships and Cargo Vessels and Ocean Tug Boats.

The second licensing round for the remaining blocks has been launched and the invitation for all interested parties has been published in the Official Journal of the European Union. The Republic of Cyprus invites all interested persons to apply for hydrocarbon exploration licenses and subsequent hydrocarbon exploitation licenses in the Exclusive Economic Zones of Cyprus. All applications should of have been submitted within 90 days starting from 11.2.2012 (date of publication in the Official Journal of the European Union) and applications submitted after the deadline has passed will not be taken into consideration.  

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