Indonesia update: new provisions on costs recovery and taxes for Production Sharing Contracts

The long-awaited amendment to Government Regulation No. 79 of 2010 on Recoverable Operation Costs and Treatment of Income Tax in Upstream Oil and Natural Gas Sector has now been released with the issuance of Government Regulation No. 27 of 2017 (GR 27/2017). The changes are primarily designed to attract investment in exploration activities in the upstream sector. GR 27/2017 expands the types of incentives, such as domestic market obligation (DMO) holiday incentive, accelerated depreciation and utilisation of State’s assets under the PSC. GR 27/2017 prohibits the recovery gross-up related to third party income tax, deletes the inclusion of "interest recovery incentives" as a non-recoverable cost, and clarifies that costs related to gas processing (including LNG processing) prior to point of delivery are cost recoverable.

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