Five-year extension of exemption for non-resident offshore drilling rigs and seismic ships

The exemption for income derived by non-resident offshore drilling rigs and seismic ships has been extended to 31 December 2014.

The exemption for income derived by a non-resident company from drilling exploratory or development wells and from undertaking seismic survey work in an offshore permit area has been extended to 31 December 2014.

Background

Prior to 2004, New Zealand's domestic tax rules taxed non-resident drilling rig operators and seismic ship operators from the first day of their presence in New Zealand. However, some of New Zealand's double tax agreements prevented New Zealand from taxing a non-resident rig or seismic ship operator if the period of presence in New Zealand was shorter than 183 days. If the ship or rig did stay for longer than 183 days, the non-resident was generally taxed from the first day of its presence in New Zealand.

Because of this rule, prior to an exemption being introduced in 2004, non-resident offshore rig operators and seismic vessels had tended to stay in New Zealand for a period of fewer than 183 days. Even if further exploration would be desirable beyond the 183 day window, there were strong incentives for rigs to leave by this time. Different rigs were then required to be brought to New Zealand to complete the work, causing extra mobilisation and demobilisation costs. This also disrupted sensible exploration and development programmes.

In order to remove this impediment the Government introduced a temporary exemption in 2004 which was due to expire on 31 December 2009. The exemption has now been extended until 31 December 2014.

Key features

The exemption applies to certain income of non-resident rig operators - specifically, income from the drilling of wells to explore or develop New Zealand's offshore permit areas. It also applies to the income of non-resident companies that operate ships providing seismic survey readings in these areas.

The exemption will apply until 31 December 2014.

Application date

To ensure that the exemption continues uninterrupted, the five-year extension came into force on 31 December 2009 (the date that the previous exemption was due to expire). This means that the exemption applies to income from drilling activities and seismic survey activities in an offshore permit area that is derived between the beginning of the company's 2005-06 income year and 31 December 2014.