(Approved by the State Council on December 5, 1988 and Promulgated on January 1, 1989)
Article 1
In the interest of developing the national economy, expanding international economic and technological cooperation and encouraging the exploitation of offshore petroleum resources in China, these Regulations are formulated in accordance with the "Regulations of the People's Republic of China on the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises".
Article 2
Any Chinese and foreign enterprises engaging in exploitation of offshore petroleum resources, according to Chinese laws, within the inland water, territorial sea and continental shelf of the People's Republic of China and in all sea area within the limits of national jurisdiction of the People's Republic of China, shall pay royalty in accordance with these Regulations.
Article 3
Royalty shall be computed and paid on the basis of the Annual Gross Output of Crude Oil or Natural Gas of each oil or gas field, at the following rates:
1. Crude Oil:
Royalty shall be exempted for the portion of the Annual Gross Output of Crude Oil not exceeding one million tones;
Royalty rate for the portion of the Annual Gross Output of Crude Oil ranging from one million tones to 1.5 million tones shall be 4%;
Royalty rate for the portion of the Annual Gross Output of Crude Oil ranging from 1.5 million tones to 2 million tones shall be 6%;
Royalty rate for the portion of the Annual Gross Output of Crude Oil ranging from 2 million tones to 3 million tones shall be 8%;
Royalty rate for the portion of the Annual Gross Output of Crude Oil ranging from 3 million tones to 4 million tones shall be 10%; and
Royalty rate for the portion of the Annual Gross Output of Crude Oil exceeding four million tones shall be 12.5%.
2. Natural Gas
Royalty shall be exempted for the portion of the Annual Gross Output of Natural Gas not exceeding 2 billion cubic meters;
Royalty rate for the portion of the Annual Gross Output of Natural Gas ranging from 2 billion cubic meters to 3.5 billion cubic meters shall be 1%;
Royalty rate for the portion of the Annual Gross Output of Natural Gas ranging from 3.5 billion cubic meters to 5 billion cubic meters shall be 2%; and
Royalty rate for the portion of the Annual Gross Output of Natural Gas exceeding five billion cubic meters shall be 3%.
Article 4
Royalty for both Crude Oil and Natural Gas shall be paid in kind.
Article 5
Royalty of Crude Oil and Natural Gas shall be collected and administered by the tax authorities.
Royalty for a Sino-foreign cooperative oil and/or gas field shall be withheld first by the operator of such oil and/or gas field and then handed over to the China National Offshore Oil Corporation which will be responsible for the royalty payment.
Article 6
Royalty shall be calculated on per year basis and pre-payable in installments or periodically. The annual settlement shall be made at the end of each year. The schedule of royalty prepayment and settlement shall be determined by the tax authorities.
Article 7
The operator of each oil and/or gas field shall submit to the tax authorities the production data of the said oil and/or gas field and other related information required by the tax authorities, within 10 days after the end of each quarter.
Article 8
The withholding agent and paying agent shall make the royalty payment within the time limit prescribed by the tax authorities. The tax authorities shall impose a delayed payment penalty at the rate of 0.1 per cent the amount of the royalty for each day of delay, counting from the first day on which the payment becomes overdue.
Article 9
The tax authorities may, according to the circumstance in each case, impose a penalty of less than RMB5,000 yuan on any operator of oil and/or gas field who has violated the provisions of Article 7 hereof, by failing to submit the royalty, the actual production data of the oil and/ or gas field or relevant information required to the tax authorities on time. A penalty of less than five times of the additional royalty payable shall be imposed on those who make false report on the actual output volume.
Article 10
The definitions of the following terms as used in these Regulations are:
1. "Crude Oil" means solid and liquid hydrocarbons in their natural state, including any liquid hydrocarbons extracted from natural gas except for methane (CH4).
2. "Natural Gas" means non-associated natural gas and associated natural gas in their natural state.
"Non-associated Natural Gas" means all gaseous hydrocarbons produced from gas deposits, including wet gas, dry gas and residual gas remaining after the extraction of liquid hydrocarbons from wet gas.
"Associated Natural Gas" means all gaseous hydrocarbons produced in association with Crude Oil from oil deposits, including residual gas remaining after the extraction of liquid hydrocarbons therefrom.
3. "Annual Gross Output of Crude Oil" means the total volume of Crude Oil produced from each oil field within the contract area in each calendar year less the amount of crude oil used for petroleum production and the amount of losses.
4. "Annual Gross Output of Natural Gas" means the total volume of natural gas produced from each oil field and/or gas field within the contract area in each calendar year less the amount of natural gas used for petroleum production and the amount of losses.
Article 11
These Regulations shall go into effect as from January 1, 1989.
