Since 2015, the production royalty is a state-wide tax that is paid for the use of subsoil for the extraction of minerals; for using the subsoil for purposes not related to the extraction of minerals; for using the radio frequency resource of Ukraine; for special use of water; for special use of forest resources; for the transportation of oil and petroleum products by main oil pipelines and petroleum product pipelines, transit transportation of natural gas and ammonia by pipelines through the territory of Ukraine.

The taxable object was the volume of commodity products of the mining enterprise - extracted minerals (mineral raw materials) (hereinafter referred to as minerals) in the respective tax period, the type of which was established by the conditions for mineral raw materials of the subsoil object (site). The Tax Code also determines the cases when extracted minerals are not included in the taxable object for the purposes of charging production royalty.

The tax base was the value of the volume of mineral resources extracted during the reporting period, calculated separately for each type of mineral commodity (mineral raw material) and for each subsoil area based on the standard delivery terms (finished products warehouse of the mining enterprise).

To calculate the tax liability, taxpayers were required to determine the following key parameters for the relevant reporting period: the volume of mineral commodities extracted, the value of such production, the applicable tax rate, and the adjustment coefficient.

The Production Royalty Calculator is an online tool designed to estimate royalty payments and the carbon footprint associated with mineral production.

Enter the required data to calculate estimated royalty payments and see how these revenues are distributed across different levels of government. The tool also automatically estimates the carbon footprint associated with the extraction of the specified volume of mineral commodities.

The calculator is currently available in test mode.

The temporary rules for calculating the value of natural gas for the purposes of calculating the production royalty, introduced during the martial law, continued to apply in 2024.

When carrying out controlled transactions in the cases specified by the Tax Code, the actual selling price should have been not less than the price determined at the arm's length rule.

The temporary rules for calculating the value of natural gas for the purposes of calculating the production royalty, introduced during the martial law, continued to apply in 2023.

For natural gas:

In 2023, the temporary rules for calculating the value of natural gas for the purposes of calculating the rent for the use of subsoil, introduced as a result of martial law, continued to apply:

► In 2023, temporary rules for calculating the value of natural gas for the purposes of calculating the production royalty, which were introduced due to the martial law, continued to apply:

► Until the ban on the export of natural gas out of the customs territory of Ukraine is lifted, the calculation of the value of natural gas will be tied to the prices in the domestic market using the bigger of the following as a factor:

► the weighted average price in the contracts of Naftogaz of Ukraine NJSC concluded for purchasing natural gas of own production on the organized commodity markets.

► the weighted average selling price for natural gas according to the results of trading on organized commodity markets excluding VAT, in UAH per 1000 cubic meters, in the month preceding the reporting month, excluding Naftogaz of Ukraine NJSC and the enterprises in whose authorized capital Naftogaz of Ukraine NJSC has a share of 50% or more.

► the arithmetic mean of the average UA VTP Gas price for the following month.

► The Ministry of Economy publishes the specified indicators on its website by the 10th day of the month following the reporting period.

► The rule for payment of production royalty only for the gas sold also continued to apply.

For natural gas sold by Naftogaz of Ukraine NJSC to form a natural gas resource for household consumers and heat energy producers, the value was the price specified in the natural gas purchase and sale agreements between the production royalty payer and Naftogaz of Ukraine NJSC in the reporting period.

For oil and condensate: The Ministry of Economy calculated the average value of one barrel of Urals according to information from an international agency (UralsMediterranean and UralsRotterdam quotes), converted into UAH per ton at the NBU exchange rate as of the 1st day of the month following the tax (reporting) period (these indicators was published on the official website of the Ministry of Economy).

When carrying out controlled transactions in the cases specified by the Tax Code, the actual selling price should have been not less than the price determined at the arm's length rule.

The tax base for the production royalty for subsoil use for the extraction of hydrocarbons was the value of commodities, namely minerals extracted during the reporting period, calculated according to special rules that changed several times during 2022:

When carrying out controlled transactions in the cases specified by the Tax Code, the actual selling price of the relevant commodity of a mining enterprise, namely the extracted mineral or mineral raw material, could not be lower than the price determined according to the arm’s length principle.

The production royalty rates for subsoil use for the extraction of minerals were established by the Tax Code. In March 2022, a mechanism of differentiated production royalty for natural gas was introduced, under which production royalty rates depended on the selling price of natural gas, thereby increasing the tax burden on extractive companies. At the same time, stabilization of the production royalty rates was introduced: the State guarantees that the new production royalty rates cannot be increased until March 2032.

In 2021, the tax base for the production royalty for the use of subsoil for the extraction of hydrocarbons was the value of commodities, namely minerals extracted during the reporting period, calculated according to special rules.

The production royalty rates for the use of subsoil for the extraction of minerals were established by the Tax Code.

In 2023, a mechanism of differentiated production royalty for natural gas was in place, according to which the rates of production royalty depended on the sales price. At the same time, stabilization of production royalty rates continued: the State guarantees that the new production royalty rates cannot increase until March 2032.

For natural gas, in most cases, a differentiated production royalty applied, depending on its selling price.

From 01.12.2024, a law came into force abolishing the reduced rate for the cases where the actual selling price of natural gas for the reporting period is USD 150 or less for 1000 cubic meters.

Actual natural gas production royalty rates in 2024 for the cases where the rate varied depending on the USD equivalent of the actual selling price. Since the price was more than USD 150 but less than USD 400, the rates remained stable throughout 2024.

When calculating the production royalty, adjusting coefficients (from 0.01 to 0.97) were used depending on the type of raw material and the conditions of its extraction.

The procedure for selecting and approving such new investment projects/programs, as well as the procedure for monitoring their implementation, are determined by the CMU upon submission by the Ministry of Economy. The list of subsoil areas and/or subsoil area objects where new investment projects are implemented is determined by the Ministry of Energy.

Actual rates applied to the volumes of natural gas extracted during 2023, which were determined depending on the USD equivalent of the actual sales price in the domestic market (the rates specified in the table do not apply to the cases where the production royalty was calculated and paid for the gas extracted from deposits in subsoil areas (fields) within the continental shelf and/or exclusive (maritime) economic zone of Ukraine, natural gas extracted during under JVAs or PSAs, since in these cases the rate remained unchanged and did not depend on the actual sales price).

When calculating the production royalty for the subsoil use, the adjustment coefficients (from 0.01 to 0.97) apply depending on the type of raw material and the conditions of its extraction.

Compared to the rates at the end of 2022, the rates of production royalty for the extraction of oil, condensate and natural gas did not change in 2023. In October 2024, the VRU adopted the law that, inter alia, provided for the abolition of the reduced production royalty rate when the actual sale price of natural gas for the reporting period is USD 150 or less per 1000 cubic meters. The law entered into force on 01.12.2024

The rates of the production royalty for the subsoil use or the production royalty under PSA were determined in the PSA, but they could not be lower than those established by Section IX of the Tax Code at the time of the PSA conclusion. In 2023, special production royalty rates continued to apply: under the PSA for oil and condensate, the production royalty for the subsoil use was calculated at a rate of 2% of the value of the mining enterprise's commodities, and for natural gas, the production royalty for the subsoil use was calculated at a rate of 1.25% of the value of the mining enterprise's commodities.

For legal entities that meet the specified criteria for state ownership, a special rate is provided for taxation of additional volumes of hydrocarbon raw materials extracted as a result of the implementation of existing or new investment projects that provide for an increase in hydrocarbon raw materials extraction in the amount of 2% of the cost of additional extraction of the relevant hydrocarbon raw material for:

The procedure for selecting and approving new investment projects that provide for the increase in hydrocarbon raw materials extraction, the procedure for determining additional volumes of hydrocarbon raw materials, as well as the procedure for monitoring the implementation of such investment projects (programs) are determined by the CMU upon submission by the Ministry of Economy.

The list of subsoil fields and/or subsoil areas where the new investment projects are implemented is determined by the Ministry of Energy.

When calculating the production royalty for subsoil use, adjustment coefficients (from 0.01 to 0.97) applied depending on the type of raw material and the conditions of its extraction.

Compared to the rates applicable in 2021, the rates of production royalty for the extraction of oil, condensate and natural gas increased in 2022.

The rates of the production royalty for subsoil use or the production royalty under PSA were determined in the PSA, but they could not be lower than those established by Section IX of the Tax Code at the time of the PSA conclusion. In 2022, special production royalty rates continued to apply: under the PSA for oil and condensate, the production royalty for subsoil use for the extraction of minerals was calculated at a rate of 2% of the value of the mining enterprise's commodity products, while for natural gas, the production royalty for subsoil use for the extraction of minerals was calculated at a rate of 1.25% of the value of the mining enterprise's commodity products.

Temporary specific features of payment of production royalty for the subsoil use for gas extraction

In 2023–2024, temporary specific features of production royalty payment for subsoil use related to natural gas extraction remained in effect for volumes of natural gas injected into storage facilities and not sold. In particular:

The temporary provisions do not apply to the volumes of natural gas sold to Naftogaz of Ukraine NJSC to form a natural gas resource for the needs of household consumers and heat energy producers.

The special rules for paying production royalty will be in effect until the last day of the month in which martial law is lifted in the territory of Ukraine.

For the purposes of reducing the tax burden on natural gas production companies following the March 2022 changes to the production royalty calculation rules, a temporary special mechanism for the payment of production royalty for subsoil use in respect of volumes of natural gas injected into gas storage facilities and not sold was introduced in April 2022. In particular:

The temporary provisions did not apply to volumes of natural gas sold to Naftogaz of Ukraine NJSC to form a natural gas resource for household consumers and heat energy producers.

The special rules for the payment of production royalty will remain in effect until the last day of the month in which martial law is terminated in the territory of Ukraine.

In 2021, special production royalty rates were in effect: under the PSA for oil and condensate, the production royalty for subsoil use for the extraction of minerals was calculated at a rate of 2% of the value of the mining enterprise’s commodity products, and for natural gas, the production royalty for subsoil use for the extraction of minerals was calculated at a rate of 1.25% of the value of the mining enterprise’s commodity products.

Compared to the rates applicable in 2020, the rates of production royalty for the extraction of oil, condensate and natural gas did not change in 2021.

From January 1, 2018, a stimulating royalty rate was introduced for extracting natural gas, produced from new wells in the amount of 12% of the deposits that are fully or partially located at depths of under 5000 meters, and 6% of the deposits that are fully or partially located at a depth of over 5000 meters. In 2019, royalty rates for extracting oil were standardized

In 2018, 5% of the production royalty for extracting hydrocarbons were transferred to the general fund of the local budgets, which was distributed depending on the location (place of extraction) of the respective natural resources. The amount of 95% of this tax was transferred to the State budget, except for the payments made for the use of natural resources within the continental shelf or exclusive (marine) economic territory of Ukraine, which had to be remitted to the State budget in full

The basis of taxation for minerals, other than hydrocarbon raw materials and iron ores, is their value, which was calculated according to the greater of two values: according to the actual sale prices or according to the estimated value of the mineral.

Calculation of the actual selling price of a mineral

As a general rule, the amount of revenue generated from the sale of a particular mineral commodity during the reporting period was reduced by the exhaustive list of deductible expenses established by the Tax Code.

In the years 2020-2024, as in previous years, the expenses included:

- the costs of delivering products to the consumer and the costs of pre-sale preparation of goods.

- In the absence of sales of extracted minerals or if there is a need to subject such extracted minerals to technological operations that are not provided for by primary processing for the introduction of extracted minerals into civil circulation, the tax base for production royalty is determined based on the estimated value.

- a special rule is used for calculating the value of uranium and gold ores extracted from primary deposits.

The unit cost of a type of mineral extracted was calculated as the ratio of the amount of income from the sale of a type of mineral extracted (with deduction of costs) and the volume (quantity) of the corresponding type of mineral sold of minerals, which is determined according to the accounting data of stocks of finished products of such payer.

At the end of 2024, laws came into force that, inter alia, changed the mechanism for calculating the value of extracted minerals for the purposes of production royalty by establishing a minimum tax base for paying production royalty for:

From 23.05.2020, the rate of production royalty for the extraction of ferrous metals (except iron ores), non-ferrous and alloy metals was increased and constituted 6.5%, for the extraction of iron ore — 12%, if the average value of iron ore for the tax (reporting) period is USD 70 or more according to IODEX 58% FE CFR China, officially determined by the world news agency Platts, or 11%, if such average cost was less than USD 70, the rates and conditions for the application of certain adjusting coefficients to production royalty rates also were changed.

During 2023–2024, the rules governing the production royalty for subsoil use related to iron ore extraction remained unchanged.

Since the beginning of 2022, the rules governing the production royalty for subsoil use in relation to iron ore extraction have been amended as follows:

Production royalty for subsoil use for the extraction of minerals other than hydrocarbons

Production royalty for the extraction of minerals (other than hydrocarbons) of national importance was distributed between the general funds of the budgets as follows:

Production royalty for the extraction of minerals of local importance was paid to the budget of the local government at the location (place of extraction) of the relevant natural resources in full.

According to the results of the reconciliation of payments for 2024, the amount of state revenues from the production royalty from the extractive companies, according to state authorities, amounted to UAH 50,130,995.74 thousand, and according to the data of the extractive companies it was UAH 50,130,980.90 thousand. The amount of discrepancies between the data of taxpayers and the data of state authorities, according to the results of the initial request, amounted to UAH 2,331,760.61 thousand, and after reconciliation and clarifications, the amount of discrepancies is UAH 14.84 thousand.

According to the results of the reconciliation of payments for 2023, the payments in favour of the state from the production royalty from the extractive companies, according to the state authorities, amounted to UAH 57,990,377.32 thousand, and UAH 57,990,188.66 thousand according to the data of the extractive companies. The discrepancy between the data of the taxpayers and the data of state authorities, according to the results of the initial request, amounted to UAH 6,818,281.82 thousand, and after the reconciliation and clarifications, the discrepancy is UAH 188.66 thousand.

According to the results of the reconciliation of payments for 2022, the amount of state revenues from the production royalty from the extractive companies, according to state authorities, amounted to UAH 81,988,108.94 thousand, and according to the data of the extractive companies it was UAH 81,986,286.60 thousand. The amount of discrepancies between the data of taxpayers and the data of state authorities, according to the results of the initial request, amounted to UAH 3,266.44 thousand, and after reconciliation and clarifications, the amount of discrepancies is UAH 1,822.33 thousand.

Considering the provisions of the Terms of Reference, neither the reconciliation of data on payments in favour of the state nor the analysis of discrepancies was performed for the EITI Report 2021. Instead, payment data were disclosed unilaterally, without reconciliation.

According to the results of the reconciliation of payments for 2020, the amount of state revenues from the production royalty from the extractive companies, according to state authorities, amounted to UAH 48,506,126.71 thousand, and according to the data of the extractive companies it was UAH 48,510,026.58 thousand. The amount of discrepancies between the data of taxpayers and the data of state authorities, according to the results of the initial request, amounted to UAH (215,358.74) thousand, and after reconciliation and clarifications, the amount of discrepancies is UAH (3 899,87) thousand.

According to the results of the reconciliation of payments for 2019, the amount of state revenues from the production royalty from the extractive companies, according to state authorities, amounted to UAH 42,547,316.09 thousand, and according to the data of the extractive companies it was UAH 42,547,471.66 thousand. The amount of discrepancies between the data of taxpayers and the data of state authorities, according to the results of the initial request, amounted to UAH 95,785.95 thousand, and after reconciliation and clarifications, the amount of discrepancies is UAH (155,57) thousand.

According to the results of the reconciliation of payments for 2018, the amount of state revenues from the production royalty from the extractive companies, according to state authorities, amounted to UAH 40,672,021.77 thousand, and according to the data of the extractive companies it was UAH 40,661,323.35 thousand. The amount of discrepancies between the data of taxpayers and the data of state authorities, according to the results of the initial request, amounted to UAH 1,510,741.81 thousand, and after reconciliation and clarifications, the amount of discrepancies is UAH 10 698,41 thousand.