October 30th, 2012 / Insight posted in

Tax relief for oil field stake

PD writes: I am raising money for a new venture that will be acquiring an overseas oil field. The venture is being financed by a group of individuals. An investor has asked if the project will be eligible for tax relief under the Enterprise Investment Scheme, as we have a UK office. The amount being paid for the field is $700,000 (£450,000).

In the past, your company would not have qualified for the Enterprise Investment Scheme (EIS) because it would have failed the old requirement for the trade to be in the UK, writes Jon Sutcliffe, partner at Kingston Smith LLP. That requirement no longer exists, and has been replaced by the need for the business to have a permanent establishment in the UK. This usually means having a fixed site through which the company’s business is carried on.

You should note that a mere nominal registered office may not constitute a permanent establishment. Also, in the case of a group, the UK permanent establishment must belong to the holding company.

Exploration or extraction of oil can be a qualifying purpose, but coal extraction is a specifically excluded trade. You will also need to be clear about how the company will make money from the oil field. Leasing, receipt of royalties or licence fees, and property development are all excluded trades. Holding land (or other assets) as an investment is also non-qualifying, as a company or group must be trading to qualify for EIS. Similarly, holding 50% or less of a trading company will not qualify, as this is considered to be an investment rather than a trade.

You will need to meet the following limits on gross assets and staff numbers:

  • Gross assets before investment of no more than £15m and after investment of £16m;
  • No more than 250 employees.