Tax for offshore oil and gas workers explained (2023)

One of the more complex UK tax situations is reserved for British people working offshore, for example on oil rigs or supply vessels. If you consider that nation states are fundamentally based on the right to tax the people living and working within their boundaries and people working offshore are, by definition, not working within any nation state.

Today oil rings and supply vessels working in the North Sea are manned by individuals with homes in Essex and Thailand and everywhere in between. On the other hand, rigs and vessels from Vietnam to Mexico are manned by individuals with homes across the UK, from Southampton to the Scottish Glens.

Who claims the right to tax offshore oil and gas workers?

The independence movement in Africa didn’t throw out the European colonial governments only to see European workers earn 100 times their national average and fly back to Scotland each month without paying any local taxes; and the European nations that divided up the North Sea continental shelf are unlikely to want the individual to fly back to Thailand without paying local taxes. And of course wherever you are resident that country is going to want to tax your income.

For UK income taxes it is Residence that is the paramount consideration. Nationality hardly counts at all, and domicile (which is subtly different) only really makes any difference for the super-rich, who are not usually to be found working offshore.

Therefore, in the first instance we need to assess your liability to UK taxation is to assess whether you are resident in the UK.

Prior to the Gains-Cooper case tax residence in the UK was established by case law and revenue guidance. Probably as a result of the case the government brought in the Statutory Residence Test, which is a complex rule-based system to determine whether anyone is a UK resident for tax purposes.

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It is worth saying that although the Statutory Residence Test can be straight forward for many people, there are some aspects where definitions have been open to challenge, in general the rules are generally pretty definitive and work well.

Later in the article, we will cover a couple of rules which can be decisive or where it may be possible to manage your affairs to reduce or eliminate liability to UK tax.

Suffice to say when we provide an introduction for a British offshore worker to a specialist UK tax expert from our network, our first job is to compile the information that allows us to establish where you fall within the rules.

The crucial questions will be in the current and previous tax years

  • Where do you have a home (or homes)?
  • Where do you work?
  • How many days were you in the UK?
  • How many days were you working – in the UK – outside of the UK?

There may be many supplementary questions, but note that at this stage we do not need to know what nationality you are, or who your employer is. For example supplementary questions around your home may well include where your partner and or children live.

But the first thing to determine for an offshore worker is whether you are working on a fixed platform (reasonably well defined in most instances) or on a vessel moving around under its own propulsion. The rules for seafarers are completely different, also quite complex, and covered in a later article.

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Then if you are working on a fixed platform, the next thing to determine is in whose waters that platform is located. The government have a map published on the internet that locates all the fixed platforms in the North Sea.

When the nations bordering the North Sea divided up the continental shelf the UK quickly changed its tax laws so that working in the UK sector of the North Sea counts as working in the UK for all UK tax laws. It also changed many tax treaties, but not all. If the tax treaty doesn’t cover the North Sea then this will favour a foreign resident, so this is an important issue.

Tax treaties and offshore workers

The first thing to understand about tax treaties is that they take precedence over domestic law, so it impossible to overstate their importance for offshore workers. The tax treaties are bilateral agreements, but the OECD (Organisation for Economic Co-operation and Development) has worked hard on harmonising the structure, lay out and contents of the treaties.

Understanding the language of these treaties is important, for the lay person they can be impenetrable, and subtleties are easily missed. Here are 3 clues to how you can approach them.

  1. Firstly, they tend to use the terms “the first state”, “the other state” and “that state”. You might wish to go through each relevant paragraph striking these phrases out and substituting say “UK” and “France” as appropriate which makes the whole thing easier to read.
  2. The word “may” as in “income from property may be taxed in the state in which the property is located” means that the state in which the property is located gets first dibs at taxing that income. It does not prohibit the other state taxing the income as well, although you will always get relief from double taxation elsewhere in the treaty.
  3. The word “Notwithstanding” as in “Notwithstanding the preceding paragraph” means “If you meet these conditions the outcome overrides (and therefore you can ignore) the results of the previous paragraph.

The structure of the treaties is fairly consistent, and for such important legal documents they are astonishingly succinct.

Case study of an offshore worker (Jo) working on a UK oil rig

Jo works full time on rig in UK waters but flies home to Esparanto on his time off. He spent 172 midnights in the UK last year.

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Under rule 3 of the UK residence tests (working full time more than 75% of which is in the UK) he is definitely UK resident.

So then we go to the UK Esparanto double tax treaty.

Article 4.2 establishes Jo’s residence and as he has a home with a wife and kids in Esparanto and no such home in the UK (a room on an oil rig might be “accommodation” under the Statutory residence rules, but it certainly isn’t a home) he is most definitely “tax resident” in Esparanto. Remember this takes precedence to the decision that he is tax resident in the UK under the Statutory Residence Rules.

So now we find where the tax is to be paid. We look at Article 16 of the treaty for employees.

This tells us in paragraph 1 (in esoteric language) that a resident of Esparanto may be taxed by the UK when working in the UK.

Paragraph 2 is however critical. This starts with “Notwithstanding the contents of paragraph 1” which tells us that it is capable of overriding paragraph 1. And goes on to say (in my translation)

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a) If Jo spends less than 183 days in any 365 day period in the UK, and

b) If his employer is not resident in the UK, and

c) If his employer does not have a “Permanent Establishment” in the UK.

then he may only be taxed in Esparanto.

These are often three most crucial considerations, whilst working hours may (with a bit of negotiation) be within Jo’s control the other factors are usually not.

But Jo has been unusually careful he has chosen an employer based in Singapore, who most certainly do not own the oil rig and who do not have a “permanent establishment” in the UK. Pay is calculated by a bureau, and payment is made out of Singapore.

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As long as he keeps his UK presence below 183 days Jo does not have to pay tax in the UK and we can get PAYE repaid to him.

Getting specialist assistance with an offshore worker UK tax specialist

If you are a British citizen working offshore, whether on an oil rig or a supply vessel, we can help you by introducing you to a tax specialist who has vast experience assisting people with a wide range of complex situations.


Do you pay taxes if you work offshore? ›

If you're living abroad and paid by a US company, you'll pay self employment tax on your earnings. If you're living offshore and operating a business without an offshore company or LLC, you'll pay self employment tax on your profits. Here's how self employment tax works when you're offshore and how to avoid it.

How is working interest taxed? ›

For working interest owners, the lease bonus and lease payments are reported on Form 1099-NEC, Box 1, Nonemployee Compensation. This amount should report this income on Schedule C, Gross Receipts and Sales. This income is subject to self-employment tax on Schedule SE.

What is the tax on oil and gas? ›

Tax Description: 6 percent of production value for oil and gas at point of production.

What is the tax on oil reserves? ›

The petroleum oil spill tax rate is $0.09 per barrel. The petroleum Superfund tax rate is $0.164 per barrel for 2023 (rate is indexed annually for inflation)

What taxes do US citizens pay when working abroad? ›

In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.

How do I avoid taxes offshore? ›

If you acquire residency in a no-tax or low-tax jurisdiction outside your home country, you will be able to reduce your personal tax bill significantly. Alternatively, you could incorporate a company in a no-tax or low-tax jurisdiction and significantly reduce your business' tax bill while still living at home.

What is considered a working interest in oil and gas? ›

What Is Working Interest? Working interest is a term for a type of investment in oil and gas drilling operations in which the investor is directly liable for a portion of the ongoing costs associated with exploration, drilling, and production.

What is the working interest in oil and gas well? ›

A percentage of ownership in an oil and gas lease granting its owner the right to explore, drill and produce oil and gas from a tract of property. Working interest owners are obligated to pay a corresponding percentage of the cost of leasing, drilling, producing and operating a well or unit.

What is a working interest in an oil and gas lease? ›

Working interest describes a percentage of ownership in a mineral lease granting its owner the right to explore, drill, and produce oil and gas from the leased property.

Why do oil companies not pay taxes? ›

Large oil companies in the United States have been paying taxes at a significantly lower rate than most other corporations. The chief reason is that there are provisions in the U.S. tax code that allow energy companies to defer and avoid federal income tax payments.

What is the tax on marine gas oil? ›

The highest state fuel tax is California at $0.54/gallon. So, depending on how much you use your boat and what state you live in, you might be eligible to get quite a bit of money back at tax time through your state's marine fuel tax refund!

Do oil and gas companies get tax breaks? ›

Key Takeaways. Several major tax benefits are available for oil and gas companies and investors that are found nowhere else in the tax code. Tangible costs, which pertain to the actual direct cost of the drilling equipment are 100% deductible but must be depreciated over seven years.

How much is oil taxed in the US? ›

How much tax do we pay on a gallon of gasoline and on a gallon of diesel fuel? Federal taxes include excises taxes of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel, and a Leaking Underground Storage Tank fee of 0.1 cents per gallon on both fuels.

How much tax does Shell oil pay? ›

In 2022, Shell paid $68.2 billion to governments. We paid $13.4 billion in corporate income taxes and $8.2 billion in government royalties. In addition, we collected $46.6 billion in excise duties, sales taxes and similar levies on our fuel and other products on behalf of governments.

What does tax your reserves mean? ›

Tax Reserves means amounts payable, accrued liabilities or other amounts owing in respect of Taxes attributable to the operations of any Company. Sample 1Sample 2.

Do US citizens living abroad pay double taxes? ›

As an American citizen, you're required to file a US tax return even if you're living abroad. And if you already owe income tax to a foreign government, you could end up paying twice on the same income. Here's what you need to know about US double taxation—and how to avoid it.

Do US citizens living abroad pay less taxes? ›

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad.

What happens if you don't pay U.S. taxes while living abroad? ›

If you meet the requirements and willfully fail to file an FBAR you can be fined up to the greater of $124,588 or 50% of the total balance in all your overseas accounts. If you meet the requirements and fail to file FATCA Form 8938 you can be fined from $10,000 up to $50,000 if you don't act timely.

Can the IRS see offshore accounts? ›

Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).

Can the IRS touch an offshore account? ›

Yes, the IRS can levy your foreign bank account. Don't believe that your money is safe just because it is offshore. If you have an IRS debt, the reach of the U.S. government is longer than you think.

Can the IRS seize offshore accounts? ›

However, don't believe that your money is safe just because it is in an offshore bank account. The IRS can issue a levy to any bank within the US. If you're an account holder of a foreign bank that has a branch in the US, the IRS can easily issue a levy notice to the US office and empty your account overseas.

Is a career in oil and gas worth it? ›

Oil and gas offers great money and currently has good job prospects, meaning a stable working environment. A shortage of qualified workers means skilled people are in high demand.

Should I work in oil and gas industry? ›

Pursuing a career in oil and gas production is a great option. Not only can applicants expect better than average pay, but they also have access to various job opportunities around the world. Obtaining the right education, experience or certification is the first step in getting a job in this field.

What are the side effects of working in oil and gas industry? ›

Safety Hazards Associated with Oil and Gas Extraction Activities
  • Vehicle Collisions.
  • Struck-By/ Caught-In/ Caught-Between.
  • Explosions and Fires.
  • Falls.
  • Confined Spaces.
  • Ergonomic Hazards.
  • High Pressure Lines and Equipment.
  • Electrical and Other Hazardous Energy.

What is the highest oil and gas salaries? ›

High Paying Oil and Gas Jobs
  • Senior Landman. Salary range: $125,500-$160,500 per year. ...
  • Completions Engineer. Salary range: $91,500-$148,000 per year. ...
  • Subsea Engineer. Salary range: $93,000-$134,000 per year. ...
  • Rig Welder. ...
  • Land Acquisition Specialist. ...
  • Petroleum Landman. ...
  • Land Agent. ...
  • Land Acquisition Analyst.

What are the pros and cons of a working interest in a gas well? ›

The main advantages of a working interest are that a business can generate substantial profits when a well is successful, and that all key decisions are in the hands of the business owners. The main downside is the much greater risk of loss if a well turns out to be dry or have little output.

How is working interest calculated? ›

In a typical JOA or pooled unit, the formula for determining the working interest of an owner is to take the number of lease acres contributing to the unit and divide it by the total number of acres in the unit. Standard Formula: number of lease acres contributing to the unit/total number of acres in the unit.

How do you sell working interest in an oil well? ›

The only way you can sell a working interest in an oil well is if you are cash flow positive. Ideally, you should be making $500+ net profit after expenses. Anything less, and the risk to the buyer is too high.

What is the difference between working interest and non working interest? ›

Working Interest Types

Those with this interest are in charge of paying for operational costs, including paying each royalty owner. Non-operating working interest: This is an interest in the oil well, lease, or another unit of production that involves no operational duties.

What is the difference between working interest and royalty interest in oil and gas? ›

What is the difference between working interest and royalty interest? Working interests are oil and gas investments that give owners the right to exploit the resources on a property. Royalty interests are the rights belonging to the landowner who leased out the property to the working interest owner.

Did Biden raise taxes on oil and natural gas? ›

$12 billion in new taxes on American oil and gas producers enacted in the Inflation Reduction Act. $45 billion in tax increases on American energy production proposed in Biden's 2023 budget. Gas prices have risen 111 percent at their peak since President Biden took office.

How much of a gallon of gas is subsidized? ›

“Spread out over the 19.8 million barrels of oil consumed daily in the U.S. in 2017,” SAFE writes, “the implicit subsidy for all petroleum consumers is approximately $11.25 per barrel of crude oil, or $0.28 per gallon of transportation fuel.”

How much would gas cost without subsidies? ›

Clean energy technologies have often been accused of not being able to be implemented without subsidies; however, no energy sector has ever been developed without subsidies. Without subsidies we would all be paying roughly $12.75 per gallon for gasoline.

What is marine fuel surcharge? ›

Surcharge is currently 40%

Fuel surcharge will be assessed to reflect the fluctuation (increase or decrease) in marine fuel prices. The fuel surcharge is determined during the last week of each month and published on the first day of each new month to be effective from the 1st to the end of the month.

What is Alaska oil and gas production tax? ›

4% rate applies when the Alaska North Slope price is more than $25/barrel. Some credits can apply against the minimum tax.

How much is royalty tax? ›

Federal tax must be withheld at the rate of 30% of gross royalties unless an IRS tax treaty is applicable.

How much money does the US government give to oil companies via subsidies and tax breaks each year? ›

Calculating the cost of U.S. subsidies for the fossil fuel industry is complex because the incentives stretch across the U.S. tax code, but estimates range from $10 to $50 billion per year.

How much does Exxonmobil pay in taxes? ›

Exxon annual income taxes for 2022 were $20.176B, a 164.22% increase from 2021. Exxon annual income taxes for 2021 were $7.636B, a 235.58% decline from 2020. Exxon annual income taxes for 2020 were $-5.632B, a 206.63% decline from 2019.

Do oil companies pay a carbon tax? ›

To date, few countries require oil and gas producers to either pay a carbon tax or participate in an emissions trading scheme (ETS). But that could soon change. Governments around the world are on a mission to decarbonise – and may also be seeking new revenue streams to replenish Covid-19-ravaged budgets.

How much profit do oil companies make in a gallon of gas? ›

About $0.05/gallon is profit for refineries turning that crude oil into gasoline. That's the ExxonMobil and Shell's of the world as well. And that gas station of yours?

Is it cheaper for the US to import oil? ›

The economics are simple: overseas oil, even after shipping costs, is often cheaper than domestically-produced crude. That is because what oil people call "lifting costs," the cost of actually getting the oil out of the ground, are so much lower in some other countries. That, in turn, is down to a number of factors.

How much federal taxes are in oil and gas? ›

The breakdown. For every gallon of gas in California, we pay: 54 cents in state excise tax: among the highest in the nation. 18.4 cents in federal excise tax.

How is oil income taxed? ›

Oil and gas royalties are subject to federal and state income taxes. The Internal Revenue Service (IRS) requires that all royalty payments must be reported as income on the taxpayer's tax return. Royalties are considered taxable income and are subject to federal and state income tax.

How much tax revenue does the government collect from oil companies? ›

By contrast, the total amount of taxes collected by U.S. governments from the oil companies topped $1.95 trillion, roughly 40 percent more than the industry's combined profits. Tax collections exceeded company profits in 23 of the 27 years surveyed.

Who is Shell owned by? ›

In 2005, the Royal Dutch Shell Group underwent a major structural reorganisation as the nearly century-old partnership between Royal Dutch Petroleum and Shell Transport and Trading was dissolved and Shell unified its corporate structure under a single new holding company, Royal Dutch Shell plc.

Do taxpayers pay the Federal Reserve? ›

The Federal Reserve does not receive funding through the congressional budgetary process. The Fed's income comes primarily from the interest on government securities that it has acquired through open market operations.

Does the Federal Reserve have anything to do with taxes? ›

The Federal Reserve serves as the government's banker, processing transactions. These include accepting electronic payments for Social Security taxes, issuing payroll checks to government employees, and clearing checks for tax payments and other government receivables.

How are reserves taxed? ›

Reservists must pay federal income taxes on basic pay, bonuses and most special pays. Allowances generally are tax-exempt; reservists pay state income taxes on those earnings, but any new allowance designated by law is taxable.

How much can I make overseas without paying taxes? ›

If you're an expat and you qualify for a Foreign Earned Income Exclusion from your U.S. taxes, you can exclude up to $108,700 or even more if you incurred housing costs in 2021. (Exclusion is adjusted annually for inflation). For your 2022 tax filing, the maximum exclusion is $112,000 of foreign earned income.

What is the average income of an offshore worker in the US? ›

Offshore Oil Rig Salary
Annual SalaryMonthly Pay
Top Earners$39,500$3,291
75th Percentile$36,000$3,000
25th Percentile$26,500$2,208

Is working offshore risky? ›

Sometimes they fall to a lower deck and other times fall into the ocean. In many cases, these types of accidents result in death. Even if workers fall into the ocean, the impact with the water, alone, could be enough to crush their bones and knock the air out of their lungs so they are unable to breathe.

What happens when a job is offshore? ›

Offshore work typically involves working on oil rigs in the sea. In Oil and Gas, offshore workers are usually involved in exploring and extracting mineral resources from the seabed. The work can be physically demanding and undertaken in difficult conditions like extreme weather.

Do I have to pay taxes in the US if I work abroad? ›

Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.

Do I have to pay double taxes if I work out of country? ›

As an American citizen, you're required to file a US tax return even if you're living abroad. And if you already owe income tax to a foreign government, you could end up paying twice on the same income. Here's what you need to know about US double taxation—and how to avoid it.

Can IRS track foreign income? ›

Yes, eventually the IRS will find your foreign bank account. When they do, hopefully your foreign bank accounts with balances over $10,000 have been reported annually to the IRS on a FBAR “foreign bank account report” (Form 114).

What is the highest paying job on a oil rig? ›

Petroleum engineer. One of the most well-paid oil and gas jobs is that of a petroleum engineer. Their primary responsibility is to devise methods for extracting oil and gas from the ground in an efficient, cost-effective manner.

What state pays the most for oil rig workers? ›

According to The Bureau of Labor Statistics , the highest paying states for oil drillers are Alaska, California, Colorado, Wyoming and Texas. Here are the average salaries for rotary drill operators in the oil and gas industry in these states: Alaska: $79,830 per year.

What is the life of an oil rig worker? ›

Oil rig workers have an 8-12 hour shift with breaks for food in the morning, noon and night. One might have to do night shifts since this industry operates 24 hours a day and seven days a week. While this may seem tough, a two-week work session on the rig will earn the worker a holiday of almost three weeks.

How long do offshore jobs last? ›

Because the work on an offshore rig is never ending, the majority of workers are required to work 12-hours shifts, seven days a week, for seven to 28 days at a time. Additional overtime is required on an emergency or project basis.

What are 2 hazards of working on an oil rig? ›

Workers in the oil and gas industries face the risk of fire and explosion due to ignition of flammable vapors or gases. Flammable gases, such as well gases, vapors, and hydrogen sulfide, can be released from wells, trucks, production equipment or surface equipment such as tanks and shale shakers.

Is it hard to get a job on an offshore oil rig? ›

No experience oil rig jobs are a bit hard to find but not impossible indeed. You can pursue different level oil jobs depending on your educational background. See some types of entry-level oil rig jobs we have enlisted for you!

What is the retirement age for oil rig workers? ›

In most cases, employees in the Drilling and Services & Manufacturing Subsectors will need to save more than the amounts encouraged by the plan design in order to retire at age 65 with the same standard of living. The rise of the 401(k) plan has shifted responsibility for retirement adequacy into employees' hands.

Are cell phones allowed on oil rigs? ›

An offshore worker cannot use a cell phone aboard an oil rig or platform in these situations: Outside of the living quarters. Due to the risk of flammable gas coming up the oil well, the use of cell phones is strictly prohibited anywhere outside of the living quarters.

What do oil rig workers eat? ›

Offshore installations have a dedicated team of kitchen staff who prepare food around the clock, often with a self-service style canteen. Despite the offshore location, fresh food is shipped in regularly, meaning you'll have plenty of access to fresh meat, fruit and vegetables.


2. Offshore Tax Refunds
(Bettertax - Tax Returns & Refunds Experts)
3. Life on an Oil Rig: Behind the Scenes | ExxonMobil
4. Offshore workers UK tax-free for PSCs etc
5. Energy Explained ep1: Oil and Gas
(The Heartland Institute)
(CPA Daniel Mutiso)


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