Production Sharing Contract Terms
Cyprus uses Production Sharing Contracts (PSC) as the fiscal framework for offshore hydrocarbons. This page explains how revenues are shared between the state and contractors.
10%
Royalty Rate
40%
Cost Recovery Limit
12.5%
Corporate Tax
25 yrs
Production License
How the PSC Works
10%
Royalty (State) 40%
Cost Recovery After royalty and cost recovery, remaining "profit oil/gas" is split between state and contractor based on the R-Factor (ratio of cumulative revenues to cumulative costs).
Profit Split by R-Factor
| R-Factor | State Share | Contractor Share |
|---|---|---|
| < 1.0 | 10% | 90% |
| 1.0 - 1.5 | 18% | 82% |
| 1.5 - 2.0 | 24% | 76% |
| 2.0 - 2.5 | 30% | 70% |
| > 2.5 | 36% | 64% |
R-Factor = Cumulative Revenues / Cumulative Costs. As the project becomes more profitable (higher R-Factor), the state takes a larger share of profits.
Other Fiscal Terms
Tax Regime
- Corporate Tax Rate
- 12.5%
- Withholding Tax
- 0% (EU treaties)
- Capital Allowances
- 100% immediate
- Loss Carry Forward
- 5 years
Contract Terms
- Exploration Period
- Up to 7 years
- Production License
- 25 years
- Extension Option
- +10 years
- Ring Fencing
- Yes
Domestic Market Obligation
Contractors may be required to supply a portion of production for domestic use at fair market prices.
NegotiableLocal Content
Contractors must maximize use of Cypriot goods, services, and personnel where commercially competitive.
Regional Comparison
| Country | Regime | Royalty | Gov't Take |
|---|---|---|---|
| Cyprus | PSC | 10% | ~50-60% |
| Israel | Concession | 12.5% | ~60% |
| Egypt | PSC | 10% | ~65-70% |
| Lebanon | EPA | 4% | ~55-65% |
Cyprus fiscal terms are competitive with regional peers, balancing government revenue with incentives for deepwater exploration investment.