Tax Aspects of the 2026 Amendment to the Organic Hydrocarbons Law

The 2026 Amendment to the Organic Hydrocarbons Law (the “Amendment”) introduces significant changes aimed at attracting domestic and international private investment in upstream oil activities.

From a tax perspective, the Amendment reshapes the Government Take applicable to oil activities through a more flexible framework, primarily based on: (i) a more calibrated royalty regime; (ii) the creation of the Integrated Hydrocarbons Tax (IHT); (iii) the possibility of reducing the 50% Income Tax rate applicable to oil activities; (iv) exemptions from certain special contributions; and (v) the elimination of the Windfall Tax on crude oil and the mechanism that established a minimum 50% State participation (commonly referred to as the “Shadow Tax”).

The previous regime (established under the 2006 Organic Hydrocarbons Law) was characterized by the accumulation of multiple taxes and additional charges that significantly increased the State’s overall take. The Amendment replaces that structure with a simpler and more adaptable framework aligned with the economic realities of each project.

From a structural standpoint, the Amendment maintains the traditional Mixed Company Operator model (“Mixed Company”) and incorporates new contractual models entered into by private companies domiciled in Venezuela with companies wholly owned by the Republic or its affiliates, including Hydrocarbon Production Participation Contracts (“CPPH”) developed under the Constitutional Anti-Blockade Law for National Development and the Protection of Human Rights (the “Anti-Blockade Law”).

In this context, the main tax adjustments introduced by the Amendment are outlined below.

I.Royalties.

The Amendment maintains the maximum royalty rate at 30%, but introduces greater flexibility than the previous regime by allowing the Executive Branch to determine the applicable rate.

for each project, taking into account: (i) the level of required investment; (ii) available infrastructure; (iii) field conditions; and (iv) the project’s economic viability.

This allows the royalty burden to be adjusted to the specific economics of each development.

II. Integrated Hydrocarbons Tax (IHT).

The IHT is created as the principal tax applicable to oil activities under the Amendment. It is calculated on gross monthly revenues at a rate of up to 15%, which may vary depending on project-specific factors.

The Amendment provides that the IHT must be filed and paid in accordance with the mechanisms and conditions established by the competent Ministry. It further allows the Executive Branch to require payment in cash or in kind, in whole or in part.

This structure highlights the importance of the implementing regulations in defining the framework and application of the IHT.

The IHT replaces several taxes previously applicable to oil activities, most notably the Windfall Tax, as well as the surface tax, self-consumption tax, general consumption tax, extraction tax, and export registration tax.

III. Tax Incentives and Exemptions.

The Amendment also introduces tax incentives applicable to primary oil activities:

• The possibility of reducing the Income Tax rate (currently up to 50%) where necessary to preserve the project’s economic equilibrium.
• Exemption from the High Net Worth Tax.
• Exemptions from special contributions, including those related to Science and Technology (LOCTI), Sports, Anti-Drug initiatives, and Pensions.
• Primary oil activities are not subject to social responsibility commitments or to state and municipal taxes.

IV. Scope of the New Tax Framework.

The Amendment simplifies the core tax structure for oil activities, but it does not remove other taxes that may continue to apply to a project.

The Venezuelan tax framework remains in force, including the Income Tax Law, which currently provides for a 50% tax rate on income derived from oil exploitation and related activities. Although the Amendment allows for the possibility of reducing this rate for oil projects, general tax obligations outside the oil regime continue to be a relevant factor when assessing the overall tax burden.

In addition, the Amendment provides for the adaptation of existing Mixed Companies and contracts, including CPPHs and other contractual models entered into under the Anti-Blockade Law, within 180 days following its entry into force. During this period, existing contractual conditions remain in effect.

Accordingly, contractual provisions establishing additional royalties or mechanisms linked to State participation should be reviewed to determine their validity and scope during the contractual adaptation process.

For that reason, how the Executive Branch handles the contractual transition will be key, as the final structure adopted in each case will directly shape the effective tax burden of the project.

V.Conclusion.

The Amendment moves the oil tax regime toward a simpler and more adaptable structure aligned with the economic realities of each project. However, how effective this new framework will be depends largely on how it is applied and negotiated in practice.

The 180-day period established for the adjustment of existing structures and contracts also creates an opportunity to revisit and potentially improve the tax terms applicable to ongoing projects. This may allow projects to be restructured more strategically based on oil provinces, CAPEX/OPEX profiles, and specific operational conditions, while also helping align contractual terms to make them more competitive.

In that sense, the transition period offers a practical window to reassess existing arrangements and ensure that future projects are structured in a way that balances investment incentives with fiscal sustainability.

Ultimately, clarity in financial modeling, transparency in cost structures, and well-justified, reasonable parameters will be essential. A predictable and balanced approach will be key to ensuring that the new framework achieves its main objective: attracting investment while maintaining long-term stability.

For any questions regarding this report, please feel free to contact Santiago R. Parra Ortega at sparra@lec.com.ve or Juan Carlos Andrade at jcandrade@lec.com.ve.