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Impact of Corporate Tax on Extractive / Non-Extractive Natural Resource Businesses

Corporate Tax UAE Resources
Corporate Tax UAE Resources

Corporate Tax UAE Resources regulations are significantly impacting both extractive and non-extractive sectors. Businesses in these industries must stay informed to ensure compliance with the UAE’s evolving corporate tax framework in 2025.

The UAE Constitution recognizes that Natural Resources in each Emirate are owned collectively by the public of that Emirate. Persons engaged in extracting the UAE’s Natural Resources and involved in non-extractive aspects of the Natural Resources value chain are typically subject to Emirate-level taxes and are exempt from Corporate Tax as long as they fulfill the conditions and safeguards outlined in Articles 7 and 8 of the Corporate Tax Law.

What types of resources are considered “Natural Resources” according to the definition provided?

The term “Natural Resources” refers to water, oil, gas, coal, naturally occurring minerals, and other non-renewable, inanimate natural resources that can be extracted within the country’s territory.

Which specific resources are excluded in the definition of natural resources?

Renewable resources such as solar energy, wind, animals, and plant materials are excluded. Persons engaged in the extraction of renewable resource sectors are not eligible for the Corporate Tax exemption.

What consists of Extractive Business?

Activities of exploring, extracting, removing, producing, and exploiting Natural Resources. This sector, also known as exploration and production, includes activities such as oil and gas extraction, mining, dredging, and quarrying. Companies engaged in the extraction of Natural Resources often operate under long-term concessions or contracts entered into with the respective Local Government.

What activities are covered under the definition of a Non-Extractive Natural Resources Business?

In the context of the oil and gas sector, non-extractive natural businesses encompass activities within the midstream and downstream subsectors. This includes processes like processing, transportation, and storage of Natural Resources, as well as the marketing, distribution, and sale of products derived from these resources.

Conditions under which Persons engaged in an Extractive/Non-Extractive Business in the UAE can be exempted from Corporate Tax

  • The Person directly or indirectly holds or has an interest in a right, concession or licence issued by a Local Government to undertake its Extractive/Non-Extractive Business
  • The Person’s income from its Non-Extractive Natural Resource Business is derived solely from Persons that undertake a Business or Business Activity
  • The Person is subject to Emirate-level taxation in respect of such Business, and
  • The Person has submitted a notification to the Ministry in the agreed form and manner

Key Takeaways

  • The above exemption does not apply to contractors, subcontractors, suppliers or any other Person that is used in the performance of the Extractive Business that does not in its own right meet the conditions specified above
  • If the person has another business, it shall be treated as an independent business, and financial statements shall be kept separately from the Extractive/Non-Extractive Business. Any common expenditure shared between the Extractive Business and the other Business of the Person shall be apportioned in proportion to their Revenue in the Tax Period
  • Taxable Income of other businesses shall be calculated independently for each Tax Period in accordance with UAE CT Law. Transactions between the Extractive Business and the other business of the same Person shall be considered Related Party transactions and will be subject to transfer pricing provisions of UAE CT Law
  • A Person shall not be considered to derive income from any other business where such other business is ancillary or incidental to that Person’s Extractive/Non-Extractive Business and the Revenue of such other Business in a Tax Period does not exceed 5% of the total Revenue of that Person in the same Tax Period

Summary

Persons who are engaged in Extractive/Non-Extractive Natural Resource Businesses will continue to be taxed under the relevant Income tax Decree of the respective Emirate. Any other income derived by such businesses shall be taxed as per the provisions of UAE CT Law.

Disclaimer:

The information provided above is of general nature and should not be considered professional tax advice as it neither includes any analysis on the application of the provisions of UAE Corporate Tax Law nor interpret or represent the views of the Ministry of Finance or the Federal Tax Authority.

Bin Otaiba Consulting, its partners, or its employees do not assume any responsibility for any losses or damages that may arise from taking action or refraining from taking action based on the information provided or omitted here.

#UAENaturalResources #CorporateTaxUAE #ResourceTaxation #EmirateLevelTax #TaxExemptionsUAE #UAEConstitution #ExtractiveIndustry #NonExtractiveActivities #TaxLawUAE #PublicResourceOwnership

 

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