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Are Extractive and Non-Extractive Businesses Exempt From Corporate Tax?

Extractive and non-extractive businesses are different types of industries based on their operations and resource utilization. Extractive businesses involve the extraction of natural resources from the earth or sea, such as minerals, oil, gas, timber, metals, and raw materials. Non-extractive businesses, on the other hand, engage in sectors like manufacturing, services, technology, finance, retail, tourism, or other industries that don’t involve direct resource extraction.

In the UAE, extractive businesses may be eligible for corporate tax exemptions under specific conditions. Entities must consult with tax advisors in the UAE to ensure they adhere to the Corporate Tax Law and understand their tax obligations.

Key Conditions for Exemption

To determine whether non-extractive businesses are exempt from corporate tax, several conditions must be met. These include holding or having an interest in a right, concession, or license issued by a local government for engaging in non-extractive natural resource business, the income being derived solely from persons undertaking a business or business activity (excluding income from natural persons or non-business entities), being subject to tax in the emirate where they operate, and notifying the Ministry in the agreed-upon form and manner to validate eligibility for exempt status.

Further, these conditions include holding or having an interest in a right, concession, or license issued by a local government for their extractive operations. The person must be subject to taxation in the emirate where they operate, meaning they need to pay some form of tax, such as income tax or royalties, to the relevant local government. However, if a person who engages in extractive activities earns income from both extractive and other business activities subject to corporate tax, the income from the non-extractive business will be subject to corporate tax.

Read more: Exempt businesses under corporate tax in UAE

Regulation of Non-Extractive Businesses

For non-extractive businesses, corporate tax regulations and conditions apply. Under Article 8 of the Corporate Tax Explanatory Guide, non-extractive businesses are responsible for regulating activities related to natural resources beyond exploration and production. Each emirate has the authority to regulate access to infrastructure and facilities for processing, transportation, and storage of natural resources. Non-extractive businesses may be granted access to such infrastructure and facilities through concessions or commercial agreements. The income from non-extractive natural resource businesses may be subject to taxation at the emirate level, depending on certain conditions.

It’s important to note that if a non-extractive business engages in other business activities subject to corporate tax, the person will have dual status for corporate tax purposes. The income from the non-extractive natural resource business remains outside the scope of corporate tax and is taxed according to the applicable legislation of the relevant emirate. However, income from other business activities will be subject to corporate tax unless the other business is an exempted extractive business.

Read More: Do extractive and Non-Extractive businesses have to pay Corporate Tax in UAE

Seek the expert services of Tax Consultants in UAE

To ensure compliance with the UAE’s Corporate Tax Law, taxable entities are encouraged to seek the expertise of professional tax consultants. These experts can offer valuable guidance and support in adhering to corporate tax regulations. Contacting a tax consultant in dubai is a proactive step towards ensuring tax compliance and understanding the tax implications for your business.

 

Mostafa is a qualified Corporate Tax Consultant with over 5 years of experience gained in diverse intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He has vast experience in reviewing and drafting tax documents. Mostafa has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlining tax complexities. Read more