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. For extractive businesses in the UAE, exemptions from corporate tax are provided under specific conditions. Therefore, it is advisable for Taxable Persons to consult Tax Consultants in UAE to determine their taxability in compliance with the Corporate Tax Law.
Conditions to determine exemptions
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
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.
Seek the expert services of Tax Consultants in UAE
To ensure compliance with the Corporate Tax Law in the UAE, it is advisable for taxable persons to seek the expert services of tax consultants in the UAE. These professionals can provide guidance and assistance in implementing corporate tax standards. Thus, contact us today and we shall be glad to assist you.