Extractive and non-extractive businesses refer to different types of industries based on the nature of their operations and the resources they utilize. Extractive businesses are involved in activities that involve the extraction or removal of natural resources from the earth or sea. These resources can include minerals, oil, gas, timber, metals, and other raw materials. Therefore, Taxable Persons are required to seek the expert services of Tax Consultants in Dubai to implement corporate tax standards in compliance with the Corporate Tax Law in UAE.
Extractive and Non-Extractive industries
Extractive industries typically engage in activities such as mining, drilling, logging, quarrying, and fishing. Whereas, Non-Extractive businesses are not primarily engaged in the extraction of natural resources. They mainly focus on manufacturing, services, technology, finance, retail, tourism, or any other sector that does not involve the direct extraction of resources. Non-extractive businesses often rely on processing, transformation, distribution, or provision of services rather than extracting raw materials.
Are Extractive Businesses Required to pay corporate tax in UAE?
The UAE Corporate Tax Law provides exemptions for extractive businesses under specific circumstances. Under Article 7(1) of the Corporate Tax Law, a person engaged in extractive business activities may be exempt from Corporation Tax if they meet certain conditions outlined in the article. These conditions are as follows;
- The person must hold or have an interest in a right, concession, or license issued by a Local Government for their extractive business operations. This recognizes that the exploration and production of natural resources in the UAE are regulated by each emirate individually.
- Additionally, the person must be effectively subject to taxation in the emirate where they operate, as mentioned in Article 7(6). This means that the person needs to pay some form of tax, such as income tax, royalties, or other fiscal measures, to the relevant local government.
It is imperative to note that if a person engaged in extractive business activities earns income from both the extractive business and any other business that is subject to Corporate Tax, the income from the other business will be subject to Corporate Tax. However, the income derived from the extractive business itself will remain outside the scope of Corporate Tax, as specified in Article 7(2) of the law.
Read more: Exemptions under Corporate Tax Law, UAE
Do Non-Extractive Businesses Have to Pay Corporate Tax in UAE?
As per the UAE Corporate Tax Law in UAE, non-extractive businesses are subject to certain regulations and conditions regarding corporate tax. Here are the relevant details;
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 the processing, transportation, and storage of natural resources. Non-extractive businesses may be granted access to such infrastructure and facilities through concessions or commercial agreements. However, the income from non-extractive natural resource businesses may be subject to taxation at the Emirate level. This means that non-extractive businesses may be liable to pay corporate tax, depending on certain conditions.
To determine whether non-extractive businesses are exempt from corporate tax, several conditions must be met. These conditions include;
- The person directly or indirectly holds or has an interest in a right, concession, or license issued by a local government to engage in non-extractive natural resource business.
- The income derived from the non-extractive natural resource business is solely derived from persons undertaking a business or business activity. This exemption does not apply if the income is derived from natural persons or non-business entities.
- The person is effectively subject to tax in the Emirate in which they operate. This means that the person must actually pay some level of tax to the relevant local government.
- The person has notified the Ministry in the agreed-upon form and manner to validate their eligibility for the exempt status.
It's important to note that if a non-extractive business engages in other business activities that are subject to corporate tax, the person will have dual status for corporate tax purposes. The income from the non-extractive natural resource business will remain outside the scope of the Corporation Tax and be 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 the UAE
To implement corporate tax standards in compliance with the Corporate Tax Law in UAE, Taxable Persons are required to seek the expert services of Tax Consultants in UAE. Therefore, contact us today and we shall be glad to assist you.