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

Extractive and non-extractive industries encompass diverse sectors defined by their operational nature and resource utilization. Extractive industries focus on the extraction of natural resources, including minerals, oil, gas, timber, and metals, directly from the earth or sea. Given the complex nature of these activities and the specific tax implications in the UAE, engaging with knowledgeable tax consultants in Dubai is essential for businesses to navigate corporate tax standards effectively and ensure compliance with the UAE Corporate Tax Law.

Extractive vs. Non-Extractive Industries

Extractive Industries are involved in the direct extraction of natural resources through mining, drilling, logging, quarrying, and fishing. These activities are integral to the supply of raw materials for various sectors of the economy.

Non-extractive businesses, on the other hand, operate in fields such as manufacturing, services, technology, finance, retail, and tourism. These sectors primarily focus on processing, transforming, distributing, or providing services and do not directly engage in resource extraction.

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;

  1. 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.
  2. 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 crucial to understand that income from non-extractive activities by businesses engaged in extraction will be liable for Corporate Tax, while income from extractive activities enjoys exemption under specific provisions of Article 7(2).

Read more: Exemptions under Corporate Tax Law, UAE

Corporate Tax for Non-Extractive Businesses

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;

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Conclusion and Call to Action

Navigating the intricacies of the UAE's Corporate Tax Law demands professional insight, especially for businesses in both extractive and non-extractive sectors. Tax consultants in the UAE play a vital role in ensuring compliance and optimizing tax obligations. For personalized guidance and to ensure your business aligns with current tax standards, seeking expert tax consultancy services is highly recommended. Contact us for professional assistance tailored to your unique business needs.

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