Application of Corporate Tax on Non-Extractive Natural Resource Businesses in UAE

The Federal Decree-Law No. 47 of 2022 on Corporate Tax (the UAE Corporate Tax Law) introduced corporate tax in the United Arab Emirates (UAE) for the first time, effective for financial years commencing on or after June 1, 2023. The UAE Corporate Tax Law applies to all businesses operating in the UAE, with the exception of certain exempt businesses, including those engaged in the extraction of natural resources.

However, the UAE Corporate Tax Law also includes an exemption for non-extractive natural resource businesses. This exemption is subject to certain conditions, which are discussed in the blog below.

Non-Extractive Natural Resource Businesses

The non-extractive natural resource business involves the separation, treatment, refining, processing, storage, transportation, marketing, and distribution of the UAE's natural resources.

Examples of non-extractive natural resource businesses include:

• Oil and gas refineries
• Petrochemical plants
• Aluminium smelters
• Steel mills
• Mines and quarries
• Power plants
• Desalination plants
• Water and wastewater treatment plants
• Waste management companies

Conditions for the Non-Extractive Natural Resource Business Exemption

There are certain rules for businesses that use natural resources without removing them (non-extractive businesses). For these types of businesses, a company doesn't have to pay federal corporate tax if they meet 3 conditions:

• They have a license from a local Emirate government to do their business using natural resources.

• They pay some type of tax to the local Emirate government, like an income tax, royalty fee, or other taxes on what they earn.

• They inform the Ministry of Finance about their business and that they meet the conditions to not pay federal corporate tax.

• Additionally, a non-extractive natural resource business must only earn money from other businesses. It cannot earn money from individuals who are not running a business. So, the tax break will not apply if the company earns money from people who are not operating a business themselves. The exemption is only for companies that do business with other businesses, not individuals.

Treatment of Ancillary Businesses

A business that is engaged in a non-extractive natural resource business may also be engaged in other business activities that are ancillary to its non-extractive natural resource business. Ancillary businesses are businesses that are necessary or essential to the operation of the main business.

For example, a non-extractive natural resource business may also be engaged in the following ancillary businesses:

• Transportation of natural resources
• Storage of natural resources
• Provision of support services to the main business

The income from ancillary businesses is generally exempt from UAE corporate tax, provided that the following conditions are met:

• The ancillary business is necessary or essential to the operation of the main business.
• The income from the ancillary business does not exceed 5% of the total income of the business.

The Scope of Holding More Than One Business

If a person owns both a non-extractive natural resource business and another business, these rules apply:

• Income from the non-extractive natural resource business will be taxed under the Emirate's laws.
• Profit from the other business will be taxed under the corporate tax law.
• The other business may not have to pay corporate tax if it meets the conditions in Article 7 of the corporate tax law.
• A person cannot claim income from another business if that business only provides support to the non-extractive natural resource business. And the profit from the other business must be less than 5% of the person's total income in a tax period.

The exemption for non-extractive natural resource businesses is a valuable incentive for businesses that are operating in the UAE. However, it must be noted that this exemption is subject to certain conditions. Businesses that are considering applying for the exemption should carefully review the applicable laws and regulations to ensure that they meet all of the requirements. CDA can help businesses determine whether they qualify for the non-extractive natural resource business exemption and comply with all of the applicable corporate tax laws and regulations.

Hire CDA:

Hiring our professional team can enable you to sort the taxes with the following advantages:

• CDA has a deep understanding of the UAE corporate tax laws and regulations.
• CDA has a proven track record of helping businesses to minimize their tax liability.
• CDA has a team of experienced and qualified tax professionals who can provide businesses with personalized advice and support.

If you are a business that is operating in the UAE and you are considering applying for the non-extractive natural resource business exemption, CDA can help you navigate the process and ensure that you are in compliance with all of the applicable laws and regulations. To know more, approach our experts now.