The Federal Decree-Law No. 47 of 2022 on Corporate Tax (the UAE Corporate Tax Law) introduced the 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 specific conditions, which are discussed below.
Non-Extractive Natural Resource Businesses
Non-extractive natural resource businesses involve the separation, treatment, refining, processing, storage, transportation, marketing, and distribution of the UAE’s natural resources. Examples 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
For businesses that use natural resources without extracting them, a company can be exempt from federal corporate tax if they meet the following conditions:
- Licensing: They have a license from a local Emirate government to conduct their business using natural resources.
- Local Tax Payment: They pay some type of tax to the local Emirate government, such as income tax, royalty fees, or other taxes on their earnings.
- Notification: They inform the Ministry of Finance about their business and that they meet the conditions for the federal corporate tax exemption.
Additionally, a non-extractive natural resource business must only earn revenue from other businesses and not from individuals who are not running a business. This means the exemption applies exclusively to B2B transactions.
Treatment of Ancillary Businesses
A business engaged in non-extractive natural resource activities may also conduct ancillary businesses essential to its main operations, such as:
– Transportation of natural resources
– Storage of natural resources
– Provision of support services to the main business
Income from ancillary businesses is generally exempt from UAE corporate tax if:
1. The ancillary business is necessary or essential to the operation of the main business.
2. The income from the ancillary business does not exceed 5% of the total income of the business.
Scope of Holding More Than One Business
If an entity owns both a non-extractive natural resource business and another business, the rules are as follows:
– Income from the non-extractive natural resource business will be taxed under the Emirate’s laws.
– Income from the other business will be taxed under the corporate tax law, unless it meets the exemption conditions in Article 7 of the corporate tax law.
– A person cannot claim income from another business if it 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.
Conclusion
The exemption for non-extractive natural resource businesses provides a valuable incentive for companies operating in the UAE. However, this exemption is subject to specific conditions. Businesses considering applying for the exemption should carefully review the applicable laws and regulations to ensure compliance.
Unicorn Global Solutions: Your Corporate Tax Advisor
Navigating the complexities of corporate tax regulations can be challenging. Unicorn Global Solutions, a leading accounting firm in Dubai, is here to assist. Our professional team offers numerous advantages:
– Expertise: Deep understanding of the UAE corporate tax laws and regulations.
– Proven Track Record: Helping businesses minimize their tax liability effectively.
– Personalized Service: Experienced and qualified tax professionals providing tailored advice and support.
If you are a business operating in the UAE and considering applying for the non-extractive natural resource business exemption, Unicorn Global Solutions can guide you through the process and ensure compliance with all applicable laws and regulations. Contact our experts now to learn more. Text us on WhatsApp or call us today
