Corporate Tax in UAE for Oil and Gas Industries

Corporate Tax treatment for the UAE’s oil and gas sector works differently from almost every other industry in the country. While most UAE businesses became subject to the new federal Corporate Tax regime, extractive and non-extractive natural resource businesses, including oil and gas, remain outside it, continuing instead under the emirate-level tax framework that predates federal Corporate Tax entirely.

This guide covers the federal Corporate Tax rates that apply to most businesses, the exemption conditions for extractive and non-extractive natural resource businesses, current emirate-level tax rates, a worked example of dual-status taxation, and registration obligations for exempt businesses.

Corporate Tax Rates in the UAE for Businesses

Federal Decree-Law No. 47 of 2022, effective for financial years starting on or after 1 June 2023, introduced the Corporate Tax regime that applies to most UAE businesses, excluding those engaged in extractive and non-extractive natural resources businesses such as oil and gas. These businesses are exempt from federal Corporate Tax, subject to specific conditions and the applicable legislation of the relevant Emirate.

• The general Corporate Tax rate is 9%, with 0% applying to taxable profit below AED 375,000
• A separate rate structure applies to large businesses complying with the OECD’s Global Anti-Base Erosion Model Rules under Pillar Two

The federal Corporate Tax law doesn’t supersede the existing tax regime under emirate-level tax decrees. Income from extractive or non-extractive natural resource businesses continues to be assessed and taxed under the applicable emirate decree instead, with progressive rates for companies in the petroleum sector reaching up to 55%.

Also check: Corporate Tax Services in UAE

Corporate Tax Exemption for Oil and Gas Industries

The exemption applies to businesses involved in exploring, extracting, producing, exploiting, separating, treating, refining, processing, storing, transporting, marketing, or distributing natural resources in the UAE. Natural resources include water, oil, gas, coal, minerals, and other non-renewable resources.

Non-extractive natural resource businesses, including oil and gas companies, can be exempt from Corporate Tax if all of the following conditions are met:

• The business holds a right, concession, or license issued by a local government to undertake its non-extractive natural resource business in the UAE
• Income from the non-extractive natural resource business is derived solely from persons undertaking a business or business activity
• The business is effectively subject to tax under the applicable emirate legislation, meaning the local government imposes a levy on income or profits, a royalty, a revenue tax, or another form of charge in respect of the business
• The business has notified the Ministry of Finance in the form and manner agreed with the local government

The exemption also extends to income from activities ancillary or incidental to the natural resource business, provided that revenue doesn’t exceed 5% of total revenue in a tax period.

Must check: Corporate Tax Consultancy

Worked Example: A Business With Dual Status

A company holds a concession from a local emirate government for oil extraction, generating AED 50,000,000 in extraction income for the year, taxed under the applicable emirate petroleum decree rather than federal Corporate Tax. The same company also operates a separate logistics and equipment leasing arm generating AED 8,000,000 in revenue, unrelated to its extraction activity and exceeding the 5% ancillary income threshold relative to the extraction business. Because this second activity doesn’t qualify as ancillary to the natural resource business, the company has dual status: its AED 50,000,000 extraction income remains taxed under the emirate decree, while its AED 8,000,000 logistics and leasing income is subject to federal Corporate Tax at the standard 9% rate above the AED 375,000 threshold. Correctly separating and reporting these two income streams is essential, since incorrectly applying the natural resource exemption to the unrelated logistics income would understate the company’s actual federal Corporate Tax liability.

Current Tax Rates at the Emirate Level

Tax rates for extractive and non-extractive natural resource businesses vary by business type and emirate:

• The UAE’s federal Corporate Tax system remains favorable for most businesses, with a low standard rate of 9%
• This rate doesn’t apply to companies extracting natural resources like oil and gas, which are subject to higher rates reaching up to 55% depending on the applicable emirate tax decree and government agreement
• Branches of foreign banks are a separate exception, paying a flat rate of 20% in some emirates, including Dubai and Abu Dhabi

Does an Exempt Oil and Gas Business Still Need to Notify the FTA?

Meeting the exemption conditions doesn’t mean an oil and gas business can simply disregard federal Corporate Tax administration entirely. The exemption requires an active notification to the Ministry of Finance in the agreed form and manner, this isn’t an automatic status that applies without any filing step. Businesses with dual status, extraction income under the emirate regime and other business income under federal Corporate Tax, generally still need to register as a taxable person for the non-exempt portion of their activity and meet standard Corporate Tax filing obligations for that income specifically. Treating the entire business as fully outside federal Corporate Tax administration simply because its core extraction activity is exempt is a common and risky assumption.

Common Mistakes in Oil and Gas Corporate Tax Compliance

• Assuming full exemption without meeting all four conditions. Missing the required Ministry of Finance notification, for example, can invalidate the exemption even where the underlying business activity clearly qualifies.
• Misclassifying ancillary income. Activities generating more than 5% of total revenue don’t qualify as ancillary, and treating them as exempt when they exceed this threshold understates Corporate Tax liability.
• Not registering for Corporate Tax on non-exempt business activity. A dual-status business still needs to meet standard registration and filing obligations for its non-extractive, non-exempt income.
• Confusing emirate-level tax obligations with federal Corporate Tax administration. The two run in parallel under different legal frameworks, meeting emirate tax obligations doesn’t substitute for federal Corporate Tax compliance on non-exempt income.

Frequently Asked Questions (FAQs)

How Farahat & Co. Can Help

Farahat & Co. supports oil and gas businesses with Corporate Tax exemption assessment, dual-status income classification, and Corporate Tax registration for non-exempt business activities.

Contact Farahat & Co. today to discuss your Corporate Tax requirements.