Corporate Tax in the UAE for Oil and Gas Industries is a topic that may interest many businesses and investors who operate or plan to operate in this sector. The seven emirate confederation known as the United Arab Emirates (UAE) has a broad and growing economy. The UAE is renowned for having a low tax environment, which draws several global enterprises and investors.

All enterprises operating in the UAE must now comply with a new federal corporate tax (CT) law, except those involved in the extraction and non-extraction of natural resources, such as the oil and gas industry. These companies are already liable to emirate-level taxes under the relevant emirate tax rulings. This article will give a summary of the corporate tax regime in the UAE, applicable exemptions, and the current tax rate for the Oil and Gas Industries.

Corporate Tax Rates in the UAE for Businesses

The Federal Decree-Law No. 47 of 2022, which will be effective for financial years starting on or after 1 June 2023, introduces a new corporate tax regime that applies to most businesses in the UAE, except for those that are engaged in extractive and non-extractive natural resources businesses, such as oil and gas.

These businesses are exempt from the federal corporate tax, subject to certain conditions and the applicable legislation of an Emirate.

The general corporate tax rate is 9%, but it is 0% for businesses that have a taxable profit of less than AED 375,000 (about US$102,095).
There is also a different corporate tax rate for large businesses that comply with the Global Anti-Base Erosion Model Rules of the OECD Base Erosion and Profit Shifting program (Pillar Two).

However, the new corporate tax law does not supersede the existing corporate tax regime under the Emirates tax decrees. Therefore, income derived from the extractive business or non-extractive natural resource business will continue to be assessed and taxed under the respective Emirate tax decree. The progressive corporate tax for companies in the petroleum sector is imposed up to 55%.

Corporate Tax Exemption for Oil and Gas Industries in UAE

The law provides a Corporate Tax exemption for Oil and Gas Industries in UAE which falls under the category of extractive and non-extractive natural resource businesses. These businesses are 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 industries, can be exempt from corporate tax if all of the following conditions are met:

The business has a right, concession, or license issued by a local government to undertake its non-extractive natural resource business in the UAE.
The business’s income from its non-extractive natural resource business is derived solely from persons who undertake a business or business activity.
The business is effectively subject to tax under the applicable legislation of an emirate, which means that the local government imposes a tax on income or profits, a royalty or revenue tax, or any other form of tax, charge, or levy in respect of its non-extractive natural resource business.
The business has made a notification to the Ministry of Finance in the form and manner agreed with the local government.
The Corporate Tax exemption also applies to income derived from activities that are ancillary or incidental to the natural resource business, as long as the revenue of such activities does not exceed 5% of the total revenue in a tax period.

If a person meets the above exemptions and earns money from both a Non-Extractive Natural Resource Business and another Business that pays Corporate Tax, the Person will have a dual status for Corporate Tax. This means that the Person will pay Corporate Tax only on the income earned from the other Business.

Therefore, businesses must comply with certain requirements and obligations to benefit from this exemption and avoid any penalties or disputes with the tax authorities. Therefore, businesses should consult with professional tax advisors who can help them understand and apply the relevant tax rules correctly.

Also read: How Corporate Tax in UAE will Impact the Real Estate Industry

Current Tax Rates for Oil and Gas Industries at the Emirate Level

The current tax rates for extractive and non-extractive natural resource businesses vary depending on the type of business and the emirate where they operate. Generally speaking:

The UAE’s corporate tax system is favorable for most businesses, with a low standard rate of 9%.
However, this rate does not apply to companies that extract natural resources like oil and gas. These companies are subject to higher tax rates that can reach up to 55%, depending on the income tax decree of each Emirate and the agreement with the government authority.
Another exception is the branches of foreign banks, which pay a flat tax rate of 20% in some Emirates, such as Dubai and Abu Dhabi.

Why Choose Farahat & Co. for Corporate Tax Consultant in the UAE?

Farahat & Co. is a leading audit and tax consulting firm in the UAE, with over 30 years of experience and expertise. Whether you are a small or medium enterprise, a multinational corporation, or an individual, Farahat & Co. can assist you with your corporate tax obligations in the UAE. Farahat & Co. has a team of qualified and experienced tax consultants who can provide you with tax solutions that meet your specific needs and goals.

By choosing Farahat & Co., you can benefit from their high-quality services, such as:

Corporate tax registration, filing, and reporting
Corporate tax planning and optimization
Corporate tax advisory and compliance

Don’t let corporate tax stress you out. Contact Farahat & Co. today.