1. Glossary
Accounting Income: The accounting net profit or loss for the relevant Tax Period as per the Financial Statements prepared in accordance with the provisions of Article 20 of the Corporate Tax Law.
AED: The United Arab Emirates dirham.
Business: Any activity conducted regularly, on an ongoing and independent basis by any Person and in any location, such as industrial, commercial, agricultural, vocational, professional, service or excavation activities or any other activity related to the use of tangible or intangible properties.
Business Activity: Any transaction or activity, or series of transactions or series of activities conducted by a Person in the course of its Business.
Business Restructuring Relief: A relief from Corporate Tax for business restructuring transactions, available under Article 27 of the Corporate Tax Law and as specified under Ministerial Decision No. 133 of 2023.
Connected Person: Any Person affiliated with a Taxable Person as determined in Article 36(2) of the Corporate Tax Law.
Corporate Tax: The tax imposed by the Corporate Tax Law on juridical persons and Business income.
Exempt Income: Any income exempt from Corporate Tax under the Corporate Tax Law.
Exempt Person: A Person exempt from Corporate Tax under Article 4 of the Corporate Tax Law.
Extractive Business: The Business or Business Activity of exploring, extracting, removing, or otherwise producing and exploiting the Natural Resources of the UAE, or any interest therein as determined by the Minister.
Financial Statements: A complete set of statements as specified under the accounting standards applied by the Taxable Person, which includes, but is not limited to, statement of income, statement of other comprehensive income, balance sheet, statement of changes in equity and cash flow statement.
Foreign Permanent Establishment: A place of Business or other form of presence outside the UAE of a Resident Person that is determined in accordance with the criteria prescribed in Article 14 of the Corporate Tax Law.
Free Zone: A designated and defined geographic area within the UAE that is specified in a decision issued by the Cabinet at the suggestion of the Minister.
Free Zone Person: A juridical person incorporated, established or otherwise registered in a Free Zone, including a branch of a non-resident person registered in a Free Zone.
FTA: Federal Tax Authority, being the authority in charge of administration, collection and enforcement of federal taxes in the UAE.
IFRS: International Financial Reporting Standards.
IFRS for SMEs: International Financial Reporting Standard for small and medium-sized entities.
Licence: A document issued by a licensing authority under which a Business or Business Activity is conducted in the UAE.
Local Government: Any of the governments of the Member Emirates of the Federation.
Market Value: The price which could be agreed in an arm’s-length free market transaction between Persons who are not Related Parties or Connected Persons in similar circumstances.
Minister: Minister of Finance.
Natural Resources: Water, oil, gas, coal, naturally formed minerals, and other non-renewable, non-living natural resources that may be extracted from the UAE’s Territory.
Non-Extractive Natural Resource Business: The Business or Business Activity of separating, treating, refining, processing, storing, transporting, marketing or distributing the Natural Resources of the UAE.
Person: Any natural person or juridical person.
Qualifying Free Zone Person: A Free Zone Person that meets the conditions of Article 18 of the Corporate Tax Law and is subject to Corporate Tax under Article 3(2) of the Corporate Tax Law.
Qualifying Group: Two or more Taxable Persons that meet the conditions of Article 26(2) of the Corporate Tax Law.
Qualifying Group Relief: A relief from Corporate Tax for transfers within a Qualifying Group, available under Article 26 of the Corporate Tax Law and as specified under Ministerial Decision No. 132 of 2023.
Related Party: Any Person associated with a Taxable Person as determined in Article 35(1) of the Corporate Tax Law.
Resident Person: The Taxable Person specified in Article 11(3) of the Corporate Tax Law.
Revenue: The gross amount of income derived during a Tax Period.
Small Business Relief: A Corporate Tax relief that allows eligible Taxable Persons to be treated as having no Taxable Income for the relevant Tax Period in accordance with Article 21 of the Corporate Tax Law and Ministerial Decision No. 73 of 2023.
Tax Group: Two or more Taxable Persons treated as a single Taxable Person according to the conditions of Article 40 of the Corporate Tax Law.
Tax Loss: Any negative Taxable Income as calculated under the Corporate Tax Law for a given Tax Period.
Tax Period: The period for which a Tax Return is required to be filed.
Tax Registration: A procedure under which a Person registers for Corporate Tax purposes with the FTA.
Tax Return: Information filed with the FTA for Corporate Tax purposes in the form and manner as prescribed by the FTA, including any schedule or attachment thereto, and any amendment thereof.
Taxable Income: The income that is subject to Corporate Tax under the Corporate Tax Law.
Taxable Person: A Person subject to Corporate Tax in the UAE under the Corporate Tax Law.
2. Introduction
2.1. Overview
Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“Corporate Tax Law”) was issued on 3 October 2022 and was published in Issue #737 of the Official Gazette of the United Arab Emirates (“UAE”) on 10 October 2022.
The Corporate Tax Law provides the legislative basis for imposing a federal tax on corporations and Business profits (“Corporate Tax”) in the UAE.
The provisions of the Corporate Tax Law shall apply to Tax Periods commencing on or after 1 June 2023.
2.2. Purpose of this guide
This guide is designed to provide general guidance on Extractive Businesses and Non-Extractive Natural Resource Businesses for Corporate Tax purposes. It provides readers with an overview of:
- Scope of the Corporate Tax exemption for Extractive Businesses and NonExtractive Natural Resource Businesses.
- How the Corporate Tax rules apply to Extractive Businesses and Non-Extractive Natural Resource Businesses.
- How the Taxable Income of any other Business of an Extractive Business or NonExtractive Natural Resource Business is determined.
- Compliance requirements for Extractive Businesses and Non-Extractive Natural Resource Businesses under the Corporate Tax Law.
2.3. Who should read this guide?
This guide should be read by any Person that is carrying on an Extractive Business and/or a Non-Extractive Natural Resource Business in the UAE. It is intended to be read in conjunction with the Corporate Tax Law, the implementing decisions and other relevant guidance published by the FTA.
2.4. How to use this guide
The relevant articles of the Corporate Tax Law and the implementing decisions are indicated in each section of the guide.
It is recommended that the guide is read in its entirety to provide a complete understanding of the definitions and interactions of the different rules. Further
guidance on some of the areas covered in this guide can be found in other topic-specific guides.
In some instances, simple examples are used to illustrate how key elements of the Corporate Tax Law apply to Extractive Businesses and Non-Extractive Natural Resource Businesses. The examples in the guide:
- show how these elements operate in isolation and do not show the interactions with other provisions of the Corporate Tax Law that may occur. They do not, and are not intended to, cover the full facts of the hypothetical scenarios used nor all aspects of the Corporate Tax regime, and should not be relied upon for legal or tax advice purposes; and
- are only meant for providing the readers with general information on the subject matter of this guide. They are exclusively intended to explain the rules related to the subject matter of this guide and do not relate at all to the tax or legal position of any specific juridical or natural persons.
2.5. Legislative references
In this guide, the following legislation will be referred to as follows:
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, and its amendments, is referred to as “Corporate Tax Law”;
- Cabinet Decision No. 100 of 2023 on Determining Qualifying Income for the Qualifying Free Zone Person for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Cabinet Decision No. 100 of 2023”;
- Ministerial Decision No. 43 of 2023 Concerning Exception from Tax Registration for the Purpose of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 43 of 2023”;
- Ministerial Decision No. 73 of 2023 on Small Business Relief for the Purposes of the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 73 of 2023”;
- Ministerial Decision No. 82 of 2023 on the Determination of Categories of Taxable Persons Required to Prepare and Maintain Audited Financial Statements for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 82 of 2023”;
- Ministerial Decision No. 105 of 2023 on the Determination of the Conditions under which a Person may Continue to be Deemed as an Exempt Person, or Cease to be Deemed as an Exempt Person from a Different Date for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 105 of 2023”;
- Ministerial Decision No. 114 of 2023 on the Accounting Standards and Methods for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 114 of 2023”; and
- Ministerial Decision No. 265 of 2023 Regarding Qualifying Activities and Excluded Activities for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses is referred to as “Ministerial Decision No. 265 of 2023”.
Status of this guide
This guidance is not a legally binding document, but is intended to provide assistance in understanding the tax implications for Extractive Businesses and Non-Extractive Natural Resource Businesses relating to the Corporate Tax regime in the UAE. The information provided in this guide should not be interpreted as legal or tax advice. It is not meant to be comprehensive and does not provide a definitive answer in every case. It is based on the legislation as it stood when the guide was published. Each Person’s own specific circumstances should be considered.
The Corporate Tax Law, the implementing decisions and the guidance materials referred to in this document will set out the principles and rules that govern the application of Corporate Tax. Nothing in this publication modifies or is intended to modify the requirements of any legislation.
What are Natural Resources?
For Corporate Tax purposes, Natural Resources are defined as water, oil, gas, coal, naturally formed minerals and other non-renewable, non-living natural resources that may be extracted from the UAE’s Territory (being the UAE’s lands, territorial sea and airspace above it).
Natural Resources do not include renewable resources such as solar energy, wind, animals, and plant materials.
The UAE Constitution considers the Natural Resources exploited in each Emirate to be the public property of that Emirate.2
3.2. What is an Extractive Business?
An Extractive Business is defined in the Corporate Tax Law as the Business or Business Activity of exploring, extracting, removing, or otherwise producing and exploiting the Natural Resources of the UAE or any interest therein as determined by the Minister.3 The sector engaging in Extractive Business is commonly referred to as the exploration and production sector, and in general terms includes upstream activities such as oil and gas extraction, mining, dredging, and quarrying.4
An Extractive Business is conducted through a right, concession or Licence issued by a Local Government.
Persons engaged in an Extractive Business are typically:
- Juridical persons that are privately or government owned; or
- Contractual joint ventures between a Local Government and private sector enterprises by way of a Licence or concession agreement with the relevant Government Entity to undertake Extractive Business.
3.3. What is a Non-Extractive Natural Resource Business?
Non-Extractive Natural Resource Business is defined in the Corporate Tax Law as the Business or Business Activity of separating, treating, refining, processing, storing, transporting, marketing or distributing the Natural Resources of the UAE.5
In general terms, in the context of the oil and gas sector, it covers activities that form part of the midstream and downstream subsectors but only to the point where the product is transferred to the Person who engages in Business with the end-user or customer.6
A Non-Extractive Natural Resource Business is conducted through a right, concession or Licence issued by a Local Government.
Persons engaged in a Non-Extractive Natural Resource Business are typically companies that are wholly or partially privately or government owned pursuant to concessions or commercial agreements. These agreements may provide that the income from the Non-Extractive Natural Resource Business is subject to taxation at the Emirate level.
3.4. Other Business
A Person engaged in an Extractive Business/Non-Extractive Natural Resource Business may also engage in Business Activities that are not part of its main Extractive Business/Non-Extractive Natural Resource Business. For the purposes of the Corporate Tax Law, those other Business Activities collectively are considered to constitute a separate Business and should be subject to separate and independent reporting.
3.5. Process for exploiting Natural Resources
The process for exploiting Natural Resources for economic purposes is typically divided into three phases:
- The upstream process includes identifying, extracting, or producing materials.
- The midstream process links the upstream and downstream processes and includes activities such as transportation and storage services.
- The downstream process is close to the end-user or consumer and involves post-production activities. In the oil industry, for example, companies engaged in the downstream process include oil refineries, petroleum product distributors, petrochemical plants, natural gas distributors, and retail outlets.
4. Taxation of Extractive Business and Non-Extractive Natural Resource Business
4.1. Introduction
The Corporate Tax Law provides that in general a Person engaged in an Extractive Business/Non-Extractive Natural Resource Business is exempt from Corporate Tax and referred to as an Exempt Person.7 This exemption respects the sovereignty of the Emirates over their Natural Resources and prevents taxation being imposed at both the Emirate and Federal level on the same type of income. However, the relevant Person needs to meet the criteria in the Corporate Tax Law to qualify for the Extractive Business/Non-Extractive Natural Resource Business exemption, respectively, in order to be considered an Exempt Person.
The Corporate Tax Law accepts that an Exempt Person engaged in an Extractive Business/Non-Extractive Natural Resource Business, may also be engaged in other Business. The existence of the other Business will not affect the exemption for the Extractive Business/Non-Extractive Natural Resource Business. However, the income from the other Business will generally be subject to Corporate Tax, unless that other Business itself specifically qualifies for a distinct Corporate Tax exemption.
4.2. Conditions to qualify as an Exempt Person
A Person engaged in an Extractive Business/Non-Extractive Natural Resource Business, will be exempt from Corporate Tax on that Business if it meets the following conditions:8
- The Person directly or indirectly holds an interest in a right, concession or Licence issued by a Local Government to undertake the Extractive Business/NonExtractive Natural Resource Business, in the UAE.
- The Person is effectively subject to tax under the applicable legislation of the Local Government.
- The Person has made a notification to the Ministry of Finance in the form and manner agreed with the Local Government.
For a Non-Extractive Natural Resource Business, there is an additional condition to be met:
- The Person’s income from its Non-Extractive Natural Resource Business is derived solely from Persons that undertake a Business or Business Activity.
These conditions are discussed below.
4.2.1. Directly or indirectly holding or having an interest in a right, concession or Licence
The first condition requires that the Person directly or indirectly holds or has an interest in a right, concession or Licence issued by a Local Government for its Extractive Business and/or Non-Extractive Natural Resource Business.9
Each Local Government is responsible for regulating the activities of exploration and production of its Natural Resources, as well as related activities beyond the exploration and production of the Natural Resources.
Rights to the activities falling under an Extractive Business/Non-Extractive Natural Resource Business are typically awarded by way of a Licence or concession agreement that is concluded with the relevant Local Government. However, certain aspects of the Natural Resources sector are federally regulated.
The reference to “directly or indirectly” in Articles 7 and 8 of the Corporate Tax Law recognises that the procedures for obtaining relevant rights to Natural Resources vary between the Emirates and are established on a case-by-case basis. A Person may be or become a holder or beneficiary under a Natural Resources Licence or concession agreement by virtue of assignment, participation or sub-participation.
Example 1: Directly or indirectly holding a Licence
Company B is a mining company operating in the UAE. It operates in the Natural Resources sector, specifically in the mining of precious minerals.
The two scenarios below illustrate the distinction between how a company can either directly hold a Licence issued by a Local Government or indirectly operate and benefit from such a Licence through partnerships, collaborations, or joint ventures.
Directly holding a Licence:
Company B applies to the Local Government of Emirate A for a mining Licence. After due process and compliance with regulations, the Local Government of Emirate A grants Company B a Licence to operate a mining site for precious minerals within its territory. In addition, Company B has fulfilled all of the remaining conditions for an Extractive Business to be exempt from Corporate Tax under Article 7(1) of the Corporate Tax Law.
In this situation, Company B directly holds the Licence. Therefore, it is exempt from Corporate Tax in respect of its Extractive Business operations within Emirate A.
Indirectly holding a Licence:
Company B is interested in expanding its operations to Emirate B, another region with rich mineral deposits. It decides to collaborate with a local company, Company C, which already holds a valid mining Licence in Emirate B that allows Company C to assign or partner with other companies under the Licence granted to it, to exploit Natural Resources.
Company B enters into a partnership agreement with Company C. In this agreement, Company B provides significant financial investment and technical expertise, while Company C contributes its existing mining Licence and local operational knowledge. In return, Company B gains a share of the profits generated by mining activities in Emirate B and is effectively subject to tax under the applicable legislation of Emirate B.
In this situation, Company B indirectly benefits from the mining Licence held by Company C in Emirate B. In a situation where Company B would not have had its own Licence, Company B would still have indirectly benefited from the mining Licence held by Company C.
The exemption from Corporate Tax should also apply to Company B’s Extractive Business operations in Emirate B as it indirectly holds a Licence issued by the respective Local Government.
Contractors, subcontractors or suppliers
An Exempt Person that meets the relevant conditions may engage another Person to undertake part of the Extractive Business/Non-Extractive Natural Resource Business.
The Corporate Tax exemption for an Extractive Business/Non-Extractive Natural Resource Business, does not extend to other Persons such as contractors, subcontractors or suppliers that do not in their own right meet the conditions to be exempt under Article 7 or 8 of the Corporate Tax Law.10 To benefit from the exemption, a Person must hold a direct or indirect interest in the underlying Natural Resources Licence or concession agreement and not merely be engaged to provide goods or services to a Person holding such an interest.
Example 2: Contractors, subcontractors and suppliers
Company A is engaged in oil exploration activities and meets all the criteria for the Corporate Tax exemption for an Extractive Business in accordance with Article 7 of the Corporate Tax Law.
Company A, in its exploration operations, requires specialised equipment and services for drilling and geological surveying. Instead of investing in and managing these activities itself, Company A engages Company B, a specialised drilling and surveying firm, to undertake the drilling part of its exploration activities. Company B has the role of a service provider and is not considered a partner in the exploration activities of Company A.
The outcome would be as follows:
Company A: The income generated by Company A from its exploration activities remains eligible for the Extractive Business Corporate Tax exemption, as long as it meets all of the qualifying conditions.
Company B: The income generated by Company B from performing the drilling activities on behalf of Company A will not be eligible for the Extractive Business Corporate Tax exemption. Instead, Company B’s income will be subject to Corporate Tax as per the provisions of the Corporate Tax Law.
In such a situation, even though Company A is engaging another entity (Company B) to perform a specific part of the drilling work, the Corporate Tax exemption does not extend to Company B as it does not hold an interest in the underlying Natural Resources exploration Licence or concession agreement.