Corporate Tax: Oil and Gas Sector in the UAE

The UAE has long been renowned for its business-friendly policies, attracting significant foreign investment from multinational corporations and investors. However, in a bid to diversify revenue streams beyond tourism and oil, the UAE is set to implement a new corporate tax (CT) starting from June 1, 2023. Federal Decree-Law No. 47 of 2022, commonly referred to as the corporate tax law, establishes the framework for the CT system in the UAE. While the new corporate tax regime will impact all sectors of the economy, including the oil and gas industry, many companies in this sector already pay taxes at the Emirate level and are therefore exempt from the new corporate tax.

The standard rate of CT stands at 9%, with a 0% rate applying to businesses generating taxable profits of less than AED 375,000. The introduction of CT in the UAE brings several benefits, foremost among them being an increase in government revenue and a reduction in the budget deficit. Additionally, it will aid in combating money laundering and tax evasion globally, thereby enhancing the UAE’s standing as a premier business destination with internationally recognized tax practices. The impact of CT on small and medium-sized enterprises (SMEs) is expected to be minimal, primarily affecting high-profit enterprises.

Corporate Tax for the Oil and Gas Industry in the UAE:

With the rollout of corporate tax in the UAE, many wonder about its implications across various industries, particularly the oil and gas sector. As the CT landscape continues to evolve in the UAE, it’s essential to understand how it affects different industries. For the oil and gas industry, specific exemptions are outlined in the corporate tax law. According to Article 4 of the law, businesses engaged in natural resource extraction will be exempt from CT if they meet the conditions stipulated in Article 7 of the Decree-Law. Similarly, businesses involved in non-extractive natural resource activities may also be exempt under certain conditions specified in Article 8. However, if a business derives income from other activities, it will fall under the purview of the new corporate tax regime.

Such activities include:

1. Business activities not secondary or subordinate to natural resource-based operations, regardless of whether they involve extraction or non-extractive activities.
2. Business activities that are secondary or subordinate to natural resource-based operations, where the revenue exceeds 5% of the total revenue for a tax year.

Defining Terms in the Oil and Gas Sector:

It’s important to clarify some key terms commonly used in the oil and gas industry:

• Natural Resources: These encompass oil, water, gas, coal, minerals, and other resources extracted from the state’s territory.
• Extractive Business: Refers to operations involved in discovering, extracting, and utilizing state-owned natural resources.
• Non-extractive Natural Resource Business: Involves activities such as processing, storage, transportation, marketing, and distribution of state-owned natural resources, including refining them for various industries.

Taxation under Emirates Tax Decrees:

While oil and gas companies may be exempt from corporate tax, they remain subject to other taxes under specific Emirate tax decrees. This exemption solely pertains to CT and not to other applicable taxes. Examples of Emirate tax decrees include the Dubai Income Tax Decree of 1969 and the Sharjah Income Tax Decree of 1968.

Conclusion:

The introduction of corporate tax marks a significant step for the UAE in diversifying its revenue sources. While the new CT regime impacts all sectors, exemptions are provided for the oil and gas industry, contingent upon meeting legal conditions. However, it’s crucial to note that exemption from corporate tax doesn’t absolve businesses from other applicable taxes under Emirate tax decrees.

The implementation of corporate tax is poised to bolster the UAE’s reputation as a global business hub by fostering transparent tax practices. The success of this regime hinges on effective implementation and enforcement, necessitating cooperation between businesses and government authorities.

How Can We Assist You?

Navigating a new tax regime can be complex, and compliance is essential to avoid penalties. At Abacus Tax & Accounting, we offer comprehensive expertise in tax matters, ensuring compliance and peace of mind. Whether you require assistance with corporate tax in the oil and gas industry or any other sector, trust us to handle your tax affairs with confidence. Contact us today for personalized assistance.