The UAE has been internationally recognized for its policies that are favorable to business. Large multinational firms and investors heavily invested abroad due to these rules. However, the UAE will begin adopting a new corporate tax (CT) on June 1st, 2023, in an effort to diversify its revenue streams beyond tourism and oil. To keep the tax attractive to businesses, the UAE kept the rate low, at 9 percent.
The corporate tax legislation, or Federal Decree-legislation No. 47 of 2022, is the legislative framework for CT in the UAE. Every aspect of the economy, including the oil and gas sector, will be impacted by the new corporate tax structure.
Businesses that work with the emirates’ natural resources are typically subject to varied laws and regulations. Businesses that extract natural resources will operate at the Emirates level are exempt from corporation tax, according to the planned corporate tax in the UAE. According to a statement from the ministry, in order to encourage small enterprises and startups, the new regime has a basic statutory tax rate of 9% as well as a 0% rate for taxable profits up to 375,000 dirhams ($102,107.50).
Corporate Tax for the UAE’s Oil and Gas Sector:
Regarding UAE corporation tax, the oil and gas sector is free from a certain requirement. A company that extracts natural resources is free from corporate tax under Article 4 of the corporate tax law if all requirements set forth in Article 7 of the Decree-Law are satisfied.
Additionally, if a company engages in a non-extractive natural resources activity and meets the requirements outlined in Article 8 of the corporation tax law, it is free from CT. The new corporation tax structure will apply to businesses with income from other commercial activities. Other commercial pursuits comprise:
- A business that, whether it engages in extractive or non-extractive operations, is neither subsidiary to or subordinate to a natural resource-based business.
- Whether it engages in extractive or non-extractive activities, a business that supports or serves a natural resource-based business. Nevertheless, the company’s revenue exceeds 5% of its overall sales for the tax year.
The initial advice has been released with enough time to implement full-fledged legislation before the regime takes effect on 1 June 2023, although from the standpoint of taxpayers, it is advisable to assess the impact on current and proposed company in the UAE.
Conclusion:
By introducing clear tax practices, the introduction of corporation tax will improve the UAE’s standing as a hub for international commerce. The effective implementation and enforcement of the corporation tax policy will ultimately determine its effectiveness. Businesses and government agencies must work together on this.
How may we assist you?
It is difficult to follow the rules and stay out of trouble since a new tax system was implemented. Therefore, seeking the advice of specialists might help you avoid paying fines. In terms of taxes, Finnection has a wealth of knowledge and experience. Contact us at any time if you require assistance with corporate taxation for the UAE’s oil and gas sector or any other business.
For information on setting up a company in UAE, contact finnection via email at info@finnection.ae or call us at our toll free number +971 800 0120070
Disclaimer: Above information is subject to change and represent the views of the author. It is shared for educational purposes only. Readers are advised to use their own judgement and seek specific professional advice before making any decision. Finnection is not liable for any actions taken by reader based on the information shared in this article. You may consult with us before using this information for any purpose.