The United Arab Emirates (UAE) is recognised for its excellent tax policy worldwide. While in other countries, we pay heavy taxes, the UAE has a provision for a very minimal tax. As the global business landscape is rapidly evolving, every nation is striving to strengthen its position in the business world. The competition has become so fierce that countries like the UAE are also trying to impose taxes in certain sectors.
What the Law Says?
Law No. 3 of 2025, enacted by His Highness Sheikh Sultan bin Muhammad Al-Qasimi on 13 February 2025, established the rules governing the taxation of extraction and non-extraction companies in the natural resources sector of Sharjah.
This law addresses provisions related to the corporate tax liabilities of companies in the emirate that engage in the exploration, extraction, and use of natural resources. Law No. 3 of 2025 is significant in establishing a framework for the new application and collection of corporate taxes in Sharjah.
The new law will help bring economic stability into the emirate and create legal certainty for companies in the natural resources sector as it clearly defines tax liability and dispute resolution mechanisms.
Important provisions of the Act
1. Imposition of Tax
The law requires companies engaged in extractive and non-extractive operations on natural resources in Sharjah to pay corporate tax. Entities, extractive or non-extractive, pay a tax of 20% on their tax base. This includes Oil, gas, and other natural resources. Taxing 20% on any sector isn’t a normal thing for businesspeople in the UAE.
2. Tax Base
For extractive companies, the tax base shall be the proportion of the company's value of produced oil and gas, including royalties and other shares, as mutually agreed. For non-extractive companies, the tax base shall be the net adjusted taxable profits.
3. Tax Deductibles
Under the law, depreciation of assets and tax losses carried forward from prior periods are deductible. Businesses may carry over tax losses indefinitely into future periods. Any Federal corporate tax payable by companies and remitted to the Federal Tax Authority is credited against tax due from these companies.
4. Payment and Compliance with Taxes
No refunds may be collected, as companies are required to pay the applicable tax to the relevant authority. Extractive companies must pay the Oil Department, while non-extractive companies must pay the Finance Department. Extractive companies shall ensure that tax payments are made as provided in their agreements with the Oil Department.
5. Consequences of Non-Compliance
In case of delays in tax payments, the law imposes a penalty in the maximum amount of 1% of the actual taxes due and payable, calculated from the date of default. The penalty rate on tax owing resulting from audit findings is 2% per month after the payment deadline has expired. Such a penalty can be increased to 5% of the tax if incurred for tax evasion. Paying taxes is a prerequisite for renewing concession rights or obtaining a commercial license or commercial registration in Sharjah.
6. Appeals & Settlement of Disputes
Companies in the United Arab Emirates (UAE) may appeal any impugned tax assessments by filing an objection before the department within 20 days from the date of notice of the decision. The respective department shall deliver its decision on the appeal within 15 days of receiving the appeal.
They may further appeal the decision rendered by the respective department before a committee set up by the Financial Department. The decisions of this committee are final and binding.
7. Realisation and Enforcement
The Law was published in the official gazette and became effective upon issue. Implementation of its provisions is the responsibility of the concerned allies. Any provisions in conflict with it are hereby repealed.
Law No. 3 of 2025 will bring about a significant regulatory change for companies operating in the natural resources sector in Sharjah. Companies operating in this sector must carefully navigate the newly created regulations to comply with them and maintain their businesses' operations.
Markai helps you stay informed about the latest rules and regulations, and assists you with precision and perfection in all business processes. Contact us today to ensure your business processes are conducted in accordance with the law.
