Guide on Corporate Tax in UAE on Oil and Gas Industries

In the UAE, special provisions exist for the oil and gas industry, offering specific exemptions from corporate taxation, along with the criteria that must be met to qualify for such exemptions. This article details a thorough overview of the UAE Corporate Tax, particularly in relation to the oil and gas sector.

Does corporate tax apply to Oil and Gas Companies in the UAE?

The UAE corporate tax’s scope also includes companies earning revenues via oil and gas. If a company falls under article 4 (Extracting natural resources) and satisfy certain condition mentioned in article 7 and a business engage for non-extractive natural resources which satisfy the condition mentioned in article 8 of federal decree law no 47 of 2022, such business activity can be exempted from corporate tax.

• Natural Resources: This includes oil, water, gas, coal, natural, mineral, and other natural resources extracted from the state.

• Extractive business: A business who engage to findings, extracting, utilizing natural resources from the state.

• Non-extractive natural resource business: A business does not directly involve for extraction of natural resources but they do involve indirectly, like processing, storage, transportation, marketing, and distribution of natural resources owned by the state. They will help natural resources make them to usable condition.

Silent Features of Corporate Tax Legislation for Oil and Gas Companies

• Taxable Income

Taxable income of oil and gas shall include income derived from:

1. 1. Exploration, extraction, and production activities.
   2. Sales of oil, gas, and related gas products within the state and outside the UAE state.

• If more than one business income exit, oil and gas-related expenses are not deductible against other business income:

Since gas and oil business income is not taxable, relevant expenses cannot be claimable from against other business income tax calculations. 

• Transfer Pricing Compliance

Transfer pricing has to be followed in compliance by the oil and gas businesses that enter cross-border transactions and all their dealings with associated parties at arm’s-length price. 

• Filing and Payment Requirements

1. 1. Registration: Oil and gas companies have to be registered with the Federal Tax Authority (FTA).
   2. Filing: The Corporate tax filings have to be filed annually along with its supporting documents.
   3. Apply for exemption: The company should submit a filled application for relevant tax exemption before the due dates.

Challenges Faced by the Oil and Gas Companies Under Corporate Tax

The uniqueness of the industry poses other challenges to comply with corporate tax:

• Complex Financial Structure: The financial activities involved in this sector are intricate and thus involve complex reporting and compliance.

 

• International Tax Implications: Most of the companies that deal in oil and gas have international operations and, thus, are supposed to have an idea of the implications of international tax treaties.

 

• Transfer Pricing Risks: The volume of cross-border transactions puts companies at a higher risk of non-compliance with transfer pricing regulations.

 

• Heavy Documentation Requirements: A Company has to maintain bulky records to support deductions for compliance with tax laws.

How a Corporate Tax Consultant Can Help?

Considering the fact that corporate tax for the oil and gas industry presents certain intricacies, one should always seek professional help from a tax consultant. 

• Industry Knowledge

These corporate tax consultants have explicit knowledge of UAE corporate tax law and its application to the oil and gas industry.

• Tax Strategies

Consultants offer customized solutions to obtain maximum tax savings along with complete adherence to the same. 

• Compliance Support

All compliance work, right from registration down to filing and reporting, is taken on the shoulders of tax consultants so as to reduce the administrative burden as far as possible. 

• Risk Management

Tax consultants thus identify different types of risks involved, such as non-compliance with transfer pricing requirements, among others, and devise strategies to reduce or completely avoid such risks accordingly. 

FAQs About Corporate Tax in UAE for Oil and Gas Companies

Q: Will corporate tax be applicable for all the oil and gas companies in the UAE?

A: Yes, all the oil and gas companies will be liable for corporate tax compliance, but it is exempt from tax subject to meeting certain conditions 

Q: A company engaged in oil and gas refining is also exempt from corporate tax?

A: Yes. It is considered a non-extractive natural resources business and is exempt from corporate tax 

Q: if the business has more than one income, can they claim certain expenses which is related for gas and oil business against other business income? 

A: No. Since oil and gas businesses that meet the conditions are exempt from tax, relevant expenses also cannot be claimable against other business income tax calculations. 

Q: How does transfer pricing regulation affect companies?

A: This calls for valuation regarding the transfer of goods or services to related parties at their market prices so as not to incur a penalty under taxes.

Q:  How will oil and gas companies benefit from corporate tax consultants?

A: The corporate tax consultant will make sure compliance is adhered to, the tax is optimized, and risks minimized amidst complicated rules and regulations of taxation.

 

Conclusion: Be Compliant and further optimize your tax strategy

Compliance is important, but further optimization of the tax strategy is even more vital. Many of the big issues relating to the UAE oil and gas industry concern compliance matters in respect of corporate taxation. Any oil and gas company will feel confident treading the complexities of this unique provision under the UAE Corporate Tax Law once it is expertly guided.

FAR Consulting Middle East is one of the leading professional firms fully geared to provide corporate tax consultation services in the oil and gas industry, with personalized solutions backed by a team of professionals who will guide you through compliance requirements and optimize your tax strategy. 

Please do not hesitate to contact us today for a consultation and help your business stay compliant and profitable within the ever-evolving UAE.