Sharjah to impose 20% tax on natural resource companies

Sharjah is set to impose a 20 per cent corporate tax on companies involved in extractive and non-extractive natural resources, in accordance with a new law, it was announced on Thursday.

The law specifies that the corporate tax for extractive companies is as follows:

A tax of 20 per cent will be imposed on extractive companies based on the taxable base, following the mechanisms and schedules defined in agreements made between the Oil Department and the company.

The taxable base for companies engaged in extractive activities will be calculated based on the total share of the company from the value of produced oil and gas, in accordance with the formula dividing the total royalty and any other agreed-upon participation in the division between the Oil Department and the company.

Any amounts for royalties, bonuses due, and annual rent for any concession area operated by extractive companies will be determined according to the agreement signed between the Oil Department and those companies.

According to the law, the corporate tax for non-extractive natural resource companies is as follows:

A tax of 20 per cent is imposed on non-extractive natural resource companies based on the taxable base for each financial year.

The taxable base for non-extractive natural resource companies is calculated based on the company's net taxable profits under the provisions of this law, after making necessary adjustments as follows:

The value of asset depreciation may be deducted from the taxable base, with non-current asset depreciation calculated at a rate of 20 per cent annually. If the company follows an international standard for preparing its financial statements that results in changes to the accounting methods for depreciation, it may deduct the depreciation amount according to the rates specified in the financial statements, provided that the finance department approves this during the audit and ensures that the intention is not to reduce profits.

Tax losses may be deducted from the taxable base for subsequent tax periods for calculating the taxable base for that tax period. Additionally, tax losses may be carried forward to unspecified future periods.

Companies will be audited as follows:

The finance department has the right to audit all records and documents related to the revenues of companies subject to this law or to authorise anyone it deems appropriate to carry out the audit, in accordance with what the finance department considers necessary for implementing the provisions of this law.

Immediately after completing the audit for the relevant financial year, the finance department must prepare a report on the tax amount due from the company and determine if there are any outstanding amounts owed. This report becomes binding on the company after 15 days from the date it is delivered to them.

If the audit by the finance department reveals outstanding tax differences owed under the provisions of this law, the company must pay the amount due resulting from the audit within 15 days from the date the company receives the report mentioned in clause (2) of this article.

If the company does not comply with the payment of outstanding tax differences resulting from the audit by the finance department by the deadline specified in clause (3) of this article, a financial penalty of two percent of the outstanding tax differences will be imposed for every 30 days of delay until the full payment of the outstanding tax amount and any penalties incurred due to the delay, unless the company appeals the decision or payment order to the Oil Department or the finance department.

A financial penalty of five per cent of the total due tax amount will be imposed on the company if the finance department determines that there were financial violations intentionally committed by the company for the purpose of tax evasion or avoiding the payment of the tax imposed under the provisions of this law.

Extractive resources refers to the withdrawing of materials from the environment for human use, including fossil fuels (oil, gas, and coal), rocks and minerals. 

Non-extractive resources includes separating, treating, refining, processing, storing, transporting, marketing or distributing natural resources.