Sharjah announces 20% tax on natural resources companies in new law
Authorities declared on Thursday that Sharjah-based companies operating in both extractive and non-extractive natural resource activities must now pay 20 per cent corporate tax.
Extractive companies perform the operations of extracting raw materials or natural resources like oil, metals, minerals, and aggregates from the ground and then processing them for consumer use. Natural resources undergo separation, treatment, refinement, processing, storage, transportation, marketing or distribution by non-extractive companies.
The corporate tax applies to both extractive and non-extractive natural resource companies according to a law enacted by Sheikh Dr. Sultan bin Mohammed Al Qasimi who serves as Supreme Council Member and Ruler of Sharjah.
Extractive companies must pay the following corporate tax rates.
1. Extractive companies will face a 20% tax that applies to their taxable base as determined by the Oil Department of Sharjah through predefined mechanisms and schedules in their respective agreements.
2. Companies performing extractive activities will determine their taxable base from their total share of oil and gas production value using a formula that divides total royalty payments and other agreed-upon participation between the Oil Department and the company.
3. The agreement between the Oil Department and extractive companies establishes the amounts for royalties, bonuses due, and annual rent for any concession area operated by these companies.
Non-extractive natural resource firms face the following corporate tax requirements.
1. Non-extractive natural resource companies face a 20 per cent tax rate on their taxable base during each fiscal year.
2. The taxable base for non-extractive natural resource companies derives from their net taxable profits under this legislation after applying required adjustments.
2.a. Asset depreciation values can be subtracted from the taxable base and non-current asset depreciation is assessed yearly at 20 per cent. The organization can deduct depreciation amounts shown in its financial statements using new depreciation methods developed from international financial reporting standards if the finance department approves during the audit and confirms there is no profit reduction motive.
2.b. Subsequent tax periods can use tax losses to determine their taxable base for those periods. Tax losses can be transferred to future tax periods that have not yet been determined.
Tax compliance and penalty
To renew commercial licenses or concession rights in Sharjah companies must first fulfill their tax payment obligations. Companies that pay taxes under this law must keep financial statements and related documentation for seven years after their issuance to verify information accuracy.
The company will face a 5 percent financial penalty of their total tax due if the finance department of the emirate finds intentional financial violations carried out by the company to evade tax obligations.
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