Guide on Corporate Tax in UAE On Oil and Gas Industries

As part of its goal to become a significant worldwide Centre for business and investment, the UAE has implemented a competitive CT system in light of current international tax trends. The 9% corporation tax rate, which is among the lowest globally, was most likely chosen to keep the UAE appealing to international investors. Furthermore, the 9% Corporate Tax rate should ensure that some income streams stay taxed in the UAE while avoiding revenue loss to foreign jurisdictions. The subject-to-tax rule (STTR) in Pillar Two provides for extra source taxes when some base-eroding income (such as interest and royalties) are not taxed at the minimum rate of 9%. Interest and royalties earned by UAE enterprises should not be subject to extra source taxes outside the UAE according to the UAE Corporate Tax rate of 9%.

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What does the UAE corporate tax regime entail?

Except for those that exploit natural resources such as oil and gas, all UAE enterprises will be subject to corporate tax. UAE corporation tax will apply to banks and real estate.

According to the original MOF guidelines, the UAE Corporate Tax structure will be residence-based, with international revenues of UAE resident enterprises being taxed. Non-residents' business revenue earned in the UAE would be taxed.

In the United Arab Emirates, most commercial, industrial, and professional operations require a company license or permit. For corporate tax reasons, a company is assumed to be a resident in the UAE if it is incorporated or registered there or has effective management and control there. The corporation tax base would be applied to a company's accounting net profit after correcting for specific elements that would be detailed later in the corporate tax law.

UAE Corporate Tax Rates

The following are the corporate tax rates:

These businesses are exempt from the federal corporate tax, and companies in the oil and gas sector are subject to certain conditions and the applicable legislation of an Emirate.

• The general corporate tax rate is  9%.
• 0% tax rate for businesses with taxable profits less than AED 375,000 (approx. USD 102,095).
• Different corporate tax rate applies to large businesses compliant with the OECD's Global Anti-Base Erosion Model Rules (Pillar Two) from the Base Erosion and Profit Shifting program.
• A 9% effective tax rate (ETR) applies to income or profits from participation.
• If the 9% ETR is not achieved under the relevant jurisdiction’s tax rules, it will be recalculated to 9% based on the provisions of the UAE Corporate Tax Law.
• A distinct tax rate for big firms that meet certain criteria, is based on the Global Anti-Base Erosion Model Rules of the OECD Base Erosion and Profit Shifting Programme (Pillar Two).

However, the new corporate tax law in the UAE does not override the existing corporate tax regime governed by Emirates tax decrees. Income from both extractive and non-extractive natural resource businesses will continue to be assessed and taxed under the respective Emirate tax decrees. For companies operating in the petroleum sector, a progressive corporate tax structure applies, with rates going up to 55%. This ensures compliance with specific tax regulations for businesses in the oil and gas industries, aligning with both Emirate tax decrees and the new corporate tax law.

What factors go into determining the Corporate Tax period? 

The UAE Corporate Tax starts June 1, 2023. The financial year-end determines the UAE Corporate Tax period for an organization.

As a result, entities have the following characteristics:

• Companies with a financial year-end of May 31 should file their first UAE Corporate Tax return for the fiscal year ending in 2024.
• Companies that conclude their fiscal year on September 30 should file their first UAE Corporate Tax return for the fiscal year ending September 30, 2024.

• They should submit their first UAE Corporate Tax return for the financial year ending December 31, 2024. The deadline for CT returns has not yet been set.

Will entities engaged in oil and gas activities, which are now taxed at the Emirate level, be exempted?

Companies that extract natural resources will continue to be taxed at the Emirate level and will be excluded from corporate taxes. As a result, the UAE Corporate Tax on the oil and gas industry should have no impact. UAE service enterprises that are part of a global oil and gas organization, on the other hand, are likely to be liable to UAE Corporate Tax.

Large oil and gas global corporations with combined sales of more than EUR 750 million (AED 3.15 billion) should be subject to Pillar Two. Pillar Two should apply to significant oil and gas multinational enterprises with combined sales of more than EUR 750 million or AED 3.15 billion. Oil and gas companies that fall under Pillar Two should first determine if their ETR in the UAE (and other countries) satisfies the 15 per cent GMT rate. If not, the group's UAE firms will be classified as "low taxed entities," necessitating the payment of additional taxes in other jurisdictions that have adopted Pillar Two. When calculating the ETR in the UAE for Pillar Two reasons, oil and gas firms should keep the following in mind:

• The tax paid under the fiscal letter/concession agreement may be considered a "Covered Tax" for Pillar Two reasons. Because this tax is often greater than 15%, UAE firms should adhere to the GMT rate.
• Royalties paid under a fiscal letter/concession agreement may not be considered "Covered Tax" for Pillar Two reasons.

Read more: Will all entities that are subject to corporation tax be required to have audited Financial Statements?

UAE Corporate Tax on Oil and Gas Industry: Current Scenario

Dubai, a significant economic hub in the Middle East, has been viewed as a tax haven for investors and business people. For business people and investors, the taxation regime is quite favourable. In the UAE, corporate tax is fixed at a maximum rate in the oil and banking industries. Aspects of Dubai's Taxation for Businesses. The UAE imposed a standard VAT rate of 5% on the majority of goods and services in 2018. The UAE levies a 20% tax on foreign bank branches operating in the nation, and a 55% tax on enterprises holding emirate-level oil and gas concession agreements.

Aspects of UAE  Taxation for Businesses

1. In uae, only banks and oil firms are subject to corporate taxation.
2. On UAE-sourced profits, oil businesses in UAE pay a maximum of 55 per cent corporate income tax.
3. Foreign bank branches in Dubai are subject to a 20% tax rate on revenue generated in Dubai.

How Can Corporate Tax UAE Help You?

When it comes to the intricate issue of taxation, not everyone is aware of their efforts to maintain their status as tax-paying individuals and businesses. Obtaining the services of an experienced Corporate Tax Adviser is critical at this time, as it protects individuals and companies from legal consequences. Our corporate tax advisers in UAE have a wealth of experience aiding businesses in addressing their tax profiles through legal means and applicable exemptions. Our UAE corporate tax advisers also assist businesses in harmonizing their tax regimes with applicable rules.