The UAE Corporate Tax framework recognises the strategic importance of natural resources and preserves the long-standing principle that such resources fall under Emirate-level sovereignty. Accordingly, the UAE Corporate Tax Law provides a specific exemption for qualifying Extractive Businesses and Non-Extractive Natural Resource Businesses, subject to clearly defined conditions.

Importantly, this exemption applies to qualifying natural resource activities and income, not automatically to the entire legal person where other business activities are also conducted.

This article, prepared by German Fintax Consultancy, provides a comprehensive and practical overview of the Corporate Tax treatment of Extractive and Natural Resource Businesses, in line with the FTA Corporate Tax Guide – CTGEPX1 and Federal Decree-Law No. 47 of 2022, and is intended for UAE-based entities operating in or alongside the natural resources sector.

Understanding Extractive & Natural Resource Businesses

1. What is an Extractive Business?

An Extractive Business refers to activities involving the exploration, extraction, removal, or production of natural resources within the UAE. This typically includes sectors such as:

• Oil and gas exploration and production
• Mining and quarrying
• Extraction of minerals and hydrocarbons

To qualify, these activities must be carried out pursuant to a right, concession, or licence issued (directly or indirectly) by the relevant Local Government (Emirate).

The existence of a valid Local Government right or concession is a fundamental requirement. Commercial arrangements alone, without an Emirate-issued right, do not satisfy the exemption conditions.

2. What is a Non-Extractive Natural Resource Business?

A Non-Extractive Natural Resource Business relates to activities performed after extraction, such as:

• Processing, refining, or treatment of natural resources
• Storage, handling, and sale of extracted resources

These activities must also be conducted under a Local Government-issued right, concession, or licence, and form part of the natural resource value chain.

Purely downstream commercial trading or distribution activities that are not carried out under an Emirate-level right or concession fall outside the scope of the exemption.

Corporate Tax Exemption: The Core Principle

Under the UAE Corporate Tax Law, a Person engaged in an Extractive Business or Non-Extractive Natural Resource Business may be treated as an Exempt Person for Corporate Tax purposes — but only in respect of the qualifying natural resource activity.

Where the same Person carries on other commercial or service activities, those activities remain within the scope of Corporate Tax and must be assessed separately.

This exemption preserves the historical Emirate-level taxation of natural resources while ensuring clarity within the federal Corporate Tax regime.

Conditions to Qualify as an Exempt Person

To benefit from the exemption, all of the following conditions must be satisfied.

1. Conditions Applicable to Both Extractive and Non-Extractive Businesses

The Person must:

1. Hold a right, concession, or licence
   Issued directly or indirectly by the relevant Local Government to conduct the natural resource activity.
2. Be subject to Emirate-level taxation
   The business must be effectively taxed under Emirate legislation (e.g., royalties, levies, revenue-based taxes, or similar charges imposed by the Emirate).

The activity must be actively subject to Emirate-level taxation under law or concession terms. The mere possibility of taxation or voluntary revenue-sharing arrangements is not sufficient to meet this condition.

1. Notify the Ministry of Finance
   The business must formally notify the Ministry of Finance in the manner and format agreed between the Federal and Local authorities.

This notification is a substantive condition for exemption. Failure to notify the Ministry of Finance correctly or in a timely manner may result in denial of the exemption and potential retrospective Corporate Tax exposure.

2. Additional Condition for Non-Extractive Natural Resource Businesses

In addition to the above, a Non-Extractive Natural Resource Business must ensure that:

• Income is derived solely from Persons undertaking a Business or Business Activity, and not from private individuals or non-business consumers.

Failure to meet this condition may result in the loss of exemption for the non-extractive activity.

Contractors, Suppliers & Service Providers: A Critical Distinction

A common misconception is that contractors or suppliers working with extractive or natural resource operators automatically qualify for the exemption.

This is incorrect.

• Contractors, subcontractors, logistics providers, consultants, and service companies do not qualify for exemption unless they independently meet all exemption conditions under the law.
• Most such entities fall fully within the scope of federal Corporate Tax.

This distinction is particularly relevant for oil & gas service companies, EPC contractors, drilling service providers, and logistics operators, which are frequently assumed to be exempt in error.

Businesses with Multiple Revenue Streams

Many extractive and natural resource companies also carry out other commercial activities alongside their exempt operations.

1. Exemption Is Activity-Specific

• The exemption applies only to the qualifying Extractive or Non-Extractive Natural Resource Business.
• Other income streams may still be subject to Corporate Tax.

2. Ancillary or Incidental Activities – The 5% Rule

A business will not be treated as having a separate taxable activity where:

• The other activity is ancillary or incidental to the exempt business, and
• Revenue from such activity does not exceed 5% of total revenue in the same tax period.

Both conditions must be met. An activity that is not functionally ancillary or incidental does not qualify for exemption merely because its revenue is below the 5% threshold.

If the 5% threshold is exceeded, the other activity becomes a separate taxable business subject to Corporate Tax.

Ring-Fencing, Accounting & Transfer Pricing in UAE

Where a Person conducts both exempt and taxable activities, robust segregation is essential.

1. Separate Identification of Taxable Business

• The taxable “other business” must be treated as an independent business for Corporate Tax purposes.
• Separate financial records should be maintained.

2. Allocation of Common Expenditure

• Shared costs (e.g., overheads, management costs, shared assets) must be reasonably apportioned.
• Allocation is typically based on revenue proportion, unless Emirate-level rules require a different method.

Inadequate or arbitrary allocation of shared costs may be challenged by the FTA and could lead to reassessment of taxable profits.

3. Related Party & Arm’s Length Treatment

• Transactions between the exempt business and the taxable business are treated as Related Party transactions.
• These must comply with arm’s length principles under the UAE Transfer Pricing framework.

Interaction with Free Zone Regime

1. Free Zone Persons Conducting Only Exempt Activities

Where a Free Zone Person conducts only an exempt Extractive or Non-Extractive Natural Resource Business:

• The Corporate Tax Law does not apply to that Person for those activities.

Free Zone status does not override the requirement for Emirate-level licensing, concession rights, and taxation applicable to natural resource activities.

2. Mixed Activities in a Free Zone

If a Free Zone Person also carries out taxable activities:

• It may still qualify as a Qualifying Free Zone Person (QFZP) for the taxable segment, subject to Article 18 conditions.
• Importantly, revenue from the exempt natural resource business is excluded from the QFZP de minimis calculations.

Compliance & Ongoing Obligations (CTGEPX1)

1. Record Keeping

• Exempt Persons must retain records and documentation for 7 years.
• Documentation must substantiate exemption eligibility and revenue segregation.

2. Corporate Tax Registration

• If only exempt activities are conducted, Corporate Tax registration is generally not required.
• If a taxable business exists, registration is required for the taxable activity only.

Registration requirements should be assessed carefully, as incorrect non-registration may trigger penalties.

3. Financial Statements & Audit

• Taxable activities must prepare financial statements under IFRS or IFRS for SMEs (if revenue ≤ AED 50 million).
• Audit requirements apply based on the taxable business thresholds — excluding exempt revenue.

4. Tax Return Filing

• Where a taxable business exists, a Corporate Tax Return must be filed within 9 months from the end of the tax period.

Key Risk Areas for UAE Businesses

• Incorrect assumption of exemption by service providers
• Weak segregation between exempt and taxable activities
• Failure to monitor the 5% ancillary revenue threshold
• Inadequate documentation or Ministry notification
• Improper allocation of shared costs

These risk areas are frequently reviewed by the FTA and may result in the denial of exemption if not properly managed.

How German Fintax Consultancy Can Support You?

German Fintax Consultancy assists extractive and natural resource businesses across the UAE with:

• Exemption eligibility assessments under CTGEPX1
• Structuring and ring-fencing of exempt vs taxable activities
• Ministry of Finance notifications and documentation
• Revenue tracking and 5% threshold monitoring
• Cost allocation and transfer pricing support
• Corporate Tax registration, filings, and ongoing compliance

If your business operates in oil & gas, mining, quarrying, or downstream natural resource activities, early structuring and documentation are critical. Our specialists can help ensure your exemption remains robust while your taxable segments remain fully compliant.