Businesses involved in the extraction of natural resources in the UAE are exempt from Corporate Tax (CT). Similarly, non-extractive natural resource businesses are also exempt from CT in the UAE because they are closely related to the extraction business and are actually a part of the extractive business. However, non-extractive natural resource businesses must understand their legal standing and meet some conditions to maintain their exempt status.
Let Tax Gian explain to you the implications of CT law on non-extractive natural resource businesses. Our expert corporate tax agents in the UAE can also provide you with individual support.
What is involved in a Non-Extractive Natural Resource Business?
According to the CT law, business activities of a non-extractive natural resource business include the following procedures with the natural resources of the UAE;
- Distributing
- Marketing
- Transporting
- Storing
- Processing
- Refining
- Treating
- Separating
Furthermore, non-extractive natural resource businesses also utilise and do business with resources that are natural in nature but are not directly extractive from the ground. For instance, aquaculture, fish farming, livestock production, horticulture, etc. Businesses that generate renewable energy from wind or solar also fall in this category. All these businesses contribute to the UAE’s economy and do sustainable practices utilising natural resources without extraction. If you conduct any of such business activities, you can ask about your business’s particular status and liability from corporate tax agents in the UAE.
CT Liability for Non-Extractive Natural Resource Businesses
- These businesses are automatically (by default) exempt from CT in the UAE.
- They do not need to register or pay CT in the UAE.
- They only need to make a notification to the MoF (Ministry of Finance).
CT Exemption Conditions for Non-Extractive Natural Resource Businesses
A non-extractive business must meet the following conditions set by the CT law in order to remain exempt from CT in the UAE:
- The business must indirectly or directly hold a license, right or concession to conduct the non-extractive business activities from the emirate government in which it operates.
- The business must be subject to emirate-level tax effectively.
- The business must have notified the MoF (Ministry of Finance) in accordance with the local government policy.
- The income of the business from its non-extractive natural resource business must be solely derived from persons who conduct a business activity or a business.
The conditions are similar to those for extractive businesses, except for the last one, and that is what makes it more stringent for non-extractive businesses. To explain the last condition further, a non-extractive business must exclusively make supplies to other businesses. In simple words, a non-extractive business can only make B2B (business to business) sales and B2C (business to consumer) sales are not allowed. The supplies can be made to businesses that fall under the scope of CT in order to avail this exemption. If a supply is made to a person that is not a business and does not fall under the CT scope, the exemption will not apply.
The Question of Ancillary Activities: Activities that are too closely related to the primary business operations to be classified as distinct business operations are known as incidental or ancillary activities. Even though they are ancillary and don’t account for more than 5% of total revenue in the same taxable year, an extractive business may engage in these activities that aren’t eligible for the CT exemption. If such activities pass the de minimis standard, they are likewise regarded as exempt. This test establishes if these activities’ contribution surpasses the 5% level. It’s crucial to keep in mind that all income coming from different ancillary activities is considered to come from a single other source. The de minimis test is applied collectively rather than for each source of income separately. To put it briefly, auxiliary business operations can only be granted the same exemption as the non-extractive business itself if they can be demonstrated to be incidental or ancillary, i.e., pass the di minimis test.
Example: Company A is a non-extractive natural resource business and conducts activities that are exempt from CT. However, it sells its surplus equipment but only makes 2% out of it. This falls under ancillary activities but also passes the di minimis test. So, this activity will also be considered exempt.
Still confused about something? Ask corporate tax agents in Dubai for a clear understanding of the matter.
How can Tax Gian help you?
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