Sharjah Natural Resources Tax 2025: Implications for Extractive and Non-Extractive Businesses

Sharjah’s Natural Resources Tax, effective February 2025, imposes a 20% tax on both extractive and non-extractive natural resources companies. Businesses must ensure compliance with tax filing, deductions, and penalties to avoid financial consequences.

By Giulia Interesse

On February 13, 2025, His Highness Sheikh Dr. Sultan bin Mohammed Al Qasimi, Supreme Council Member and Ruler of Sharjah, issued Law No. (3) of 2025 (hereinafter, the “law” or the “new law”, introducing a new framework for the taxation of both extractive and non-extractive natural resources companies operating within the Emirate of Sharjah.

The new law is designed to regulate the corporate tax obligations for businesses engaged in the exploration, extraction, and utilization of natural resources in Sharjah, bringing greater clarity and legal certainty to companies operating in this sector.

The law marks a significant shift from the previous tax structure, under which oil and gas companies were taxed under the Sharjah Income Tax Decree of 1968, which imposed a tax rate of up to 55 percent. The introduction of the new law, which imposes a 20 percent tax on both extractive and non-extractive businesses, is expected to provide a more stable and predictable tax environment, fostering economic growth and enhancing Sharjah’s appeal as a business hub for natural resources companies.

This article examines the key provisions of the new law, its implications for companies operating in the natural resources sector in Sharjah, and the steps that businesses must take to ensure compliance.

Also read:

• UAE Corporate Income Tax

Key provisions of Sharjah’s Natural Resources Tax

Taxation of extractive and non-extractive companies

The law applies to all companies operating in Sharjah that are engaged in extractive and non-extractive activities related to natural resources. Both types of businesses are subject to a 20 percent tax rate based on their respective tax bases, which differ depending on the nature of the activities.

• Extractive business tax base: For companies involved in extractive activities, such as oil and gas exploration and extraction, the tax base is calculated based on the company’s share of the value of produced oil and gas. This share is determined through a formula agreed upon with the Sharjah Petroleum Department. The tax calculation takes into account royalties, bonuses, and any other agreed-upon participation shares in the extraction process.
• Non-extractive business tax base: Non-extractive companies, which may include businesses involved in processing, refining, transportation, or marketing of natural resources, are taxed based on their net taxable profits. The tax base for non-extractive businesses is determined in accordance with internationally accepted accounting standards, with certain adjustments allowed. For example, businesses can deduct 20 percent of the depreciation of non-current assets, although this rate can be adjusted if approved by the Sharjah Finance Department. Additionally, tax losses incurred in previous periods can be carried forward indefinitely to offset future taxable profits.

Applicability of UAE Federal Corporate Tax (CT) Law

One of the critical aspects of the new tax law is its interaction with the UAE Federal Corporate Tax (CT) Law. Companies subject to both Sharjah’s local tax and UAE federal tax laws are eligible for a credit against their Sharjah tax liability for any federal corporate tax paid. This provision ensures that businesses are not doubly taxed on the same income, aligning Sharjah’s tax regime with the broader federal tax framework.

Tax payment and filing requirements

Tax payment and filing requirements are as follows:

• Extractive businesses: For extractive companies, the payment of taxes is based on the mechanisms and timelines set out in agreements with the Sharjah Petroleum Department. This means that each company will have a specific payment schedule that is aligned with its individual contract or operating agreement with the department.
• Non-extractive businesses: Non-extractive businesses must file their tax returns with the Sharjah Finance Department. The tax payment is due within nine months of the end of the company’s financial year, although it remains unclear whether the tax return itself must be filed within the same period. The relevant tax return forms and any additional documentation required will be specified by the Sharjah Finance Department in due course.

Tax deductions and loss carryforwards

The law allows businesses to deduct certain expenses from their taxable income, which can help to reduce their overall tax liability. For example, businesses can deduct depreciation on non-current assets, which is calculated at a standard rate of 20 percent annually for most assets. However, if a company uses a different depreciation rate in its financial statements based on internationally recognized accounting standards, it may be allowed to use that rate, provided it is approved by the Sharjah Finance Department.

Additionally, companies that incur tax losses in one period are permitted to carry these losses forward to offset profits in subsequent periods, with no time limit on how long these losses can be carried forward. This provision allows businesses to manage their tax liability more effectively, particularly during periods of fluctuating income or profitability.

Penalties for non-compliance

The law also outlines stringent penalties for businesses that fail to comply with tax obligations. Penalties for late payments are as follows:

• A 1 percent penalty on the outstanding tax amount for every 30-day period of delay.
• If discrepancies are found during a tax audit, a penalty of 2 percent of the outstanding tax due will be imposed for every 30 days of delay in settling the payment.
• In cases of intentional tax evasion or avoidance, a higher penalty of 5 percent of the total tax due will be applied.

These penalties emphasize the importance of timely compliance with tax obligations, as failure to comply could lead to significant financial consequences.

Tax audits and record retention

The Sharjah Finance Department has the authority to audit the financial records of companies subject to this law. All companies must retain their tax records and related documents for a period of seven years, ensuring that they can provide accurate information in the event of an audit. Companies will be required to make their records accessible to authorized representatives of the Finance or Oil Department during audits.

In cases where discrepancies are found during an audit, companies must pay any outstanding amounts within 15 days of receiving the audit report. Failure to do so will result in further penalties.

Appeal and dispute resolution process

The law provides businesses with a formal mechanism to appeal tax assessments. Companies can file an objection with the relevant department—either the Sharjah Petroleum Department for extractive businesses or the Sharjah Finance Department for non-extractive businesses—within 20 days of receiving a tax assessment, payment order, or other related decision. The department must then issue a decision on the objection within 15 days.

If companies are dissatisfied with the decision, they can appeal to a committee formed by the Sharjah Finance Department, consisting of tax experts. This committee will review the appeal and issue a final decision within 15 days. Companies must settle any outstanding taxes within 20 days of receiving the final decision from the committee.

Next steps for businesses

To comply with the new law, businesses operating in Sharjah’s natural resources sector should:

• Review and assess the law’s mpact: Companies should carefully review the provisions of the new law and evaluate how they impact their operations, especially in terms of tax base calculation, filing deadlines, and payment obligations.
• Consult with tax advisors: Given the complexity of the new tax regime, businesses should seek advice from tax professionals to ensure that they are maximizing lowable deductions and credits, including any federal tax credits.
• Prepare for compliance: Companies should implement systems for accurate record-keeping and ensure that they are ready for tax audits. This will involve maintaining financial statements and other relevant documentation for the required seven-year period.
• Monitor ongoing regulatory changes: As the application of the law evolves, businesses must stay informed of any new guidance or amendments that may affect their tax obligations.

Key takeaways

Sharjah’s new law represents a significant shift in the taxation of natural resources businesses operating within the emirate. With a clear and transparent tax framework in place, companies now have greater legal certainty, but they must ensure strict compliance with the law to avoid penalties and maintain their operating rights.

By carefully assessing the impact of the law and taking proactive steps to comply, businesses can continue to thrive in Sharjah’s natural resources sector while managing their tax obligations effectively.

For further assistance, businesses in the UAE are encouraged to consult tax professionals or legal advisors to navigate this new regulatory landscape.

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