Sharjah has introduced a new corporate tax for businesses involved in natural resource extraction and related activities. The law, issued by Sheikh Dr. Sultan bin Mohammed Al Qasimi, Supreme Council Member and Ruler of Sharjah, applies to both extractive and non-extractive companies operating in the emirate.
According to the law, companies engaged in extracting natural resources and those dealing with non-extractive natural resource activities will be subject to corporate tax based on their taxable base.
Tax Rate and Calculation for Extractive Companies
A 20% corporate tax is imposed on extractive companies, calculated as follows:
- The taxable base is determined based on the company’s total share from the value of produced oil and gas.
- The taxable base is calculated by dividing the total royalty and any other agreed-upon participation between the Oil Department and the company.
- Royalties, bonuses, and annual rents for concession areas will be determined according to agreements signed with the Oil Department.
Tax Rate and Calculation for Non-Extractive Companies
A 20% corporate tax is imposed on non-extractive natural resource companies, calculated as follows:
- The taxable base is determined based on the company’s net taxable profits after adjustments.
- Companies can deduct asset depreciation, with non-current assets depreciated at 20% annually.
- If a company follows international accounting standards for depreciation, it may use those rates, provided the Finance Department approves them after audit.
- Tax losses can be carried forward indefinitely for future deductions.
- If the company is liable for any federal corporate tax, it may deduct that amount from the tax due under this Sharjah law.
Tax Payment Procedures and Penalties
Companies must adhere to the following tax payment rules:
- Extractive companies must pay their tax to the Oil Department as per their agreements.
- Non-extractive companies must pay tax to the Finance Department no later than the last day of the ninth month after the end of the financial year.
Failure to pay on time results in penalties:
- A 1% financial penalty for every 30 days of delay on the outstanding taxable base.
- A 2% financial penalty for every 30 days of delay in paying tax differences after an audit.
- A 5% penalty if a company is found to have intentionally committed financial violations for tax evasion.
Audits and Compliance
The Finance Department has the authority to audit company records and ensure compliance.
- The department may review revenues, records, and financial statements of companies subject to the law.
- An audit report will be issued, and the company must comply with any tax amounts due within 15 days.
- If the company does not pay the audit-determined tax differences within 15 days, an additional penalty of 2% per 30 days of delay applies.
- Companies must retain financial records for at least seven years from the date of issuance.
Tax compliance is also required for business license renewals, concession rights renewals, and commercial registration in Sharjah.
Appeals Process for Companies
Companies have the right to object to tax decisions.
- Extractive companies must submit appeals to the Oil Department.
- Non-extractive companies must submit appeals to the Finance Department.
- Appeals must be filed within 20 days of receiving a tax decision.
- The department will issue a response within 15 days.
- If tax amounts remain outstanding after a rejected appeal, the company has 20 days to pay before a 2% penalty per 30 days of delay is applied.
A Tax Appeal Committee will be formed by the head of the Finance Department.
- The committee will include three tax experts and a secretary.
- Companies can appeal to the committee within 20 days of an objection decision.
- The committee will issue a final decision within 15 days.
- Tax disputes cannot go to court unless first reviewed by the committee.
Confidentiality and Liquidation Rules
Financial statements and tax declarations submitted to the Finance and Oil Departments must remain confidential. These documents can only be accessed for audits and legal reviews.
If a company ceases operations, it must submit a final tax declaration within 90 days of stopping business.
The new tax law aims to regulate natural resource businesses in Sharjah while ensuring transparency and compliance with tax obligations.
