The authorities of the Emirate of Sharjah have announced the introduction of a special corporate tax of 20% for companies engaged in the extraction, transportation, or processing of raw materials or natural resources (oil, metals, minerals, and construction materials).
The corresponding law has already been adopted. According to it, extractive companies will be subject to a 20% tax on the taxable base in accordance with the mechanisms and schedules established in agreements between the Sharjah Oil Department and the respective company.
The taxable base for companies engaged in the extraction of natural resources is calculated based on the company’s total share of the value of extracted oil and gas, according to a formula that distributes the total royalty and other agreed payments between the Oil Department and the company.
All amounts related to royalties, bonuses, and annual rent for any concession operated by extractive companies will be determined in accordance with the agreement signed between the Oil Department and these companies.
Corporate Tax for Non-Extractive Companies Working with Natural Resources
Companies engaged in non-extractive activities are subject to a 20% tax on the taxable base for each financial year.
The taxable base for such companies is calculated based on the company’s net taxable profits under the provisions of this law, with the following adjustments:
a) Asset depreciation may be deducted from the taxable base, with non-current asset depreciation calculated at a rate of 20% per year. If a company applies international financial reporting standards that alter depreciation accounting methods, it may deduct depreciation amounts according to the rates specified in financial statements, provided that the finance department approves this during the audit and ensures that the intent is not to reduce profits.
b) Tax losses may be deducted from the taxable base for subsequent tax periods. Additionally, tax losses may be carried forward to unspecified future periods.
Tax Compliance and Penalties
The payment of tax is a prerequisite for renewing concession rights or a commercial license in Sharjah. Companies subject to taxation under the new law are required to maintain records and supporting documents to ensure the accuracy of the financial statements or any other tax-related documents for a period of seven years from the date of issuance.
If the emirate’s finance department determines that a company has intentionally committed financial violations for the purpose of tax evasion, a penalty of 5% of the total due tax amount will be imposed on the company.
