FTA guide on the UAE Tax on Foreign Income

Table of Contents

On December 12, 2023, the UAE Federal Tax Authority (FTA) issued a Corporate Tax Guide focusing on the Taxation of Extractive Business and Non-Extractive Natural Resources Business.the UAE

This comprehensive guide outlines general instructions applicable to individuals engaged in Extractive Business or Non-Extractive Natural Resource Business within the UAE. Key aspects covered in the guide include:

1. Definition of Natural Resources, Extractive Business, and Non-Extractive Natural Resource Business:

Expression Definition
Natural Resources Water, oil, gas, coal, naturally formed minerals, and other non-renewable, non-living resources extractable from the UAE’s territory. Excludes renewable resources like solar energy, wind, animals, and plant materials.
Extractive Business The business activity involving exploration, extraction, removal, or production of Natural Resources within the State. Conducted through a right, concession, or license issued by a Local Government.
Non-Extractive Natural Resource Business The business activity involving separation, treatment, refining, processing, storage, transportation, marketing, or distribution of UAE’s Natural Resources. Conducted through a right, concession, or license issued by a Local Government.

2. Conditions to Qualify as an Exempt Person under Corporate Tax Law:

No. Expression Extractive Business Non-Extractive Natural Resource Business
1 The Person holds an interest in a right, concession, or License from a Local Government for the respective business in the UAE.
2 The Person is effectively subject to tax under the applicable legislation of the Local Government.
3 The Person has notified the Ministry of Finance as per the agreed form and manner with the Local Government.
4 Income from Non-Extractive Natural Resource Business is derived solely from Persons undertaking a B2B Business or Business Activity.

3. Direct or Indirect Holding of Licenses:

A company can either directly hold a license or indirectly operate through partnerships, collaborations, or joint ventures.

4. Contractors, Subcontractors, or Suppliers:

Exemption does not extend to other entities such as contractors, subcontractors, or suppliers that don’t meet the exemption conditions.

5. Exceptional Cases:

If conditions are not met during a Tax Period, the Person ceases to be exempt, unless exceptional circumstances apply.

6. Identifying ‘Other Business’ and Exemptions:

Workflow for identifying and exempting ‘Other Business’ under the Taxation of Foreign Source Income.

The Taxation of Foreign Source Income identifying workflow
The Taxation of Foreign Source Income identifying workflow

7. Determining Taxable Income of ‘Other Business’:

Maintain separate Financial Statements for the independent treatment of ‘Other Business’. Common expenditures require appropriate apportionment.

8. Compliance Requirements:

Exempt Persons must maintain records for seven years post the Tax Period claiming exemption.

9. Examples:

The guide provides examples for clarity on holding licenses, contractors, subcontractors, ancillary or incidental tests, and treatment as a separate entity.

While the guide is not legally binding, it serves as a valuable resource for understanding Extractive Businesses and Non-Extractive Natural Resource Businesses. Access the full guide here (PDF 402 KB).

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