In a significant shift to its fiscal policy, Sharjah has introduced a new taxation framework for businesses engaged in natural resources activities. Effective February 13, 2025, under Law No. (3) of 2025, the emirate will impose a 20 percent tax on both extractive and non-extractive natural resources companies.
This represents a major departure from the previous taxation system, particularly for the oil and gas sector, which was previously governed by the 1968 Sharjah Income Tax Decree with tax rates of up to 55 percent.
This new law is intended to offer more legal clarity, enhance regulatory transparency, and create a more predictable tax environment for companies operating in Sharjah’s natural resources sector and the ones that want to go for business setup in the UAE.
However, it also introduces new compliance obligations and filing requirements that businesses must understand and prepare for. This blog explores the key provisions of the new law, its implications for extractive and non-extractive companies, and the steps businesses must take to remain compliant.
Sharjah’s 2025 Natural Resources Tax – Things to Know
1. Scope of the New Tax Law
The tax applies to all companies engaged in activities related to Sharjah’s natural resources. This includes both:
- Extractive companies involved in exploration and extraction of resources such as oil and gas.
- Non-extractive companies involved in processing, refining, transportation, or marketing of natural resources.
The law establishes a uniform tax rate of 20 percent for both categories but distinguishes how the tax base is calculated for each type of business.
2. Tax Base Calculation
For extractive companies, the tax base is calculated on the company’s share of the value of oil and gas produced. This share is determined based on specific formulas outlined in agreements with the Sharjah Petroleum Department. The calculation considers royalties, bonuses, and other agreed-upon participation shares.
For non-extractive companies, the tax is imposed on net taxable profits. These are calculated in line with international accounting standards, with a few modifications.
One notable allowance is the deduction of up to 20 percent for depreciation of non-current assets, subject to potential adjustment upon approval from the Sharjah Finance Department.
3. Interaction with UAE Federal Corporate Tax
Businesses operating in Sharjah may also be subject to the UAE Federal Corporate Tax (CT) Law. To prevent double taxation, companies are allowed to claim a credit against their Sharjah tax liabilities for any federal corporate tax paid on the same income.
This integration aligns local taxation with the federal framework and promotes fairness across jurisdictions, both mainland and freezones in Sharjah.
4. Filing and Payment Obligations
Extractive businesses must adhere to payment timelines and mechanisms stipulated in their individual agreements with the Sharjah Petroleum Department. Each company’s obligations may differ depending on the structure of its operating contract.
Non-extractive businesses are required to file their tax returns with the Sharjah Finance Department. The tax must be paid within nine months from the end of the financial year. The exact deadlines and required forms will be published by the Finance Department closer to the implementation date.
5. Allowable Deductions and Tax Loss Carryforwards
Under the new law, companies can deduct depreciation of non-current assets at a flat rate of 20 percent annually. However, businesses may use alternative depreciation rates based on internationally recognized accounting standards, provided they receive approval from the Sharjah Finance Department.
Tax losses can be carried forward indefinitely. This is especially useful for capital-intensive industries where profitability can vary significantly year to year.
6. Penalties for Non-Compliance
The new law enforces strict penalties for delays and discrepancies in tax reporting and payment. These include:
- A 1 percent penalty on the outstanding tax for every 30 days of delay.
- A 2 percent penalty for discrepancies found during tax audits, applicable every 30 days until resolved.
- A 5 percent penalty in cases of deliberate tax evasion or fraud.
These penalties underline the importance of timely and accurate tax reporting and reinforce the government’s intent to ensure compliance.
7. Tax Audits and Record Retention
The Sharjah Finance Department will have the authority to audit financial records of all companies subject to this law. Businesses must retain all relevant tax and financial documentation for a minimum of seven years.
During an audit, companies are required to make their records accessible to authorized representatives. If any discrepancies are identified, businesses must settle the outstanding amounts within 15 days of receiving the audit report, or risk further penalties.
8. Appeals and Dispute Resolution
The law provides a structured appeals process for companies disputing tax assessments. Objections must be filed within 20 days of receiving an assessment, and the relevant department (Sharjah Petroleum Department for extractive companies or the Sharjah Finance Department for non-extractive companies) must respond within 15 days.
If the company is unsatisfied with the outcome, it may escalate the matter to a tax appeals committee formed by the Sharjah Finance Department. This committee will consist of tax experts and must issue a final decision within 15 days. Companies must settle any due amounts within 20 days after receiving the final decision.
What Businesses Should Do Now?
To ensure full compliance and avoid potential financial penalties, companies, both existing and ones planning for company formation in the UAE, should take the following steps:
- Review the new provisions to understand how they affect your business model, tax obligations, and financial reporting.
- Work with qualified professionals to interpret the law accurately and apply allowable deductions or credits, including offsets for federal taxes.
- Implement systems to track taxable income, manage deductions, and prepare for audit readiness.
- Ensure that all financial records, contracts, and tax filings are archived and accessible for the required seven-year period.
A New Chapter in Sharjah’s Fiscal Policy
The introduction of Sharjah’s Natural Resources Tax represents a significant modernization of the emirate’s fiscal landscape. By applying a standardized tax framework to both extractive and non-extractive companies, the government aims to create a more balanced business environment.
For companies, this transition is both a challenge and an opportunity. Businesses are advised to consult tax professionals or legal advisors to seek expert guidance and stay updated with the UAE’s evolving regulatory landscape.