Oil and gas companies have historically been subject to tax in Sharjah under Sharjah Income Tax Decree 1968 at the top rate of 55%.
On 13 February 2025, Sheikh Sultan bin Muhammad Al-Qasimi enacted a new law, Law No. 3 of 2025, which governs the taxation of extraction and non-extraction companies operating in the natural resources sector in Sharjah. This law aims to regulate corporate tax obligations for companies involved in the exploration, extraction, and utilization of natural resources within the emirate. Law No. 3 of 2025 is significant as it establishes a new framework for the application and collection of corporate taxation in Sharjah. The new law will contribute to the emirate’s economic stability and provides legal certainty for companies operating in the natural resources sector by clearly outlining tax obligations and dispute resolution mechanisms.
Key Provisions of the Law
1. Imposition of Tax:
The law imposes a corporate tax on companies engaged in extractive and non-extractive activities related to natural resources in Sharjah. Both extractive and non-extractive companies are taxed at a rate of 20% on their tax base.
2. Tax Base
For extractive companies, the tax base is calculated based on the company’s share of the value of produced oil and gas, including royalties and other agreed-upon shares. For non-extractive companies, the tax base is calculated based on net adjusted taxable profits.
3. Tax Deductions
The law permits deductions for asset depreciation and brought forward tax losses from previous periods. Companies may carry forward tax losses to subsequent periods without a time limit. A credit is also allowed against the tax due for any Federal corporate tax for which companies are liable and which is paid to the Federal Tax Authority.
4. Tax Payment and Compliance
Companies are required to pay their due taxes to the relevant authority — either the Oil Department for extractive companies or the Finance Department for non-extractive companies. For extractive companies, the tax due must be paid according to the deadlines specified in the agreements between the companies and the Oil Department. For non-extractive companies, the tax must be paid to the Finance Department within 9 months of the end of the financial year.
5. Penalties for Non-Compliance
The law imposes financial penalties at the rate of 1% for late tax payments based on the submitted tax declaration and at the rate of 2% of the tax differences identified during an audit. A higher penalty of 5% of the tax due applies in the event that a violation is committed with the intention of tax evasion. The payment of the tax is also a prerequisite for renewal of concession rights or a commercial license/commercial registration in Sharjah.
6. Appeals and Dispute Resolution
Companies have the right to appeal against any tax assessments by submitting an objection to the relevant department within 20 days of receiving the decision. The departments must issue a decision on the appeal within 15 days. A further appeal may be submitted against the decision of the relevant department to a committee formed by the Financial Department. The committee’s decisions are final.
7. Implementation and Enforcement
The law was published in the official gazette and came into effect on the date of its issuance. It requires all relevant authorities to implement its provisions. Any conflicting regulations are repealed.
Conclusion
Law No. 3 of 2025 represents a significant regulatory development for companies operating in the natural resources sector in Sharjah. Companies operating in this sector must carefully navigate the new regulatory landscape to ensure compliance and business continuity.
Key Contacts
Ammar Haykal, Partner, Head of Office – Northern Emirates a.haykal@tamimi.com
Shiraz Khan, Partner, Head of Taxation s.khan@tamimi.com