New Corporate Tax Law in Sharjah Reshapes Natural Resource Sector

Sharjah, UAE – The Emirate of Sharjah has ushered in a new era of corporate taxation with the enactment of Law No. 3 of 2025, fundamentally altering the tax landscape for companies engaged in the extraction and utilization of natural resources. This landmark legislation, enacted by Sheikh Sultan bin Muhammad Al-Qasimi on February 13, 2025, replaces the outdated Sharjah Income Tax Decree 1968 and establishes a structured framework for corporate tax obligations in the sector.

A Paradigm Shift in Taxation

Historically, oil and gas companies operating in Sharjah were taxed under the 1968 decree at a flat rate of 55%. The new law significantly revises this approach, imposing a corporate tax rate of 20% on companies engaged in extractive and non-extractive activities. By providing clarity on taxation and dispute resolution, the law seeks to enhance economic stability and ensure legal certainty for businesses.

Key Provisions of Law No. 3 of 2025

1. Tax Imposition and Scope

The law mandates that companies involved in the exploration, extraction, and utilization of natural resources in Sharjah comply with corporate tax obligations. Extractive and non-extractive companies will be taxed at a uniform 20% rate on their respective tax bases.

2. Defining the Tax Base

• Extractive Companies: The tax base is determined by the company’s share of the value of produced oil and gas, including royalties and other revenue-sharing agreements.
• Non-Extractive Companies: The tax base is computed based on net adjusted taxable profits.

3. Deductions and Tax Credits

• Companies can deduct asset depreciation and carry forward tax losses indefinitely.
• A tax credit is available for Federal corporate tax paid to the Federal Tax Authority, allowing for an offset against the amount due under Sharjah’s new tax law.

4. Payment and Compliance Requirements

• Extractive companies must pay their due taxes to the Oil Department as per deadlines in their agreements.
• Non-extractive companies must settle their tax dues with the Finance Department within nine months following the close of their financial year.

5. Penalties for Non-Compliance

Failure to comply with tax obligations can result in strict financial penalties:

• 1% penalty on late tax payments based on declared tax amounts.
• 2% penalty on tax discrepancies identified during audits.
• 5% penalty for deliberate tax evasion.
• Renewal of concession rights, commercial licenses, or registrations is contingent upon full tax payment.

6. Appeals and Dispute Resolution

Companies have a structured mechanism to contest tax assessments:

• An initial objection must be filed within 20 days of receiving a tax decision.
• The relevant department has 15 days to issue a decision on the appeal.
• If unresolved, the case is referred to a committee formed by the Finance Department, whose decisions are final.

7. Implementation and Enforcement

The law has been officially published in Sharjah’s Official Gazette and took effect immediately upon issuance. All conflicting regulations have been repealed, ensuring a smooth transition to the new framework.

Implications for Businesses

The introduction of Law No. 3 of 2025 marks a major shift for natural resource companies operating in Sharjah. The structured tax regime provides companies with greater financial predictability while reinforcing compliance measures. For businesses, adapting to the new framework is imperative to ensure operational continuity and avoid potential penalties. Companies should undertake a comprehensive review of their tax structures and seek expert legal counsel to navigate the regulatory changes effectively.

Conclusion

Sharjah’s new corporate tax law represents a significant regulatory evolution for the natural resources sector. Companies must proactively align their financial and legal strategies to comply with the new tax requirements. For further legal insights and guidance on corporate tax compliance, please contact