Oil and Gas Fiscal Regimes in the UAE: Concessions, Royalties and Corporate Tax

Every oil and gas project in the UAE answers to two tax systems, and the first question is always which one applies to you. If you hold the right to extract — a concession, a licence, an interest in one — you are in the upstream world: the emirate's fiscal regime, negotiated terms, royalties measured against production, and no federal Corporate Tax. If you sell into the upstream world — you build the platforms, drill the wells, move the equipment, trade the cargoes — you are in the ordinary world: 9% Corporate Tax above AED 375,000, 5% VAT on your services, and no exemption to hide behind.

The dividing line is the licence. The UAE Constitution vests ownership of natural resources in the emirate where they lie, so extraction is a sovereign grant, and the grant document — the concession or the production sharing contract — carries the fiscal terms with it. Federal Decree-Law No. 47 of 2022 respects this: qualifying extractive and non-extractive natural resource businesses are outside the federal Corporate Tax charge and remain subject to taxation at the emirate level. That is the whole upstream bargain in one sentence, and everything on this page unpacks it.

Start with the Constitution, because everything upstream flows from it. Natural resources are public property, and the emirate in which they are found is their owner. No company extracts a barrel without the emirate's agreement, and that agreement has always carried a fiscal price — historically the emirate-level income tax decrees on oil companies, today the concession terms themselves.

When the federal Corporate Tax arrived in 2022, it did not sweep that history away. Articles 6 and 7 of Federal Decree-Law No. 47 of 2022 carve out two categories: the extractive business — exploration, extraction, removal and exploitation of the resource — and the non-extractive natural resource business — the processing, purification, movement, marketing and distribution of what was extracted. A person qualifies when it holds the licence, right or concession from the local government, is subject to tax under the emirate's applicable legislation, and — critically — notifies the Ministry of Finance of its status as an exempt person and its compliance with the conditions.

The notification is not decoration. Exempt-person status is claimed, evidenced and maintained; lose a condition and the exemption falls away from the start of the tax period. A group holding both upstream and downstream activities must also keep the two sides separate: income that is not part of the natural resource business stays inside the federal Corporate Tax net. This is where groups with refineries, trading desks and retail networks alongside concessions do their hardest structuring work.

Claim the exemption properly. If you think you qualify as an exempt natural resource business, the Ministry of Finance notification is a compliance step, not a formality — and the conditions must hold for every tax period. Get the classification in writing from a qualified adviser before you stop registering, filing and paying.

A concession is the oldest fiscal instrument in oil and gas, and it works because it is both a licence and a tax code. The state grants an international or national oil company the exclusive right to explore for and produce hydrocarbons in a defined area for a defined term. In return, the company accepts a work programme — seismic, wells, development milestones — and a fiscal package written into the agreement.

That fiscal package typically has four moving parts. First, bonuses: signature, discovery or production bonuses paid at contractual milestones. Second, the royalty: the state's share of production or revenue, usually taken off the top before costs. Third, cost recovery: the contractor recovers its capital and operating costs from production before profits are shared. Fourth, the profit split or tax: the division of what remains, which in a classic concession is delivered through the emirate-level income tax on the concessionaire.

What matters for tax planning is that every element is negotiated. The royalty percentage, the valuation point at which it is measured, the cost-recovery ceiling, the profit-split tranches, the ring-fencing of the concession area for tax purposes — all of it lives in the agreement and its side letters. Two concessions in the same emirate can have materially different economics. This page therefore describes the machinery and never quotes a rate as universal: any figure you see in a headline about a concession belongs to that concession.

In a production sharing contract the architecture is different, though the economics rhyme. The state — in the UAE, effectively through the national oil company — retains ownership of the hydrocarbons at all times. The contractor is exactly that: a contractor, bearing the exploration risk with its own money. If the wells are dry, the contractor's loss is the contractor's.

If oil flows, the fiscal machinery starts. Production is divided, in order, into three streams. Cost oil (or cost gas) repays the contractor's recoverable costs, usually subject to a contractual ceiling expressed as a percentage of production in any period — unrecovered costs carry forward. Royalty, where the contract includes one, is taken for the state. Profit oil — everything left — is split between the state and the contractor on the agreed tranches, which often escalate in the state's favour as production or profitability rises.

The tax character follows the contract. The contractor's share of profit oil is its fiscal reward, and the contract will specify how emirate-level tax interacts with it — in many PSCs the national oil company effectively bears or grosses up the tax. For accounting and Corporate Tax purposes in the contractor's home jurisdiction, the treatment of cost recovery, the timing of profit-oil recognition, and the creditability of any taxes paid are the hard questions. None of them has a UAE-wide answer; all of them are answered in the PSC text.

Royalties deserve their own section because they are the most misunderstood payment in the upstream. A royalty is not a tax on profit; it is the price of the resource itself — compensation to the owner for depletion. That is why it is usually calculated on production or gross revenue rather than profit, and why it is taken before costs are recovered.

The design choices are where the money hides. A royalty on gross production is simple and regressive — it bites hardest when margins are thinnest. A royalty on net revenue shares price risk with the contractor. Sliding-scale royalties rise with production rates or prices, giving the state upside in a boom. Payment in kind (the state takes physical barrels) versus in cash (valued at an agreed price) changes who bears marketing risk. And the valuation point — wellhead, export terminal, or a benchmark price netted back — decides what the percentage is a percentage of.

In the UAE the royalty for any project is set in the concession or PSC; there is no published federal royalty schedule for hydrocarbons, and emirate practice differs. The practical consequence: due diligence on any upstream acquisition must read the royalty clause line by line — the rate, the base, the valuation point, the deductions allowed — because the royalty is senior to everything else in the cash waterfall and a misread percentage compounds over the life of the field.

Now the other side of the fence, where most readers of this guide actually live. EPC contractors, drilling companies, seismic crews, equipment suppliers, logistics providers, caterers, manpower agencies, consultants — none of them holds the extraction right, so none of them is an exempt natural resource business. They are ordinary taxable persons under the federal laws.

That means the full compliance stack. Corporate Tax at 0% up to AED 375,000 and 9% above, on the standard rules: registration with the FTA, annual returns, transfer-pricing documentation where related parties are involved. VAT at 5% on services supplied in the UAE, with registration at the standard AED 375,000 mandatory threshold. Customs on imported equipment — rigs, spares and specialist tools typically enter under Temporary Admission rather than paying full duty, a procedure choice with real cash-flow consequences. Withholding tax is 0% under UAE domestic law, which simplifies payments to foreign subcontractors, though treaty positions in the recipient's jurisdiction still matter.

The sector's particular traps are permanent establishment for foreign contractors (the treaty month-count or the domestic six-month rule on construction and installation projects), retention payments and their VAT tax point, and the hydrocarbons reverse charge on domestic supplies of crude, gas and energy for resale. Each has a dedicated guide on this site — follow the links in Keep reading rather than improvising.

VAT draws a bright line through the hydrocarbon chain, and it is worth memorising. The commodity is favoured: the supply or import of crude oil and natural gas is zero-rated under Article 45 of the VAT law. The services are not: drilling, engineering, construction, transport, storage, consulting and every other service supplied to the operator is standard-rated at 5%.

That asymmetry shapes contracting. An operator procuring services pays 5% VAT on top and recovers it as input tax if registered — so the VAT is a cash-flow timing item, not a cost. A supplier must therefore be registered, must invoice correctly, and must manage the reverse charge where it applies: the VAT Executive Regulations impose a reverse charge on domestic supplies of crude oil, natural gas and energy for resale, which moves the accounting obligation to the buyer.

On the border, the equipment story matters more than the commodity story. Rigs and specialist equipment are high-value, mobile assets; importing them permanently and paying duty plus import VAT is usually the wrong answer. Temporary Admission lets qualifying equipment enter with suspended duties against a guarantee, provided it is re-exported within the permitted period. Spares and consumables are generally permanent imports — duty and import VAT apply. The importer's registration status decides whether import VAT is self-accounted through the return or paid at the border, so the customs procedure and the VAT registration should be planned as one decision, not two.

The upstream does not escape the international tax architecture just because the concession is emirate-level. Three group-level questions reach every large oil and gas group with a UAE presence.

First, transfer pricing. Related-party dealings — a trading arm buying from the upstream entity, a services company billing the operator, financing between group companies — must satisfy the arm's-length principle, with documentation to prove it. The FTA's transfer-pricing rules apply to the taxable parts of the group even where the extraction itself is exempt, and the boundary between the exempt business and the taxable business is exactly where transfer-pricing scrutiny concentrates.

Second, Pillar Two. The UAE's Domestic Minimum Top-up Tax imposes a 15% effective rate on large multinational groups under Cabinet Decision No. 142 of 2024. An upstream group above the consolidated-revenue threshold must model its UAE effective rate including the emirate-level fiscal burden — the interaction between concession payments and the top-up calculation is specialist territory.

Third, withholding and treaties. The UAE levies no domestic withholding tax, which keeps cross-border payments — dividends, interest, royalties for technology, service fees — clean at the UAE end. But the recipient's jurisdiction may tax them, and the UAE's treaty network, including tax residency certificates, is the tool for managing that. None of this is upstream-specific, but upstream groups feel it most because their cash flows are the largest.

The Pillar Two angle. Large groups: model the Pillar Two effective rate for the UAE footprint as a standalone exercise, including how emirate-level concession payments interact with the top-up. This is not a spreadsheet you inherit from another jurisdiction — get specialist advice before the first DMTT return.

The upstream fiscal regime rewards readers. Everything important is written down — in the concession, the PSC, the emirate decree, the side letters — and the discipline is to read it all before committing capital, not after. Three habits separate the groups that manage UAE upstream tax well from those that do not.

First, classify before you operate: is the entity an extractive business, a non-extractive natural resource business, or an ordinary taxable person? The answer decides registration, filing and the entire compliance calendar. Second, keep the exempt and the taxable apart: separate books, separate transfer-pricing files, and no casual cost-sharing across the boundary. Third, calendar the notifications and renewals: the exempt-person notification to the Ministry of Finance, the concession's own reporting and payment dates, and the federal return deadlines for the taxable parts of the group.

For the service side, the habits are the standard ones this site teaches everywhere: register on time, invoice correctly, mind the PE clock, and use the dedicated guides linked below for the sector's recurring mechanics — EPC contracting, oilfield services, and the import of rigs and equipment. The upstream bargain is generous to licence-holders and neutral to everyone else; knowing which you are is the whole game.

Do-not-rely notice: concession, royalty and PSC terms are negotiated per deal and are generally confidential. Nothing on this page states any concession's fiscal terms, and no figure here should be used as a proxy for any specific project. Confirm every term against the governing agreement and the applicable emirate legislation, with qualified advice, before acting.