UAE announces new corporate tax rule for partnerships

The UAE Ministry of Finance has issued a Cabinet Decision introducing a new tax treatment option for unincorporated partnerships.

The move is part of the government’s ongoing efforts to enhance tax transparency and improve the business environment.

Under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses, unincorporated partnerships are generally regarded as tax transparent entities.

UAE Ministry of Finance issues Cabinet decision on partnership tax treatment

This means that the partnership itself is not subject to corporate tax, but the partners are taxed individually on their respective shares of the partnership’s income.

However, “the law also provides an option for the partners to apply for the partnership to be treated as a taxable person, similar to any other legal entity,” according to a statement by the Emirates News Agency (WAM) citing the Ministry’s announcement.

The new Cabinet Decision grants unincorporated partnerships the option, subject to prior approval by the Federal Tax Authority (FTA), to be recognised as a taxable person.

“Upon approval of the application by the partners, the unincorporated partnership will be regarded as a legal person and a resident person for tax purposes,” the statement added.

This change means the partnership will receive the same tax treatment as other legal persons under the law.

The Decision outlines the rules for determining the taxable income of unincorporated partnerships to ensure clarity and certainty in tax compliance.

According to the Ministry, this step aims to promote tax neutrality. It allows unincorporated partnerships to access exemptions and reliefs available to legal persons under the Corporate Tax Law.

The decision is expected to help streamline the taxation framework for partnerships that choose to be taxed as a single entity, rather than having their partners taxed individually.