The UAE Ministry of Finance has issued a Cabinet Decision that allows unincorporated partnerships to elect for corporate tax treatment, marking a shift in the country’s approach to partnership taxation.
The decision permits unincorporated partnerships to apply for treatment as taxable persons under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses, subject to prior approval from the Federal Tax Authority.
Under current Corporate Tax Law, unincorporated partnerships operate as tax transparent entities.
UAE Ministry of Finance issues Cabinet decision on partnership tax treatment
This means the partnership itself faces no tax liability, whilst individual partners bear tax obligations on their respective income shares.
The new decision provides an alternative pathway for partnerships seeking different tax treatment.
“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 Cabinet Decision establishes that approved unincorporated partnerships will receive recognition as both legal persons and resident persons for tax purposes.
This classification grants them identical tax treatment to other legal entities operating within the UAE’s corporate tax framework.
The decision includes provisions for determining taxable income calculations for unincorporated partnerships.
These rules aim to provide clarity and certainty for businesses navigating tax compliance requirements.
The Ministry states the measure promotes tax neutrality by extending exemptions and reliefs available to legal persons under the Corporate Tax Law to unincorporated partnerships that elect for this treatment.
The announcement forms part of the UAE’s ongoing efforts to enhance tax transparency and improve the business environment.
The Federal Tax Authority will assess applications from partnerships seeking to change their tax treatment status.
Partnerships that receive approval will transition from tax transparent status to taxable person status, fundamentally altering their tax obligations and compliance requirements.
The decision takes effect immediately, with partnerships now able to submit applications to the Federal Tax Authority for consideration.
