Unincorporated Partnerships Granted Permission to Adopt Corporate Tax Framework by Finance Ministry
UAE Ministry of Finance Announces New Tax Policy for Partnerships
In a move aimed at enhancing tax transparency and fostering a more favorable business environment, the United Arab Emirates (UAE) Ministry of Finance has issued a new Cabinet Decision. This decision enables unincorporated partnerships to be treated as taxable persons under the country's Corporate Tax Law.
Previously, unincorporated partnerships were considered tax-transparent entities, meaning they were not taxed individually; instead, each partner was liable for tax on their share of the income. The recent decision presents an opportunity for these partnerships, with Federal Tax Authority approval, to adopt a tax structure equivalent to that of registered legal entities.
Once approved, an unincorporated partnership will be recognized as a legal and resident taxpayer. This change in tax status brings these entities in line with other corporate taxpayers, making them eligible for the full range of exemptions and reliefs stipulated in Federal Decree-Law No. (47) of 2022, the legislation that governs corporate taxation.
The Cabinet Decision also provides clarity on how taxable income for these partnerships will be calculated, thereby enhancing certainty and clarity for tax compliance.
By offering unincorporated partnerships the option to be treated as taxable entities, the UAE seeks to promote tax neutrality and simplify its tax framework. This step is expected to support business growth and compliance in the evolving economic landscape.
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The new policy introduces flexibility in tax treatment, as unincorporated partnerships can now opt for entity-level taxation. This arrangement could simplify tax management and aligns with international practices, enhancing the UAE's competitiveness and business environment.
The corporate tax rate for entities with an annual income exceeding AED 375,000 (approximately USD 102,100) stands at 9%. If unincorporated partnerships choose entity-level taxation, they will pay 9% corporate tax on their taxable income, similar to a company.
The decision is a strategic step by the UAE government to improve its business environment, providing clarity and flexibility in tax treatment to support business growth.
The UAE's new tax policy, introduced via a Cabinet Decision, offers unincorporated partnerships the opportunity to be recognized as taxable entities, aligning with international practices and enhancing the UAE's business environment. As part of this change, these partnerships can pay 9% corporate tax on their taxable income, similar to other corporate taxpayers, increasing tax neutrality and supporting growth within the economy.
