UAE Issues New Tax Rule for Unincorporated Partnerships

Photo: WAM

In a move to make tax rules easier to understand and to support businesses in the UAE, the Ministry of Finance has announced a new Cabinet Decision. This decision explains how unincorporated partnerships will be taxed going forward.

An unincorporated partnership is a type of business where two or more people work together, but the business itself is not set up as a separate legal company. Usually, these partnerships are called “tax transparent.” This means the partnership itself does not pay tax. Instead, the individual partners pay tax on their share of the money earned by the partnership.

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Now, with this new decision, there is a new option available. If the partners in such a business agree, they can apply to the Federal Tax Authority (FTA) to change the way their partnership is taxed. If the FTA approves the request, the partnership will be treated like a regular company. This means it will be seen as a legal person and a resident for tax purposes. As a result, the partnership itself will pay tax on its income, not the individual partners.

This change is part of the Corporate Tax Law under Federal Decree-Law No. 47 of 2022. The law gives partnerships the freedom to choose how they want to be taxed. They can either stick with the old method, where each partner pays tax separately, or choose the new option and be taxed as a single unit, like a company. This also allows partnerships to benefit from special tax exemptions and reliefs that are given to legal companies under the law.

The new decision also clearly explains how these partnerships should calculate their taxable income. This helps business owners understand what they need to do and makes sure that everyone is following the same rules.

This step by the Ministry of Finance is meant to make the UAE’s tax system more flexible and fair. It gives partnerships more control over their tax setup and allows them to enjoy the same benefits that registered companies receive. Overall, it is a helpful move toward making tax matters simpler and better for businesses in the country.