Introduction
The Ministry of Finance of the United Arab Emirates (UAE) has issued Ministerial Decision No. 261 of 2024 to clarify the tax treatment of Unincorporated Partnerships, Foreign Partnerships and Family Foundations under Federal Decree-Law No. 47 of 2022 on Corporate Taxation. Effective retroactively from June 1, 2023, this decision replaces Ministerial Decision No. 127 of 2023 on Unincorporated Partnership, Foreign Partnership and Family Foundation.
Unincorporated Partnerships
- Non-Taxable Status: Unincorporated Partnership is not considered a taxable person in its Own Right unless it qualifies as a juridical person.
- Electing for Taxable Status: Unincorporated Partnerships may apply to be treated as a taxable person in their own right. Once granted, this status is binding and can only be reversed under exceptional circumstances with FTA approval.
Additionally, the responsible partner must disclose changes in partnership composition, including new or departing partners, during the relevant tax period as part of the tax return filing process under Article 53 of the Corporate Tax Law.
Foreign Partnership as an Unincorporated Partnership
Foreign Partnerships can be classified as Unincorporated Partnerships for tax purposes if they meet specific conditions outlined below:
- The partnership is not subject to any tax of a similar character to Corporate Tax in foreign jurisdiction as outlined in Clause 7(a) of Article 16 of the Corporate Tax Law.
- The partners of the Foreign Partnership are individually subject to tax on their distributive shares of the income generated by the partnership if the partnership is not subject to tax in its own right in the foreign jurisdiction. This requirement ensures that the income earned by the partnership is taxed at the partner level, as per Clause 7(b) of Article 16.
Obligation to File Annual Declaration: To ensure compliance, Foreign Partnerships are required to submit an annual declaration to the Federal Tax Authority (FTA). This declaration must:
- Confirm that the partnership continues to meet the conditions specified in Clauses 7(a) and 7(b) of Article 16 of the Corporate Tax Law.
- Be submitted in the format and within the timeframe prescribed by the FTA.
Family Foundation as an Unincorporated Partnership
A Family Foundation may qualify as an Unincorporated Partnership if one or more beneficiaries of the Family Foundation are public benefit entities and any of the following additional conditions apply:
- These beneficiaries must not derive income that would qualify as Taxable Income in the event they had derived it in their own right.
- Alternatively, any taxable income generated is distributed to the beneficiaries within six months of the end of the relevant tax period.
Juridical Persons Owned by Family Foundations
A juridical person, wholly owned and controlled by the Family Foundation already treated as an Unincorporated Partnership, may also apply for Unincorporated Partnership status under Ministerial Decision No. 261 of 2024 if:
- The ownership is either direct or through a chain of entities, all of which are treated as Unincorporated Partnerships under the Corporate Tax Law.
- The Juridical Person meets the conditions outlined in Clause (1) of Article 17 of the Corporate Tax Law.
