Decision on tax treatment of unincorporated partnerships

As part of its ongoing efforts to enhance tax transparency and improve the business environment in the UAE, the Ministry of Finance has announced the issuance of a Cabinet Decision regarding the tax treatment of unincorporated partnerships.

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The decision grants unincorporated partnerships, subject to prior approval by the Federal Tax Authority, the option to be treated as a taxable person for the purposes of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.

Under the Corporate Tax Law, unincorporated partnerships are generally treated as tax transparent entities-meaning the partnership itself is not taxed, but the partners are subject to tax individually on their respective shares of the 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.

One of the key provisions of the new decision is that, 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.

As such, it will receive the same tax treatment as other legal persons. The decision also sets out the rules for determining the taxable income of the unincorporated partnership to ensure clarity and certainty in tax compliance.