Unincorporated Partnerships, Foreign Partnerships, and Family Foundations in UAE Corporate Tax

Unincorporated Partnerships, Foreign Partnerships, and Family Foundations: UAE Corporate Tax Updates

The UAE Ministry of Finance has issued Ministerial Decision No. 261 of 2024, which provides clarity on the taxation of Unincorporated Partnerships, Foreign Partnerships, and Family Foundations under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This decision, effective from 1 June 2023, replaces Ministerial Decision No. 127 of 2023 and outlines the tax treatment of these entities, ensuring compliance with UAE corporate tax laws.

Key Highlights of Ministerial Decision No. 261 of 2024

1. Unincorporated Partnerships & Corporate Tax Liability

• An Unincorporated Partnership is not considered a taxable person unless it is a juridical entity.
• If an Unincorporated Partnership wishes to be treated as a taxable person, an application must be submitted and approved by the Federal Tax Authority (FTA). Once approved, the decision is irrevocable except in exceptional cases.
• The responsible partner must report any changes in partnership structure when filing tax returns.

2. Foreign Partnerships: Tax Treatment in the UAE

• A Foreign Partnership is not subject to UAE corporate tax if it is also not taxed in its home jurisdiction.
• If the Foreign Partnership is not taxed as an entity, its partners must be individually taxed on their share of the income.
• An annual declaration must be submitted to the FTA confirming compliance with these conditions.

3. Family Foundations & Tax Status

• A Family Foundation may be treated as an Unincorporated Partnership under certain conditions.
• If any beneficiaries are public benefit entities, the foundation must meet at least one of the following conditions:
  • The beneficiaries would not have taxable income if they received it directly.
  • Taxable income must be distributed to the beneficiaries within six months of the end of the tax period.
• A juridical person wholly owned and controlled by a Family Foundation may also apply to be treated as an Unincorporated Partnership, provided it meets the relevant requirements.

Legal Implications & Compliance Considerations

This decision has significant implications for partnerships and family foundations operating in the UAE. Entities must ensure that they meet the necessary conditions to remain compliant with corporate tax regulations. Failure to comply may result in penalties or unexpected tax liabilities.

At Al Kabban & Associates, our expert team can assist businesses and individuals in understanding these tax updates and structuring their entities for maximum compliance and efficiency. Whether you need assistance with tax planning, partnership structuring, or legal advisory services, our firm is here to help.

Conclusion

Ministerial Decision No. 261 of 2024 clarifies the tax treatment of Unincorporated Partnerships, Foreign Partnerships, and Family Foundations in the UAE. Businesses operating under these structures must carefully evaluate their tax status and obligations.

For detailed guidance on corporate tax compliance and planning, Al Kabban & Associates offers expert advisory services to help businesses navigate these changes effectively. Our experienced team is ready to assist companies and clients in ensuring full compliance with the new laws and optimizing operational practices. Contact us to speak to one of our expert lawyers today.

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