Understanding UAE corporate tax for unincorporated partnerships, foreign partnerships, and family foundations
Navigating the complexities of corporate tax in the UAE has been a challenge, especially for entities such as unincorporated partnerships, foreign partnerships, and family foundations. However, significant clarity has been provided with the release of Ministerial Decision No. 261 of 2024, which amends and supersedes previous guidelines issued under Ministerial Decision No. 127 of 2023, as part of the implementation of Federal Decree-Law No. 47 of 2022 on Corporate Tax.
This update, effective from 1 June 2023, brings much-needed transparency and uniformity in how such entities are treated under UAE’s corporate tax law. Here’s a breakdown of the key changes and what they mean for your organization.
What Has Changed?
Ministerial Decision No. 261 of 2024 introduces detailed tax treatment rules for specific entities and overrides prior guidance. The focus is on three main categories:
Unincorporated partnerships:
Generally, unincorporated partnerships are not considered taxable entities unless they are “juridical persons” under the law. That is, unless your partnership is classified as a “juridical person” under the law, it will probably not be taxed directly. But if an unincorporated partnership is considered a taxable person, the accountable partner has to maintain a detailed record of changes in the membership of the partnership for the tax year.
Foreign Partnerships:
Foreign partnership are treated differently depending on their home country’s tax system. It means that if the foreign jurisdiction has no UAE corporate tax equivalent to the one in the UAE, then each partner is taxed on his share of income in the partnership. This is a very important point for international businesses in the UAE. In fact, foreign partnerships are also obligated to submit an annual declaration stating that they meet the tax requirements of the UAE.
Family Foundations:
A family foundation can sometimes be treated as an unincorporated partnership, with a couple of important conditions. That is whether any of the beneficiaries are public benefit entities. In that case, it must be shown that income those beneficiaries receive wouldn’t be taxable if they received it directly. It must also be noted that income must be distributed within six months of the tax year’s end. Family foundations, if they satisfy the laid out specific criteria for ownership and control by the regulations, can formally apply to be treated as unincorporated partnerships.
Why These Updates Matter
These changes introduce clarity, consistency, and a framework for compliance in handling complex structures that were previously ambiguous under tax laws. The revised rules also:
Encourage proper documentation and reporting
Prevent misuse of legal structures to avoid taxes
Align UAE tax treatment with international best practices
Ensure fair taxation for cross-border partnerships and philanthropic structures
Key Take-A-Way:
New rules coming into effect 1 June 2023. It supersedes the old one: Ministerial Decision No. 261 of 2024 canceled all provisions in Ministerial Decision No. 127 of 2023.
Objective-Clearness: With the intention to bring clarity and conformity in the tax treatment,.
Disclaimer : This is an information blog with no legal or tax advice. Please seek a proper professional advisory for your specific case.
Unicorn Global Solutions streamlines UAE corporate tax compliance for Unincorporated Partnerships, Foreign Partnerships, and Family Foundation through the transparent explanation of the relevant laws and requirements in the necessary documents. We explain your tax liability to businesses and individuals, ensuring income distribution in time, as well as annual declarations with minimal error. Our simplified procedure ensures tax compliance under the UAE tax code without any hustle. Text us on whatsApp or call us today
Frequently Asked Questions (FAQs)
Not always. Unincorporated partnerships are not considered taxable unless they are classified as a “juridical person” under UAE law. If not, the individual partners are taxed on their share of income.
The accountable partner (often the managing partner) must ensure tax compliance and maintain detailed records of any changes in the partnership’s structure during the tax year.
Foreign partnerships are taxed based on their home country’s tax regime. If the foreign jurisdiction lacks a corporate tax system similar to the UAE, each partner is taxed on their individual share of the partnership income in the UAE.
Yes, family foundations may be treated as unincorporated partnerships if they meet specific conditions, such as how income is distributed and the nature of beneficiaries (e.g., public benefit entities).
Clarifies tax treatment for unincorporated and foreign partnerships, and family foundations
Supersedes Ministerial Decision No. 127 of 2023
Introduces stricter documentation and declaration requirements
Effective from 1 June 2023
