| New Decision on Unincorporated Partnership, Foreign Partnership, and Family Foundation issued overhauling the old decision |
Article 16 of the Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses (UAE Corporate Tax Law) prescribes that an unincorporated partnership would by default be treated as a pass-through entity. Partners would be considered as conducting business of unincorporated partnership and would be liable to tax accordingly. The law also provides an option to the unincorporated partnership to make an application to the authorities to be taxed at a partnership level instead of the partner level.
Further, Article 16 also provided conditions under which a foreign partnership can be treated as an unincorporated partnership. Similarly, Article 17 of UAE Corporate Tax Law provided conditions under which a UAE family foundation can be treated as an unincorporated partnership.
In May 2023, a Ministerial Decision no 127 of 2023 was issued to clarify various aspects and provided additional conditions to be satisfied by unincorporated partnerships, foreign partnership, and family foundation.
UAE has issued a Ministerial Decision No 261 of 2024 on unincorporated partnership, foreign partnership, and family foundations, which is applicable retrospectively from 1 June 2023. It also repeals the earlier Ministerial Decision No 127 of 2023 on the said subject issued in May 2023.
This decision provides clarity on taxation of a foundation along with an entity held and controlled by a family foundation. Further, it also provides relief from certain reporting and procedural requirements.
| Decision 127 of 2023 |
Decision 261 of 2024 |
Remarks |
| This required the unincorporated partnership to inform the authority within 20 days of partner joining or leaving the partnership. |
The details are to be provided at the time of filing of tax return. |
This is a welcome move as this will provide adequate time to taxpayers to collate details and report the same to the Authority.
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Foreign Partnership were able to treat themselves as unincorporated partnership on meeting certain conditions.
One of the conditions provided was that ‘Adequate arrangements exist for cooperation between the State and the jurisdiction under whose applicable laws the Foreign Partnership was established, for the purpose of sharing tax information of the partners in the Foreign Partnership.’ |
The requirement of having a tax information sharing agreement with the country of foreign partnership is done away with. |
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| Nothing provided on treatment of unincorporated partnership wholly owned and controlled directly or indirectly by a family foundation. |
New decision prescribes that any juridical person which is wholly owned and controlled by the family foundation, directly or through chain of entities, be treated as unincorporated partnerships and also be eligible to make application to authority to be treated as an unincorporated partnership subject to meeting other conditions. |
This is a welcome relief as this would mean that even investment holding companies held through family foundation may not be liable to tax as the income will flow through the beneficiaries.
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