Businesses operating as unincorporated partnerships in the UAE can now choose to be taxed as full legal entities, according to a recent Cabinet Decision issued by the Ministry of Finance. This optional amendment permits eligible partnerships to apply to the Federal Tax Authority (FTA) for approval to be regarded as corporations for tax purposes.
According to existing regulations, the majority of UAE partnerships are tax-transparent. This means that, while the partnership is not taxed, each member is responsible for reporting and paying taxes on their portion of the revenue. However, following a recent modification, partnerships can now request status as a separate taxed person.
Once approved, the partnership becomes a legal entity under the tax system. It would then be subject to corporate tax directly and may be eligible for multiple exemptions and reliefs under the UAE’s Corporate Tax Law.
The Ministry emphasised that this development contributes to national aims of increasing tax transparency, streamlining corporate operations, and fostering a fair, competitive commercial environment. It also clarifies how these partnerships should calculate taxable income under the new structure.
Importantly, the transition does not occur automatically. Before moving to this corporate tax regime, partnerships must apply to the FTA and receive permission.
