Effective from 1 June 2023, this decision introduces updates regarding Unincorporated Partnerships, Foreign Partnerships, and Family Foundations.
The key objectives of these updates include:
- Clarity in Tax Obligations: These structures often operate outside the framework of traditional corporations, making their tax obligations less clear. Properly defining their tax treatment ensures consistency and eliminates ambiguity in applying the Corporate Tax Law.
- Avoidance of Double Taxation: Clear rules prevent the double taxation of income earned by partnerships and foundations.
- Alignment with International Standards: By specifying the tax treatment of foreign partnerships and foundations, the UAE aligns with global best practices, ensuring that foreign entities are not unjustly exempt or taxed disproportionately.
- Support for Economic Diversification: Family foundations and partnerships play a significant role in economic diversification by enabling wealth management, succession planning, and entrepreneurial ventures. A clear tax framework encourages their growth and sustains their contributions to the economy.
Key Points:
- Unincorporated Partnerships
- Not a Taxable Person: As per Clause (1) of Article (16) of the Corporate Tax Law, an unincorporated partnership is not considered a taxable person unless it qualifies as a juridical person.
- Option to be Taxable: Clause (8) of Article (16) allows unincorporated partnerships to apply to be treated as taxable persons. Such applications are irrevocable, except in exceptional cases approved by the Authority.
- Compliance Requirement: Responsible partners must report changes in partnership composition during the tax period in accordance with Article (53) of the Corporate Tax Law.
- Foreign Partnerships
- Tax Exemption Conditions: To qualify as an unincorporated partnership, a foreign partnership must not be subject to a tax similar to corporate tax in its home jurisdiction (Clause (7)(a) of Article (16)).
- Individual Taxation: Each partner must be subject to tax on their share of the partnership’s income if the partnership itself is not taxed (Clause (7)(b) of Article (16)).
- Annual Declaration: Foreign partnerships must submit an annual declaration to the Authority confirming compliance with these conditions.
- Family Foundations
- Public Benefit Entities: If a family foundation includes public benefit entities as beneficiaries, income that would otherwise be taxable must either not be derived or be distributed within six months from the end of the tax period to qualify as an unincorporated partnership.
- Controlled Entities: Juridical persons wholly owned by family foundations can apply for the same treatment if they meet the conditions under Article (17) of the Corporate Tax Law.
- Repeal of Previous Decision Ministerial Decision No. 127 of 2023 is repealed, consolidating these updates under the new framework.
How Motei and Associates Can Help: At Motei and Associates, we provide expert guidance on compliance and tax planning under the UAE Corporate Tax Law. For tailored advice on how these updates may impact your business or family foundation, contact our legal team today.
