Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
The Ministry of Finance (MoF) has issued a Cabinet Decision that grants unincorporated partnerships the option, subject to Federal Tax Authority (FTA) approval, to be treated as taxable persons for corporate tax purposes in the UAE.
The new provision allows such partnerships to choose between remaining tax-transparent entities or opting to be taxed in their own right—marking a step forward in enhancing tax clarity and improving the ease of doing business.
To understand the implications of this move, Aletihad spoke with tax practitioners to seek clarity on the issue.
What is unincorporated partnership?
"An unincorporated partnership is an entity that hasn't been registered as a legal entity separate from its owner. Two or more individuals, companies and other legal entities may join with others to form a partnership and decide on key terms of partnership," said Dhaval Jasani, Founder & CEO of ZTI Global, a corporate services firm.
Crucially, such partnerships do not possess a separate legal personality. "Each partner is treated as if the partner is conducting business, holding assets and being a party to an arrangement where the partnership is concerned," Jasani added.
As outlined in a WAM report, unincorporated partnerships are typically treated as tax-transparent structures—meaning the partnership itself is not taxed. Instead, each partner is individually liable to tax on their share of the income. "Corporate tax compliance is dealt with by the partners in their individual capacity," Jasani clarified.
The Cabinet Decision introduces a notable shift by giving unincorporated partnerships the option to be taxed as a standalone entity. "The law gives them an option to be taxed as a separate person. If they don’t choose this, then they remain tax transparent—meaning each partner must still pay tax on their portion of the profits," explained Krishnan Narayanan Venkat, Chairman of the ICAI Abu Dhabi Chapter and Partner at Andersen UAE.
"A tax-transparent entity is one that passes through its income to the owners, who then pay tax individually. The entity itself doesn’t pay tax. Under the UAE CT Law, unincorporated partnerships and certain trusts can be treated this way," Narayanan Venkat added.
There are practical advantages to choosing separate taxation, particularly in complex ownership structures. "This can simplify tax filings—especially when there are many partners or when some are based outside the UAE. The partnership files one tax return and pays tax centrally," said Narayanan Venkat.
He further explained, "If an unincorporated partnership opts to be taxed as a separate entity, it will be treated just like a company—meaning: it will file its own corporate tax return. It will calculate its taxable income based on the same accounting and tax rules as a company. It can claim allowable expenses, carry forward losses, etc."
"With this choice of taxation, unincorporated partnerships can benefit from the exemptions and reliefs available to legal persons under the Corporate Tax Law, such as interest deduction and carry forward of losses," Jasani added. He noted that taxing the unincorporated partnership eases the burden of reporting at the individual partner’s level, as the taxable income is calculated centrally at the partnership level.
The MoF’s latest decision is part of the ongoing evolution of the UAE’s corporate tax framework, and it provides greater flexibility for partnerships operating under non-corporate structures, particularly in cross-border or multi-partner scenarios.
