UAE Corporate Tax Update: New Rules for Unincorporated Partnerships Introduced
On May 24, 2025, the UAE Ministry of Finance issued a Cabinet decision clarifying the corporate tax treatment of unincorporated partnerships under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. This reform offers these entities the option to be treated as a taxable person, subject to prior approval by the Federal Tax Authority (FTA). The move aims to boost transparency, provide flexibility, and align the UAE’s corporate tax regime with international standards. Unincorporated partnerships, often comprising joint ventures, professional firms, or contractual arrangements without separate legal personality, will now be allowed to elect to be taxed at the entity level rather than at the individual partner level. This update marks a significant development for business entities looking to streamline tax compliance and optimize structure.
Understanding unincorporated partnerships under UAE tax law
An unincorporated partnership is a business relationship between individuals or entities who carry out business together but are not registered as a separate legal entity. Common examples include law firms, consulting groups, or real estate consortiums operating under a profit-sharing agreement without incorporation. Under existing tax rules, these partnerships are treated as transparent, meaning each partner is taxed on their share of income. However, the latest Cabinet decision allows such partnerships to be treated like a legal person for tax purposes, provided they apply and receive FTA approval. Once approved, the partnership will be considered a resident person, entitled to the same tax treatment as a company, including eligibility for relevant exemptions and deductions. The option for tax treatment at the partnership level is a strategic tool for businesses. As outlined by the Ministry of Finance, this approach promotes tax neutrality, allowing partnerships to select a structure best suited to their operational and financial goals. The rule simplifies compliance for complex structures with multiple partners. It facilitates centralized tax filing, liability clarity, and a clearer capital structure, important for firms seeking external investors or managing foreign participation.
When should partnerships opt-in?
If centralized compliance is preferred over fragmented partner-level filings;
When the partnership seeks legal clarity and unified reporting; and
To access exemptions, deductions, or reliefs available to legal persons under the corporate tax law.
