This article outlines the regulations governing unincorporated partnerships and their partners regarding the imposition and payment of corporate tax in UAE. Whereas, Unincorporated Partnerships refer to contractual relationships established between two or more individuals, such as partnerships, trusts, or similar associations of individuals. The definition of a foreign partnership encompasses unincorporated partnerships that are recognized as such for tax purposes under the legislation of a foreign jurisdiction. It also extends to a wide range of unincorporated relationships, allowing for various business, legal, and commercial purposes. Therefore, it is advisable for Taxable Persons in UAE to consult Tax Consultants in UAE to effectively ensure compliance with the Corporate Tax Law in UAE.
Conditions to determine Partners in an Unincorporated Partnership
The inclusion of a contractual relationship in the definition of an unincorporated partnership means that legally, the business of the partnership and its owners are considered the same. For instance, a joint business venture between individuals that takes the form of a limited liability company formed for a specific purpose would be treated as a taxable entity. On the other hand, a pure contractual joint venture where individuals agree to share profits, losses, and management in a specific undertaking would not be considered a taxable entity in its own right. Individuals conducting a business as an unincorporated partnership are treated as individual taxable entities under the Corporate Tax Law. It does not require the partnership between the relevant individuals to adopt the form of a limited or general partnership defined by a written partnership agreement. The contractual relationship can be verbal, and even the conduct between the parties can give rise to an unincorporated partnership.
While the absence of separate legal personality generally indicates that an entity or arrangement is an unincorporated partnership, categorizing a business entity as a separate legal entity does not necessarily determine its status for corporate tax purposes. An important factor in determining whether an arrangement or entity is an unincorporated partnership is whether one or more partners participating in the management of the business have direct and unlimited liability for the debts and obligations of the partnership and its business.
As per the Corporate Tax Law, unless an application is made to the Authority, an unincorporated partnership is not considered a taxable entity in its own right, provided it meets the conditions prescribed by the Cabinet Decision. Instead, for corporate tax purposes, an unincorporated partnership is treated as fiscally transparent, and its activities are attributed to the partners rather than the partnership itself.
Application of Corporate Tax on Unincorporated Partnerships
The Corporate Tax Law essentially disregards the existence of unincorporated partnerships and applies corporate tax based on the allocation of the partnership's entire income and expenses to each partner proportionately. The resulting taxable income must be determined separately for each partner according to their corporate tax status. This treatment can lead to different tax treatments for partners. For example, resident legal entities are generally subject to corporate tax on their distributive share of income or loss from the unincorporated partnership, while natural persons may not be subject to corporate tax on their allocation from the unincorporated partnership if the partnership's activities do not bring them within the scope of corporate tax.
For corporate tax purposes, each partner in an unincorporated partnership is treated as having the same attributes and legal standing as the partnership itself. This means that, the unincorporated partnership is considered an aggregation of individuals where each partner is treated as conducting the business and being a partial owner of the partnership's assets and liabilities, following the contract underlying the unincorporated partnership. Moreover, the Corporate Tax Law specifies that the assets, liabilities, income, and expenses of an unincorporated partnership are allocated to each partner based on their distributive share in the partnership.
Consult Top Tax Consultants in UAE
For Taxable Persons to effectively determine their cognizance under Corporate Tax Law in UAE, it is advisable to consult Tax Consultants in UAE. Therefore, contact us today and we shall be glad to assist you.
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Mostafa is a seasoned Tax Consultant with over 5 years years of experience gained in diverse taxations matters. He has vast expertise in settling tax disputes with the Federal Tax Authority and handling of tax procedures in compliance with tax laws. He is adept in investigating underlying tax intricacies and offering expert tax advisory. He is also well-versed in conducting tax analysis’s and negotiations with the Tax Regulators, upon tax preparation and filing. Mostafa specializes in the areas of Tax law, Auditing, Accounting and Banking law.