MoF Amends Tax Treatment of Unincorporated Partnership, Foreign Partnership, and Family Foundation under UAE Corporate Tax
- November 20, 2024
The Ministry of Finance has issued Ministerial Decision No. 261 of 2024, which repeals the earlier Ministerial Decision No. 127 of 2023 and is effective retrospectively from June 1, 2023. This decision provides clarity on the tax treatment of Unincorporated Partnerships, Foreign Partnerships, and Family Foundations under the UAE Corporate Tax Law.
Key Highlights:
- Presently, a Foundation is a taxable person under the UAE Corporate Tax Law wherein the Foundation on its own is liable for tax liabilities. A Foundation can also elect to be treated as an Unincorporated Partnership wherein the beneficial owners/ founders will be subject to tax on behalf of the Foundation (Unincorporated Partnership). With the introduction of this Decision, a Juridical Person can also elect to be treated as an Unincorporated Partnership if the Juridical Person is wholly owned and controlled by such Foundation which is treated as an Unincorporated Partnership.
- Juridical Persons owned by foundations which are not operating companies but merely own properties, earn rental income or manage investments – such as Single Family Offices (SFO), Real Estate Investing Company, etc. can now opt to be treated as Unincorporated Partnerships. In this case, the income of such entities is deemed to be earned directly by the founder or council members in their individual capacity, resulting in the same tax treatment as personal income.
- Property-owning companies and SFOs stand to benefit from this decision, as their income would have otherwise been taxable.
- Foreign Partnerships are now treated as tax transparent in the UAE provided they are treated as transparent in their home jurisdiction. This eliminates the need for individual partners to verify their tax status with the FTA, simplifying procedures for international businesses.
- This development aligns Family Foundations with the UAE’s Corporate Tax framework, enhancing their utility in wealth management and offering strategic tax advantages.
This amendment reinforces the UAE’s appeal as a global business and investment hub. Entities and stakeholders should review their structures to ensure compliance with the updated regulations. These changes present significant opportunities for businesses operating in or interacting with the UAE tax regime.
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