How UAE Corporate Tax Regime Applies to Partnerships
Partnerships play a big role in the UAE’s growing business sector. Since June 2023, the UAE made big changes by starting a new corporate tax (CT) system for businesses in the country. This law affects many kinds of businesses, but it’s very important for people who run or plan to run partnership ventures. Here, we’ll explain how the UAE corporate tax regime applies to different types of partnerships, what rules apply, and what business owners should do to stay on the right path.
Types of Partnerships in UAE Corporate Tax
The UAE tax law says that partnerships can be legal entities. All partnerships need to register for corporate tax if they have taxable income like sales profits or returns from investments. But, not all partnerships get taxed the same way. The tax rules change depending on the partnership’s legal type.
There are mainly four types of partnerships:
- Foreign Partnerships
- Regional Partnerships
- Incorporated Partnerships
- Unincorporated Partnerships
Unincorporated Partnerships
An unincorporated partnership is a business deal where two or more people agree by contract to do business together. The UAE tax law treats these as “transparent,” so the partnership itself doesn’t pay tax. Instead, each partner pays tax on their part of the business income.
Incorporated Partnerships
An incorporated partnership is a partnership that’s registered as a company. This can include limited liability partnerships or partnerships with limited shares. The law says an incorporated partnership is taxed just like a normal company.
Foreign Partnerships
A foreign partnership is a partnership set up outside the UAE. For UAE tax, if a foreign partnership isn’t taxed in its home country and each partner is taxed on their share, it will be treated like an unincorporated partnership here.
Are Partnerships Taxed Under the UAE CT Law?
The answer depends on the type of partnership. Incorporated partnerships pay corporate tax at the normal rate, but unincorporated partnerships don’t pay tax as a business. Each partner pays tax on their own share. Still, all partnerships must register with the Federal Tax Authority (FTA) and file tax forms, even if they don’t owe tax as a partnership.
Key rules:
- Incorporated partnerships: Pay corporate tax as a company.
- Unincorporated partnerships: Each partner pays on their share.
- Foreign partnerships: Usually treated like unincorporated partnerships if the right conditions are met.
- All partnerships: Must register and file tax paperwork with the FTA.
Tax Treatment of Unincorporated Partnerships
The UAE law says unincorporated partnerships don’t pay tax as a company, but partners do. The law looks at each partner as a taxpayer. The profit, loss, and expenses are split according to the partnership agreement. If the agreement isn’t clear, the FTA will decide the split.
Here’s how tax for unincorporated partnerships works:
- Partners share the profits and losses.
- Expenses or interest paid to partners get counted before splitting profits.
- If two partners (X and Y) make AED 100,000 profit, and X has 60%, Y has 40%, X pays tax on AED 60,000, and Y pays on AED 40,000.
Tax Rules for Incorporated Partnerships
Incorporated partnerships are registered as companies. The law treats them like any other business. They must pay corporate tax on profits and file a tax return every year. Partners aren’t taxed on their share until they get paid as salary or dividends.
Why Should Partnerships Register for CT?
Every partnership must register with the FTA. Even if you’re an unincorporated partnership and don’t pay corporate tax as a business, you still need to submit tax returns. Failing to register or file returns can lead to heavy fines or penalties.
Practical Points for Partnerships
- Always register your partnership with the FTA.
- File annual tax returns, even if you’re exempt.
- Divide profits, losses, assets, and expenses as per your partnership agreement.
- Get help from tax experts for the right process.
- Keep good records to show how profits are shared.
How Mubarak Al Ketbi (MAK) Auditing Can Help
Why Choose Us for Partnership Tax Compliance?
Mubarak Al Ketbi (MAK) Auditing knows UAE tax rules from A to Z. We help you register your partnership, prepare tax returns, and keep everything in order. Our expert team can guide you on the best way to split income, follow the law, and avoid penalties. Don’t let tax rules leave you up the creek without a paddle—call us today and we’ll steer your business in the right direction!
For more information, visit our office:
- Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
