The Federal Tax Authority (FTA) has released a Corporate Tax (CT) Guide on Taxation of Partnerships.[?] The guide provides general advice and examples on taxation.
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The advice will help stakeholders clarify insight into how the CT law considers partnerships, tax regimes for frequent events, and other tax liabilities.
The FTA suggests that individuals engaging in business activities, including construction, in the UAE should acquaint themselves with the guidance provided under an agreement.
The FTA suggests that individuals engaging in business activities, including construction, in the UAE should acquaint themselves with the guidance provided under an agreement.
Key Highlights
Here, we will highlight the critical aspects of the taxation guide.
Guide Overview
The guidance delves into various aspects, including:
Delineating the diverse types of partnerships along with their distinctive characteristics
Outlining the CT treatment of unincorporated partnerships
Elucidating how specific sections of the CT law apply to cooperation
Additionally, it addresses the corresponding compliance obligations.
Types of Partnerships
In the UAE, cooperation may take the form of either incorporated or unincorporated entities.
An incorporated type possesses its legal identity and is automatically regarded as a Taxable Person liable for corporate tax (CT). The guide outlines a comprehensive list of entities (such as General Partnerships, Limited Partnerships, and Limited Liability Partnerships) classified as incorporated cooperation, thereby recognized as legal entities under the CT Law.
An unincorporated partnership (like a consortium of companies or contractual joint venture) is typically viewed as "fiscally transparent," with its partners individually subjected to CT obligations. However, partners within an unincorporated partnership have the option to request that the cooperation itself be treated as a Taxable Person, thereby subjecting it to CT independently.
Tax Reliefs
Unincorporated partnerships categorized as "fiscally opaque" Taxable Persons are not to be classified as Free Zone Persons and may not qualify for the 0% CT rate regime. The same rule extends to Branches of Unincorporated Partnerships established within Free Zones.
Participation Exemption relief is accessible for investment income acquired by:
Participation Exemption relief is accessible for investment income acquired by:
Unincorporated cooperation classified as "fiscally opaque"
Partners of "fiscally transparent" unincorporated partnerships (even if the partners are individuals)
Small Business Relief grants exemption from CT for eligible Resident Persons with revenues below AED 3 million. In the case of "fiscally transparent" partnerships, eligibility is determined separately for each partner, while in "fiscally opaque" cooperation, it is assessed at the cooperation’s level.
Foreign Partnerships Nuances
A foreign partnership might be categorized as a "fiscally transparent" unincorporated cooperation provided that:
It faces no taxation in its home jurisdiction
Partners are individually taxed on their portion of income
The partnership submits an annual declaration to the FTA
There are established arrangements for tax information exchange between the home jurisdiction and the UAE
Failure to meet any of these conditions could result in the foreign partnership being considered "fiscally opaque" and subject to CT in the UAE under the same conditions as a Non-Resident Taxable Person with a Permanent Establishment (PE) or nexus in the UAE. For instance, this scenario might include a foreign partnership operating with a registered branch in the UAE.
CT compliance responsibilities
For partnerships classified as "fiscally transparent", individual partners must assess their CT responsibilities. These partnerships are also required to register for CT, although this compliance obligation does not imply that the cooperation itself will be liable for CT.
Unincorporated cooperation that have opted for CT and those categorized as "fiscally opaque" must maintain financial records and obtain audited financial statements if their revenue surpasses AED 50 million.
"Fiscally opaque" partnerships are obligated to submit a CT return by the standard deadline, which is 9 months after the conclusion of the tax year.
You can read the full version with examples of the current regulations here.
Unincorporated cooperation that have opted for CT and those categorized as "fiscally opaque" must maintain financial records and obtain audited financial statements if their revenue surpasses AED 50 million.
"Fiscally opaque" partnerships are obligated to submit a CT return by the standard deadline, which is 9 months after the conclusion of the tax year.
You can read the full version with examples of the current regulations here.
