Understanding Ministerial Decision No. 261 of 2024: Corporate Tax Clarifications for Partnerships and Family Foundations

As part of continuous updates from the Ministry of Finance regarding the Corporate Tax in UAE, Ministerial Decision No.261 of 2024 has been published by the authority. The new Ministerial Decision is implemented with effect from 01, June 2023 and repealed the Ministerial Decision No.127 of 2023. This decision has covered the major updates regarding the treatment of Unincorporated Partnerships, Foreign Partnerships and Family Foundations under UAE Corporate Tax Law.

Key Highlights

1. Unincorporated Partnerships

Article 1 of UAE Corporate Tax Law has defined Unincorporated Partnership as “A relationship established by contract between two Persons or more, such as a partnership or trust or any other similar association of Persons, in accordance with the applicable legislation of the State.” Unincorporated partnerships can be formed by either individuals juridical persons or both.

Article 16 of UAE Corporate Tax Law explains that Unincorporated Partnership is not taxable in its own rights unless an application is made to the authority. This means, in the first instance, Unincorporated Partnership is not taxable. Instead, partners in the Unincorporated Partnership are taxable. This is called tax transparency status which makes the partnership not separate from the partners.   An unincorporated Partnership can apply to the authority to treat it as an opaque entity and once FTA approves the application, instead of the partners, the partnership will be taxable.

Ministerial Decision No.261 of 2024 is further explained below;

• Unincorporated Partnership is not taxable in its own rights
• An unincorporated Partnership can be treated as a taxable person through an application to the authority. The application is irrevocable in general except in exceptional circumstances.
• If an Unincorporated Partnership is treated as opaque, the responsible partner shall be liable to inform the authority of any changes in the partnership including addition and deletion of partners.

2. Foreign Partnerships

Foreign Partnerships are not subject to UAE Corporate Tax if they are not taxed similarly in their home jurisdiction. ​Each partner in a Foreign Partnership must be taxed on their share of income if the partnership itself is not taxed. ​An annual declaration confirming these conditions must be submitted to the Authority. ​

3. Family Foundations

Family foundations can be owned either by natural persons or Public Benefit entities. If one or more beneficiaries in a Family Foundation are public benefit entities, the below additional conditions are to be satisfied in order to be treated as Unincorporated Partnership;

• The public benefit entities which are beneficiaries are not generated any income which is considered as taxable income, if such income would have been generated by public benefit entities.
• The income which would be considered taxable income is distributed among beneficiaries within 6 months from the end of the tax period

A juridical person who is fully owned by a Family Foundation can apply to the authority to be treated as an Unincorporated Partnership. Once FTA approves, such a juridical person shall have the status of an Unincorporated Partnership. While applying, the juridical person must make sure that they satisfy all the conditions which are applicable for a Family Foundation to be treated as an Unincorporated Partnership.

To learn more about Corporate Tax Clarifications for Partnerships and Family Foundations (Decision 261 of 2024), book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.