Do partners in an unincorporated partnership pay Corporate Tax individually?

Article 16 – Partners in an Unincorporated Partnership 1. Unless an application is made under Clause 8 of this Article, and subject to any conditions the Minister may prescribe, an Unincorporated Partnership shall not be considered a Taxable Person in its own right, and Persons conducting a Business as an Unincorporated Partnership shall be treated as individual Taxable Persons for the purposes of this Decree-Law. 2. Where Clause 1 of this Article applies, a Person who is a partner in an Unincorporated Partnership shall be treated as: Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 22 a. Conducting the Business of the Unincorporated Partnership. b. Having a status, intention, and purpose of the Unincorporated Partnership. c. Holding assets that the Unincorporated Partnership holds. d. Being party to any arrangement to which the Unincorporated Partnership is a party. 3. For the purposes of Clause 1 of this Article, the assets, liabilities, income and expenditure of the Unincorporated Partnership shall be allocated to each partner in proportion to their distributive share in that Unincorporated Partnership, or in the manner prescribed by the Authority where the distributive share of a partner cannot be identified. 4. The Taxable Income of a partner in an Unincorporated Partnership shall take into account the following: a. Expenditure incurred directly by the partner in conducting the Business of the Unincorporated Partnership. b. Interest expenditure incurred by the partner in relation to contributions made to the capital account of the Unincorporated Partnership. 5. Interest paid by an Unincorporated Partnership to a partner on their capital account shall be treated as an allocation of income to the partner and is therefore not a deductible expenditure for calculating the Taxable Income of the partner in the Unincorporated Partnership. 6. For the purposes of calculating and settling the Corporate Tax Payable of a partner in an Unincorporated Partnership under Chapter Thirteen of this Decree-Law, any foreign tax incurred by the Unincorporated Partnership shall be allocated as a Foreign Tax Credit to each partner in proportion to their distributive share in the Unincorporated Partnership. 7. A Foreign Partnership shall be treated as an Unincorporated Partnership for the purposes of this Decree-Law where all of the following conditions are met: a. The Foreign Partnership is not subject to tax under the laws of the foreign jurisdiction. b. Each partner in the Foreign Partnership is individually subject to tax with regards to their distributive share of any income of the Foreign Partnership as and when the income is received by or accrued to the Foreign Partnership. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 23 c. Any other conditions as may be prescribed by the Minister. 8. The partners in an Unincorporated Partnership can make an application to the Authority for the Unincorporated Partnership to be treated as a Taxable Person. 9. Where an application under Clause 8 of this Article is approved: a. The provisions of Clauses 1 to 6 of this Article shall no longer apply to the partners in the Unincorporated Partnership in respect of the Business conducted by the Unincorporated Partnership. b. Each partner in the Unincorporated Partnership shall remain jointly and severally liable for the Corporate Tax Payable by the Unincorporated Partnership for those Tax Periods when they are partners in the Unincorporated Partnership. c. One partner in the Unincorporated Partnership shall be appointed as the partner responsible for any obligations and proceedings in relation to this Decree-Law on behalf of the Unincorporated Partnership. 10. Where the application under Clause 8 of this Article is approved, the Unincorporated Partnership shall be treated as a Taxable Person effective from the commencement of the Tax Period in which the application is made, or from the commencement of a future Tax Period, or any other date determined by the Authority.

being carried out by the partners, and each partner is taxed in proportion to their distributive share in the partnership. Taxable Income of partners in an Unincorporated Partnership Partners in an Unincorporated Partnership are taxed in accordance with the wider Corporate Tax regime. In particular, individuals that are partners in an Unincorporated Partnership are taxed on the same basis as if they were conducting Business on their own. Therefore, they are only subject to Corporate Tax on income arising from categories of Business and Business Activities that are subject to Corporate Tax for individuals (see Section5.3.3). However, the partners in an Unincorporated Partnership may make an application to the FTA for the Unincorporated Partnership to be treated as a Taxable Person (i.e. to have the Corporate Tax liability be determined and assessed at the level of the partnership).299 Once the application is approved, and to the extent there are any individuals who are partners in that Unincorporated Partnership, Cabinet Decision No. 49 of 2023 will no longer be applicable in relation to the activities of those individual partners in the Unincorporated Partnership, as the Unincorporated Partnership, and not the partners, is treated as conducting the Business (unless the partners conduct other business or business activities separate from the Unincorporated Partnership). This means that all partnership income will be Taxable Income subject to Corporate Tax for the Unincorporated Partnership. The application will be deemed irrevocable except under exceptional circumstances and pursuant to approval by the FTA.300 Where the application for an Unincorporated Partnership to be treated as a standalone Taxable Person has been approved by the FTA, any Taxable Income for the partnership will be excluded from the Taxable Income of the partner. 301 The partners will also exclude any gains or losses on the transfer, sale or disposal of all or part of their interest in the Unincorporated Partnership if this interest meets the conditions of the participation exemption (see Section 6.4.2).302 299 Article 16(8) of the Corporate Tax Law. 300 Article 3(1) of Ministerial Decision No. 127 of 2023. 301 Article 6(1) of Ministerial Decision No. 134 of 2023. 302 Article 6(2) of Ministerial Decision No. 134 of 2023. General Corporate Tax Guide | Corporate Tax | CTGGCT1 98

The distributive share of each partner in relation to the above is as follows: Mr. A (20%) Item Company B (80%) Amounts in AED Income from Business 2,000,000 8,000,000 Less: Expenditure incurred for Business (1,200,000) (4,800,000) Net income (assuming no other adjustments) 800,000 3,200,000 If the Unincorporated Partnership is treated as fiscally transparent, it is not subject to Corporate Tax. Instead, the partners are subject to Corporate Tax individually. In this case, as the Turnover (i.e. AED 2,000,000) derived by Mr. A from conducting the Business of the Unincorporated Partnership exceeds AED 1 million, Mr. A will be subject to Corporate Tax and is required to register for Corporate Tax purposes.29 Unlike natural persons, a juridical person that is a Taxable Person is required to register for Corporate Tax purposes irrespective of their Turnover. Accordingly, Company B will be required to register for Corporate Tax and will be subject to Corporate Tax. 80% of the income and expenditure of the Unincorporated Partnership is attributable to Company B and will be considered for the purpose of determining the Taxable Income of Company B. 5.2. Unincorporated Partnership treated as fiscally opaque The partners of an Unincorporated Partnership have the option to make an application to the FTA for the Unincorporated Partnership to be treated as a Taxable Person, i.e. fiscally opaque.30 If the application is approved by the FTA, the Unincorporated Partnership will be treated as a Taxable Person. It will be subject to Corporate Tax as a Resident Person. As a Taxable Person, it will determine its Taxable Income and pay Corporate Tax on its own profits, instead of the partners. However, the partners will still be jointly and severally liable for the Corporate Tax Payable by the Unincorporated Partnership for the Tax Periods during which they are partners.31 29 Article 3(2) of Cabinet Decision No. 49 of 2023. 30 Article 16(8) of the Corporate Tax Law. 31 Article 16(9)(b) of the Corporate Tax Law. Corporate Tax Guide | Taxation of Partnerships | CTGPTN1 24

Article 6 – Other Adjustments to the Accounting Income for Determining the Taxable Income of a Partner in an Unincorporated Partnership For the purposes of paragraph (i) of Clause 2 of Article 20 of the Corporate Tax Law, the following adjustments shall apply in relation to a Taxable Person that is a partner in an Unincorporated Partnership where an application under Clause 8 of Article 16 of the Corporate Tax Law is approved: 1. To exclude from the Taxable Income of the partner any such income or loss that is recognised as Taxable Income for the Unincorporated Partnership. 2. To exclude any gains or losses on the transfer, sale, or other disposal of the interest of the Taxable Person in the Unincorporated Partnership, or part thereof, provided that the interest meets all the conditions under Clause 2 of Article 23 of the Ministerial Decision No. 134 of 2023 – As published by Ministry of Finance 6 Corporate Tax Law.