How is a partnership taxed under Corporate Tax?

8. Special regimes Chapter summary This chapter sets out the treatment of partnerships and Tax Groups under the Corporate Tax Law. It explains what is meant by a partnership and how it is taxed. It also introduces the requirements associated with forming a Tax Group and explains how to calculate the Taxable Income of a Tax Group. Taxation of partnership and their partners 8.2.1. Unincorporated Partnerships Individuals, companies and other legal entities may join with others to form a partnership, usually established under a contract and jointly conduct Business or hold investments. Partnerships can take a range of different forms, and can be incorporated, such as Limited Liability Partnerships (LLPs), or Unincorporated Partnerships, such as general partnerships and joint ventures (JVs). Incorporated partnerships (see Section 8.2.2) have a separate legal personality from their partners and are treated as a juridical person that is subject to Corporate Tax at the partnership level. However, where a partnership does not have a separate legal personality, each partner is treated as: • • • • conducting the Business of the partnership;293 having a status, intention, and purpose of the partnership;294 holding assets that the partnership holds;295 and being party to any arrangement to which the partnership is a party. 296 In this case, the Unincorporated Partnership is not considered a Taxable Person in its own right, as it is not considered a juridical person.297 This means that the partnership itself is not subject to Corporate Tax, and each partner is subject to Corporate Tax on their income from the partnership.298 The activities of the partnership are treated as 293 Article 16(2)(a) of the Corporate Tax Law. 294 Article 16(2)(b) of the Corporate Tax Law. 295 Article 16(2)(c) of the Corporate Tax Law. 296 Article 16(2)(d) of the Corporate Tax Law. 297 Article 2 of Ministerial Decision No. 127 of 2023. 298 Article 16(1) of the Corporate Tax Law. General Corporate Tax Guide | Corporate Tax | CTGGCT1 97

4. Unincorporated Partnerships for Corporate Tax 4.1. Overview As noted above, the Corporate Tax Law defines an 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 UAE.12 A Foreign Partnership may also be treated as an Unincorporated Partnership if certain conditions are satisfied (see Section 8 for further details). An Unincorporated Partnership as defined in the Corporate Tax Law does not necessarily have to adopt a formal written partnership agreement. A verbal agreement can also be sufficient, whereby the parties agree to share Business profits and losses. In addition, an Unincorporated Partnership can take on various forms, including a trust or similar association of persons which is not a juridical person. As per the Corporate Tax Law, the default position is that an Unincorporated Partnership is not considered a Taxable Person in its own right. Instead, the Corporate Tax Law “looks through” the Unincorporated Partnership and taxes each partner directly on their share of profits or gains. Such a partnership is considered to be “fiscally transparent”. The partners in an Unincorporated Partnership can make an application to the FTA for the Unincorporated Partnership to be treated as a Taxable Person in its own right .13 An Unincorporated Partnership treated as a Taxable Person is considered to be “fiscally opaque”. Unincorporated Partnerships, and their treatment for Corporate Tax purposes, are discussed in more detail in the following Sections. 4.2. Who can be a partner in an Unincorporated Partnership? The word “Person” is defined in the Corporate Tax Law as a natural person or a juridical person.14 Hence a partner in a partnership can be an individual or a legal entity. An Unincorporated Partnership relationship can exist between a number of natural persons, a number of juridical persons or a combination of juridical persons and 12 Article 1 of the Corporate Tax Law. 13 Article 16(8) of the Corporate Tax Law. 14 Article 1 of the Corporate Tax Law. Corporate Tax Guide | Taxation of Partnerships | CTGPTN1 17