How is a partnership taxed under Corporate Tax?

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.

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

Article 4 – Treatment of a Foreign Partnership as an Unincorporated Partnership 1. For the purposes of paragraph (a) of Clause (7) of Article (16) of the Corporate Tax Law, the Foreign Partnership shall not be subject to any tax of a similar character to Corporate Tax under the laws of the foreign jurisdiction. 2. For the purposes of paragraph (b) of Clause (7) of Article (16) of the Corporate Tax Law, each partner in the Foreign Partnership shall be considered to be subject to tax with regards to their distributive share of any income of the Foreign Partnership if the Foreign Partnership is not subject to tax in its own right in the foreign jurisdiction. 3. A Foreign Partnership shall submit an annual declaration to the Authority to confirm meeting the conditions specified in paragraphs (a) and (b) of Clause (7) of Article (16) of the Corporate Tax Law, in the form and manner and within the timeline prescribed by the Authority. Ministerial Decision No. 261 of 2024 – As published by the Ministry of Finance 2