How is income from a joint venture taxed?

Article 6.4. Joint Ventures 6.4.1 Articles 3 to 7 and Article 8.2 shall apply for the purposes of computing any Top-up Tax of the Joint Venture and its JV Subsidiaries as if they were Constituent Entities of a separate MNE Group and as if the Joint Venture was the Ultimate Parent Entity of that Group.

Article 12 – Joint and Several Liability 12.1 All Constituent Entities of a Domestic Main Group and Domestic Minorityowned Sub-Group located in the UAE and all Reverse Hybrid Entities referred to in Article 2.1 (c) shall be jointly and severally liable for the full amount of the Top-up Tax attributable to members of those Groups and to the Reverse Hybrid Entities. Cabinet Decision No. 142 of 2024 – As published in the Official Gazette 68 12.2 All Joint Ventures and JV Subsidiaries of a Domestic JV Group located in the UAE shall be jointly and severally liable for the full amount of the Top-up Tax attributable to members of that Domestic JV Group. 12.3 Any partner, beneficiary or any other person who holds an Ownership Interest in a Constituent Entity that is not a legal person, that are created under the laws of the UAE and that is required to pay the Top-up Tax in accordance with Article 2.1 shall be jointly and severally liable to pay the Topup Tax of that Constituent Entity to the extent of its Ownership Interests in that Entity.

Example 6: Public and private partnerships An arrangement between a public sector entity (a government department) and a private sector company wherein the public sector entity awards a contract/project to the private sector company for a stipulated period would not, in itself, be considered to be an Unincorporated Partnership if none of the key elements of an Unincorporated Partnership are met. Typically, the intention of such a contract is not to execute the project jointly. Instead, the public sector company engages/awards the project to a private sector company with the intention of encouraging private sector participation in economic and social development, utilising financial, technical, and technological potential/experience of the private sector, transferring knowledge from private to public sector, etc. Typically, the private sector company implements, finances, owns, reaps the commercial benefits and operates a project for an agreed term after which the ownership of the project site is transferred back to the public sector entity. Example 7: Consortium of companies or contractual joint venture Company A and Company B collaborate to bid for a government project to construct and operate a national highway for 30 years. During this period, Company A and Company B sign an agreement to build the highway, share the profits, losses and management of the project equally. After the stipulated tenure the project site is expected to be handed over to the government department. The consortium of companies/contractual joint venture (i.e. between Company A and Company B) would be treated as an Unincorporated Partnership. On the other hand, if the project is conducted through a special purpose vehicle such as a Limited Liability Company in which Company A and Company B hold shares, the joint venture would not be an Unincorporated Partnership. Corporate Tax Guide | Taxation of Partnerships | CTGPTN1 16

Meaning of Joint Venture A Joint Venture means an Entity whose financial results are reported under the equity method in the Consolidated Financial Statements of the UPE, provided that the UPE holds directly or indirectly at least 50% of its Ownership Interests.99 Thus, where there is a joint venture arrangement between two MNE Groups, in which one joint venturer holds 51% of the Ownership Interests and the other joint venturer holds 49% of the Ownership Interests, the Entity could only be considered a Joint Venture for one of the MNE Groups, i.e. the MNE Group with the 51% of the Ownership Interests. The definition of Joint Venture sets out a list of Entities that cannot be a Joint Venture:100 • a UPE of an MNE Group that is subject to the Pillar Two Rules, • an Entity that qualifies as a primary Excluded Entity (as explained in section 7.2), • an Entity whose Ownership Interest held by the MNE Group is held directly through a primary Excluded Entity (see section 7.2) and the Entity: - operates exclusively or almost exclusively to hold assets or invest funds for the benefit of its investors, - carries out activities that are ancillary to those carried out by the Excluded Entity, or - substantially all of its income is Excluded Dividends and Excluded Equity Gains or Losses. • an Entity held by an MNE Group composed exclusively of Excluded Entities, or • a JV Subsidiary. Meaning of JV Subsidiary A JV Subsidiary means an Entity whose assets, liabilities, income, expenses and cash flows are consolidated by a Joint Venture under an Acceptable Financial Accounting Standard (or would have been consolidated had it been required to consolidate such items in accordance with an Acceptable Financial Accounting Standard).101 A Permanent Establishment whose Main Entity is a Joint Venture or JV Subsidiary shall be treated as a separate JV Subsidiary.102 99 Definition of Joint Venture Article 18.1 of the QDMTT Legislation. 100 Definition of Joint Venture in Article 18.1 of the QDMTT Legislation. 101 Definition of a JV Subsidiary in Article 18.1 of the QDMTT Legislation. 102 Definition of a JV Subsidiary in Article 18.1 of the QDMTT Legislation. Top-up Tax Guide | Scope and Registration | TTGREG1 68