Ministerial Decision No. 261 of 2024: Clarifications on Unincorporated Partnerships, Foreign Partnerships, and Family Foundations (Effective from 1 June 2023)
Date of Issue: 28 October 2024
Effective Date: 1 June 2023
The UAE Ministry of Finance has issued Ministerial Decision No. 261 of 2024, providing detailed guidance on the tax treatment of Unincorporated Partnerships, Foreign Partnerships, and Family Foundations under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law). This Decision replaces Ministerial Decision No. 127 of 2023 and clarifies circumstances under which such entities are recognized as taxable or non-taxable persons for Corporate Tax purposes.
Key Highlights of Ministerial Decision No. 261 of 2024:
1. Unincorporated Partnerships: When Not Treated as a Taxable Person
- An Unincorporated Partnership will not be treated as a Taxable Person unless it is a juridical person.
- This aligns with Clause (1) of Article 16 of the Corporate Tax Law, subject to certain exceptions under Articles (16) and (17).
2. Electing to Treat an Unincorporated Partnership as a Taxable Person
- An Unincorporated Partnership may apply to the Federal Tax Authority (FTA) to be treated as a Taxable Person in its own right under Clause (8) of Article (16).
- Once approved, this election is irrevocable, except in exceptional circumstances with FTA’s approval.
- The responsible partner must disclose changes in partners (joining or exiting) when filing the Tax Return for the relevant Tax Period.
3. Foreign Partnerships: Recognition as Unincorporated Partnerships
- A Foreign Partnership is treated as an Unincorporated Partnership in the UAE if:
- – It is not subject to a similar tax in its home jurisdiction.
- – Each partner is individually taxed on their share of the income.
- Annual declaration to be submitted to FTA confirming compliance with these conditions.
4. Family Foundations: Treatment as Unincorporated Partnerships
- A Family Foundation may be treated as an Unincorporated Partnership when:
- – Beneficiaries who are public benefit entities do not derive Taxable Income or distribute such income within six months of the end of the Tax Period.
- A juridical person wholly owned and controlled by a Family Foundation may apply to FTA to be treated as an Unincorporated Partnership if:
- – It is fully owned and controlled either directly or through entities treated as Unincorporated Partnerships.
- – Other conditions of Article (17) of Corporate Tax Law are satisfied.
5. Repeal of Previous Decision
- Ministerial Decision No. 127 of 2023 is repealed, but the new decision takes retrospective effect from 1 June 2023.
6. Effective Date and Applicability
- The Decision is effective from 1 June 2023 and applies to all relevant tax periods from that date onwards.
Conclusion:
Ministerial Decision No. 261 of 2024 provides comprehensive clarity on the tax status of Unincorporated Partnerships, Foreign Partnerships, and Family Foundations under UAE Corporate Tax Law. The guidelines ensure transparent treatment and compliance requirements for these entities, offering options for tax status elections and outlining conditions for recognition under the law.
Businesses and family entities engaging in partnership or foundation structures should review these provisions carefully to ensure proper tax compliance and optimize tax planning strategies.
KGRN Chartered Accountants can provide specialized guidance and assist with applications to FTA, structuring advice, and compliance reviews in line with this Decision.
