Ministerial Decision No 127 Of 2023: Unincorporated Partnership, Foreign Partnership, And Family Foundation.

Aug 13, 2023 | KCG Library

Brief

The Ministry of Finance released Decision No. 127 of 2023 regarding the Unincorporated Partnership, Foreign Partnership, and Family Foundation. on May 22nd. This decision falls under the Federal Decree-Law No. 47 of 2022, which governs the taxation of corporations and businesses (referred to as the ‘CT Law’ hereafter). The decision took effect on the day following its publication.

Key Highlights

Unincorporated Partnership

The Decision addresses specific aspects related to the treatment of Unincorporated Partnerships (UPs) according to the Corporate Tax (CT) Law in the UAE. According to the CT Law, UPs are not considered Taxable Persons in the country. However, each partner within a UP is treated as an individual Taxable Person for CT purposes.

The Decision provides clarity that a UP, if not a legal entity, is not considered a Taxable Person on its own. Nevertheless, a UP has the option to choose to be treated as a Taxable Person by submitting an irrevocable application to the Federal Tax Authority, unless there are exceptional circumstances. If the application is approved, the UP must inform the FTA within 20 business days when a partner joins or leaves the UP.

The CT Law outlines specific criteria for a Foreign Partnership (FP) and Family Foundations (FF) to be recognized as a UP for CT purposes. The Decision further specifies additional requirements and conditions for these entities to qualify as UPs.

With regards to FPs:

Foreign Partnerships (FPs) are required to submit an annual declaration to the Federal Tax Authority (FTA) confirming that they meet the conditions outlined in the Corporate Tax (CT) Law. The specific format, method, and deadline for submitting this declaration will be determined by the FTA.
It is necessary for the UAE and the relevant foreign jurisdiction to have established agreements concerning the exchange of tax-related information regarding the partners involved in the Foreign Partnership (FP). This ensures that there are arrangements in place to facilitate the sharing of tax information between the two jurisdictions.

With regards to FFs:

If a Family Foundation (FF) has at least one beneficiary who is a public benefit entity, it can be regarded as an Unincorporated Partnership (UP) under certain conditions. This is applicable when the income received by the beneficiaries would not be subject to corporate tax (CT) if they had received it individually. However, if this condition is not met, an FF can still be treated as a UP if the income is distributed to the respective beneficiaries within six months from the end of the applicable tax period.

KCG Insights

The Decision clarifies the treatment of Unincorporated Partnerships (UPs) under the Corporate Tax (CT) Law in the UAE.
UPs are not considered Taxable Persons in the UAE, but each partner within a UP is treated as an individual Taxable Person for CT purposes.
UPs can choose to be treated as Taxable Persons by submitting an irrevocable application to the Federal Tax Authority (FTA), with exceptions in exceptional circumstances.
Foreign Partnerships (FPs) must submit an annual declaration to the FTA, confirming that they meet the conditions outlined in the CT Law.
The UAE and relevant foreign jurisdictions must have established agreements to exchange tax-related information regarding partners in FPs.
Family Foundations (FFs) can be considered UPs if they have at least one beneficiary who is a public benefit entity
An FF can also be treated as a UP if the income is distributed to beneficiaries within six months from the end of the applicable tax period.