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The United Arab Emirates has taken another step toward aligning its tax regime with global standards, announcing a Cabinet decision that allows unincorporated partnerships to elect to be treated as taxable entities, pending approval from the Federal Tax Authority (FTA).
The decision issued under Federal Decree-Law No. 47 of 2022 on corporate taxation represents a significant evolution in the UAE’s approach to entity taxation. While unincorporated partnerships are typically treated as tax transparent, with income taxed at the partner level, the new rule offers the option to shift the tax burden to the partnership itself.
International tax professionals are hailing the move as a pragmatic step that increases flexibility, clarity, and cross-border consistency, especially for multinational structures operating in the UAE.
“Treating unincorporated partnerships as legal and resident persons for tax purposes, upon approval, opens the door to entity-level tax planning that better aligns with international frameworks,” said a tax partner at a Big Four advisory firm in Dubai. “This creates a bridge between transparency and neutrality.”
The new option is not automatic. Partnerships must apply for the change, and the FTA will retain discretion to approve or deny based on criteria yet to be fully detailed. Once approved, the entity will be subject to the standard corporate tax regime, which includes access to tax exemptions, group relief provisions, and potential treaty benefits.
This development is particularly relevant for joint ventures, family businesses, and foreign-invested partnerships, many operate as unincorporated entities in sectors such as oil and gas, real estate, and professional services.
The UAE’s broader tax reform agenda had accelerated since 2022 when it first enacted a federal corporate tax law as part of its commitment to the OECD’s BEPS (Base Erosion and Profit Shifting) framework. The optional treatment of partnerships as taxable persons mirrors entity classification elections available in jurisdictions such as the United States, a hallmark of modern tax policy.
Crucially, the Cabinet decision sets out a transparent methodology for calculating taxable income at the partnership level, a critical factor for avoiding double taxation or compliance ambiguity. While details remain limited, the Ministry of Finance emphasized that the aim is to “promote tax neutrality” and ensure clarity for domestic and international businesses.
The decision adds a new layer of optionality for global tax planners in structuring UAE investments while reinforcing the country’s intention to be seen as a compliant, business-friendly jurisdiction, aligning itself with international tax authorities’ expectations.
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