UAE Corporate Tax Update: New Rules for Unincorporated Partnerships Introduced

UAE introduces corporate tax clarity for unincorporated partnerships, offering tax treatment flexibility under Federal Decree-Law No. 47 of 2022.

On May 24, 2025, the UAE Ministry of Finance issued a Cabinet decision clarifying the corporate tax treatment of unincorporated partnerships under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. This reform offers these entities the option to be treated as a taxable person, subject to prior approval by the Federal Tax Authority (FTA). The move aims to boost transparency, provide flexibility, and align the UAE’s corporate tax regime with international standards.

Unincorporated partnerships, often comprising joint ventures, professional firms, or contractual arrangements without separate legal personality, will now be allowed to elect to be taxed at the entity level rather than at the individual partner level. This update marks a significant development for business entities looking to streamline tax compliance and optimize structure.

Understanding unincorporated partnerships under UAE tax law

An unincorporated partnership is a business relationship between individuals or entities who carry out business together but are not registered as a separate legal entity. Common examples include law firms, consulting groups, or real estate consortiums operating under a profit-sharing agreement without incorporation.

Under existing tax rules, these partnerships are treated as transparent, meaning each partner is taxed on their share of income. However, the latest Cabinet decision allows such partnerships to be treated like a legal person for tax purposes, provided they apply and receive FTA approval.

Once approved, the partnership will be considered a resident person, entitled to the same tax treatment as a company, including eligibility for relevant exemptions and deductions.

The option for tax treatment at the partnership level is a strategic tool for businesses. As outlined by the Ministry of Finance, this approach promotes tax neutrality, allowing partnerships to select a structure best suited to their operational and financial goals.

The rule simplifies compliance for complex structures with multiple partners. It facilitates centralized tax filing, liability clarity, and a clearer capital structure, important for firms seeking external investors or managing foreign participation.

When should partnerships opt-in?

• If centralized compliance is preferred over fragmented partner-level filings;
• When the partnership seeks legal clarity and unified reporting; and
• To access exemptions, deductions, or reliefs available to legal persons under the corporate tax law.

Tax Calculation Framework

The 9 percent statutory rate applies to taxable income exceeding AED 375,000 (US$102,100), in line with the thresholds outlined under the Corporate Tax Law. Income below this threshold remains subject to a 0 percent rate.

Complementary updates: Non-resident investors in QIFs and Reits

In a parallel move to clarify cross-border tax obligations, the Ministry of Finance also issued Cabinet Resolution No. 35 of 2025, following earlier Cabinet Decision No. 34 of 2025, to define the tax nexus for non-resident juridical persons investing in Qualifying Investment Funds (QIFs) and Real Estate Investment Trusts (Reits).

The resolutions outline when a non-resident investor is considered to have a taxable presence in the UAE:

• If a QIF or Reit distributes at least 80 percent of its income within nine months of the financial year-end, a tax link is created on the dividend distribution date;
• If it fails to distribute this income, the ownership acquisition date becomes the tax nexus point; and
• Failure to maintain ownership diversity during the tax year also triggers tax exposure.

These updates clarify economic substance rules and improve predictability for fund managers and cross-border investors.

Business environment impact and compliance outlook

The flexibility to elect tax treatment at the partnership level enhances UAE’s attractiveness to professional firms, family offices, and investor syndicates. By aligning tax transparency principles with practical business needs, the UAE government has reinforced its position as a competitive, business-friendly jurisdiction.

These updates also streamline compliance pathways and give rise to structuring opportunities, particularly in regulated sectors and professional services. Moreover, they reduce ambiguity for foreign investors concerned about overlapping tax obligations or dual reporting.

In short

The UAE’s corporate tax regime continues to evolve with clarity and competitiveness. By enabling partnerships to opt for unified taxation and refining the status of foreign investors in QIFs and Reits, the UAE reinforces its commitment to transparent, globally-aligned tax standards while supporting business growth.

[US$1 = AED 3.67]

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