UAE moves to give tax breaks to unincorporated partnerships

Businesses operating in the UAE as unincorporated partnerships now have the option to be taxed as full legal entities – similar to companies – if they apply and receive approval from the Federal Tax Authority (FTA), the Ministry of Finance has announced.

The change could open up new benefits for certain partnerships, including access to the same corporate tax exemptions and reliefs available to other legal entities under the UAE’s new Corporate Tax Law.

Most unincorporated partnerships in the UAE are treated as ‘transparent’ for tax purposes. This means the partnership itself isn’t taxed – instead, each partner is taxed on their share of the income.

But under this new Cabinet Decision, partnerships that prefer a different approach can now apply to be treated as a single taxable entity.

If approved, the partnership will be considered a ‘legal person’ for tax purposes, much like a company. This would mean it is taxed directly and may be eligible for corporate tax benefits offered to other business structures.

The new decision also outlines how such partnerships should calculate their taxable income, giving more clarity to firms that choose this option.

According to the government, this step supports the UAE’s broader goals of improving tax transparency, enhancing the ease of doing business and maintaining a competitive environment for all types of firms.

While this change doesn’t affect all partnerships automatically, it gives certain businesses more flexibility in how they manage their taxes – particularly those looking to benefit from corporate tax incentives or simplify partner-level tax filings, the finance ministry said.

Businesses must apply and receive approval from the FTA before switching to this tax status.

Small firms and freelancers to benefit most from penalty refunds

The UAE’s Federal Tax Authority (FTA) has announced it is not charging businesses administrative fines for delays in registering for corporate tax. And the authorities have also said they are to refund all those businesses that had already been fined for not meeting their registration deadlines. The penalty for late registration is Dh10,000 (about £2,000).

This would be a huge relief for single individual or freelance-run businesses, the FTA said. Such entities had to register for tax before end March.

Girish Chand, Senior Partner at the management consultancy MCA, said: “Based on past experience of such penalty reversals, the penalty already paid could be automatically reversed. This refund could be available for adjustment against the company’s corporate tax liability.”

He said the UAE FTA has “gone out of its way to hand-hold businesses through the process of registering for corporate tax as per deadlines”. Constant reminders have been issued to get businesses to submit all the documentation through the Emaratax portal.

Mushtaq Khatri, CEO of mkACE Management Consultancy, said: “The FTA has confirmed those businesses who paid the Dh10,000 penalty but meet the waiver conditions will be refunded.

“The FTA may need the taxpayer to apply for the refund, and the FTA may review the case before releasing the funds. Clarifications on the procedure to get the refund are awaited.”

The tax authority said that to qualify for the penalty waiver, eligible businesses must file their tax return or annual statements within a period not exceeding seven months from the end of their first tax period.

“This aims to encourage registrants to file tax returns or annual statements before the deadline, bolstering early compliance with legal requirements,” it said in a statement.

1. E. Khalid Ali Al Bustani, Director-General of the FTA, said that the FTA’s core strategy has been structured around expediting tax procedures for all business sectors and to encourage voluntary compliance with tax laws.

“Widespread compliance is a key and contributing element in promoting economic growth and the FTA remains committed to full transparency in relation to a flexible and constantly updating tax legislative environment,” he said.