Federal Tax Authority Decision No. 16 of 2023
The UAE’s business activities are being greatly impacted by and subject to regulation by the introduction of the Corporate Tax Law. The Federal Tax Authority has made a number of changes and made it easier for businesses of all stripes, including partnerships, to understand the new tax system. The FTA recently released Decision No. 16 of 2023 with the goal of improving the regulation of Corporate Tax upon Unincorporated Partnerships. In compliance with the structure set forth by the Corporate Tax Law on the Taxation of Corporations and Businesses, as well as its modifications, this ruling offers crucial guidelines and protocols for unincorporated partnerships. It explores the process of registering and declaring annual partnerships, how these partnerships are treated as taxable entities, and how partners’ distributive shares are established.
What is Unincorporated Partnership?
A contractual arrangement formed by two or more people is referred to as an unincorporated partnership since it lacks a distinct legal character. In an unincorporated partnership, the partnership is not regarded as a Taxable Person, but each partner may be subject to taxation on their profitable income from the partnership. Since these partnerships are not subject to direct taxes, they are frequently referred to as “transparent.”
Does Corporate Tax Apply to Unincorporated Partnerships?
The corporation Tax law states that an unincorporated partnership is not subject to corporation tax but rather each partner is taxed on their partnership revenue. Incorporated partnerships, on the other hand, have a distinct legal existence and are liable to corporate tax at the partnership level.
In contrast to Incorporated Partnerships, Unincorporated Partnerships are not regarded as separate legal entities and are not subject to individual taxation. On their partnership revenue, each partner is liable to corporate tax. Each partner is subject to taxation based on their distributive portion of the partnership’s profits, and the partnership’s operations are regarded as being carried out by its partners.
An approved partner must be chosen by the Unincorporated Partnership’s partners who are not considered Taxable Persons. The following tasks must be completed by this authorized partner, who will represent the partners in all tax-related obligations and procedures:
- To receive a Tax Registration Number, file an application for the Unincorporated Partnership’s Corporate Tax registration using the format and guidelines provided by the relevant authority.
- Within nine months of the conclusion of the applicable fiscal year for the Unincorporated Partnership, submit an annual declaration on behalf of each partner, taking into account that:
a. The Gregorian calendar year or the 12-month period for which the Unincorporated Partnership’s financial statements are prepared will be the financial year.
b. The annual declaration must contain all the information needed to calculate the taxable income.
According to the Corporate Tax Law, an Unincorporated Partnership’s partners may apply to have the partnership taxed at the partnership level, in which case the partnership will become a Taxable Person in and of itself. This application will take effect either at the beginning of the Tax Period for which it is submitted or at the beginning of a subsequent Tax Period.
The requirements of Decision No. 16 of 2023’s Article 2 (Requirements for the registration of Unincorporated Partnership) will not apply if the authority grants the unincorporated partnership’s request to be treated as a Taxable Person. Instead, the unincorporated partnership will have to abide by the rules outlined in Federal Decree-Law No. 47 of 2022.
In an unincorporated partnership, partners are subject to corporation taxation, just like if they were operating independently. They only pay taxes on income that comes from business categories and business activities that are subject to corporate tax.
All partnership income will be taxable and subject to corporate tax if an unincorporated partnership’s application to be classified as a taxable person is accepted. Additionally, any taxable income for the partnership will not be included in the partner’s taxable income. If this stake satisfies the requirements for partnership exemption, any gains or losses on the transfer, sale, or disposal of all or part of their interest will be excluded.
Each partner will get a portion of the partnership’s assets, liabilities, income, and expenses based on their distributive share if an unincorporated partnership is not recognized as a separate Taxable Person.
The guideline also specifies how distributive shares are handled in cases when an unincorporated partnership is recognized as a taxable entity. The Unincorporated Partnership’s assets, liabilities, income, and expenses will be distributed equally to each partner in the event that the distributive shares of the partners are unknown.
IBR Group assists companies in managing the new tax environment in the United Arab Emirates by providing full corporate tax services in Dubai. Our services include everything from timely corporate tax return filing to CT registration, which guarantees compliance with tax authorities. In addition, we offer professional evaluation to reduce your tax liability and continuous guidance to ensure you are aware of any modifications in laws. Businesses in Dubai may achieve tax compliance with confidence when they work with IBR Group.
Disclaimer: Above all information is for general reference only and sourced from internet, before making any kind of decision please visit the authorized websites of authorities and service providers.