An unincorporated partnership is an arrangement between two or more persons—whether natural persons (individuals) or juridical persons (such as foundations, trusts, or similar associations of persons). Importantly, the agreement between partners does not need to be in writing; it may be formal or informal, and even a verbal agreement can establish such a partnership.
Corporate Tax Treatment in the UAE
Under the UAE Corporate Tax Law, an unincorporated partnership is generally treated as “transparent” or **“look-through.” This means:
- The partnership itself is not considered a separate taxable person.
- Each partner is liable to Corporate Tax in Dubai on their share of the partnership’s income, based on the profit-sharing percentage agreed between them.
Option to Elect as a Taxable Person
Partners may, however, apply to the Federal Tax Authority (FTA) to have the partnership treated as a separate taxable entity. If the FTA approves the application, the partnership becomes a taxable person in its own right. Nevertheless, this does not exempt the partners from their own Corporate Tax obligations on other business activities.
Deductibility of Expenses
Partners are generally allowed to deduct expenses related to the partnership when calculating taxable profits, provided they meet the requirements set out in the law. Examples include operational costs and finance expenses.
However, there are specific rules for interest deductions:
- The general 30% of EBITDA rule (or AED 12 million safe harbour threshold) applies only to juridical persons.
- Natural persons who enter into a partnership cannot claim these interest deductions in the same way.
- This distinction makes it crucial for businesses to assess their structure carefully to optimize tax efficiency.
Disclaimer
This blog is published by Fuad House Tax & Management Consultancy for informational purposes only. It does not constitute professional tax advice and should not replace a tailored consultation. Corporate Tax implications vary depending on your business structure, sector, and whether you operate in a Free Zone or mainland. For personalized, reliable guidance, please contact a qualified UAE tax consultant.
