The UAE government has announced a major change in how it will tax business partnerships. The new rule states that partnerships in the UAE will now be taxed under the federal corporate tax law, unless they meet certain conditions.
This update is part of the country’s wider efforts to bring its business environment in line with international standards. It also aims to create a fair tax system for all types of companies operating in the UAE.
The new rule was officially published in the Official Gazette on May 10, 2024, and became effective the next day.
Who will be affected by this tax change?
Under the new law, general partnerships, limited partnerships, and similar entities will be treated as taxable persons unless they are classified as unincorporated partnerships.
This means that most partnerships will now need to register for corporate tax and pay taxes on their profits like any other company in the UAE.
However, partnerships can apply to be treated as transparent for tax purposes. This means the income earned by the partnership will not be taxed at the partnership level, but instead at the level of individual partners—if the Federal Tax Authority (FTA) approves their request.
When does the new rule start?
The law is already in effect as of May 11, 2024. All affected partnerships should begin reviewing their legal and tax structure immediately. Those who wish to be treated as tax-transparent need to apply to the FTA, and approval is not guaranteed.
Why did the UAE change the tax rule for partnerships?
The UAE introduced its federal corporate tax regime in June 2023, with a standard 9% tax rate on profits above AED 375,000. At that time, certain types of businesses, such as partnerships and sole proprietorships, were given some flexibility in how they were taxed.
Now, the government wants to close any legal gaps and make sure all types of businesses follow the same rules. This ensures that all entities pay a fair share of taxes and avoids confusion or tax avoidance.
According to the Ministry of Finance, this update was made to further clarify the treatment of different business forms and ensure compliance with global tax practices.
What is a tax-transparent partnership?
Under the new rules, partnerships may apply to be considered tax-transparent, which means:
- The partnership itself is not taxed
- Profits are passed through to the partners
- Partners pay tax individually, based on their share of income
This option is especially useful for foreign investors or family businesses, who prefer to manage taxes at the individual level rather than the business level.
But not all partnerships will be eligible. The FTA will assess each case individually.
What should partnerships do next?
Here are some steps partnership businesses should consider:
- Review their current legal status and structure
- Consult with tax advisors to understand the impact
- Apply for tax transparency if eligible and if it fits their needs
- Register for corporate tax with the FTA if required
- Keep updated financial records to meet reporting requirements
Partnerships that do not act fast may face penalties or compliance issues under the new system.
How does this fit into the bigger tax picture in the UAE?
This update is a part of a larger move by the UAE to become more fiscally responsible and globally aligned. Over the last few years, the country has introduced several tax reforms, including:
- Value Added Tax (VAT) in 2018
- Economic Substance Rules for offshore businesses
- Country-by-Country Reporting for large multinationals
- Corporate Tax in 2023
All of these steps are designed to increase transparency, attract high-quality investments, and avoid being blacklisted by global financial watchdogs.
Are there any exemptions or special cases?
Yes. Not all partnerships will be taxed in the same way. Some exemptions include:
- Investment funds structured as partnerships may still be treated as tax-transparent
- Entities under free zones may qualify for special tax treatments
- Foreign partnerships with no UAE income are generally not affected
However, these situations are case-specific, and partnerships should consult the Federal Tax Authority (FTA) or a legal expert to be sure of their status.
Why this matters for foreign investors and SMEs
This change could greatly affect foreign partners involved in UAE-based partnerships. They may now be required to file UAE tax returns or face new withholding tax obligations.
Small and medium-sized enterprises (SMEs), especially those that are family-run or structured as partnerships for flexibility, will also need to rethink their tax planning.
Understanding this shift is key to avoiding financial surprises, legal issues, or missed compliance deadlines.
Final thoughts: What lies ahead for businesses in the UAE?
With this latest rule, the UAE continues to build a modern and balanced tax system. While the change may seem complex at first, it brings long-term benefits:
- Fair treatment across business types
- Clarity on tax responsibilities
- Improved investor confidence
Partnerships, big or small, should take immediate steps to understand their tax obligations, review their legal setup, and stay compliant under the new corporate tax regime.
Failing to adapt could result in penalties, audits, or loss of legal protection.
The bottom line? The new rule isn’t just about taxes—it’s about preparing your business for the future of corporate regulation in the UAE.
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