On November 19, 2024, the UAE Ministry of Finance (MoF) issued Ministerial Decision No. 261 of 2024, which revises the treatment of Unincorporated Partnerships, Foreign Partnerships, and Family Foundations under the UAE Corporate Tax (CT) Law. This new decision, effective retroactively from June 1, 2023, repeals and replaces Ministerial Decision No. 127 of 2023. The updated guidelines introduce significant changes to notification requirements, tax transparency conditions, and the treatment of Family Foundations, aiming to simplify compliance and align with global tax standards.
The key amendments introduced by this MD are as follows :
1. Unincorporated Partnership (UP) notification: In case an UP elects to be treated as tax opaque for UAE CT purposes, the partner responsible to comply with the Partnership’s UAE CT obligations (on behalf of the Unincorporated Partnership), must notify the FTA of any partner joining or leaving the UP. While the deadline for this notification used to be 20 business days from the occurrence of a partner joining / leaving the UP, the new MD states that this notification shall be made when filing the UAE CT annual return.
2. Foreign Partnerships (FP): As per the UAE CT Law, FPs may be treated as tax transparent for UAE CT purposes, provided certain conditions are met. The new MD introduces some amendments to these conditions, as follows:
- The UAE CT Law includes a condition according to which each partner in the FP needs to be individually subject to tax with regards to their distributive share of any income of the FP as and when the income is received by or accrued to the FP. The new MD now clarifies that this condition is met “if the FP is not subject to tax in its own right in the foreign jurisdiction”. Therefore, to meet this condition, FPs are no longer required to monitor and map how other jurisdictions tax their foreign partners, greatly simplifying the assessment of this condition.
- Previously, there was a requirement for adequate arrangements to exist between the FP’s jurisdiction of establishment and the UAE, for the purpose of sharing tax information of the partners in the FP. This requirement is now revoked.
3. Family Foundations: The new MD simplifies the wording of the already existing clarification in relation to Public Benefit Entities and introduces a cutting-edge extension to the UAE Corporate Tax UP regime (i.e., tax transparency). While Family Foundations can apply to be treated as tax transparent, the new MD goes one step further and extends such possibility to any juridical person (meaning any company or similar vehicle, such as an SPV) wholly owned and controlled by a tax transparent Family Foundation. For this purpose, the juridical person must ensure that:
- It meets the same requirements as for Family Foundations to be treated as tax transparent;
- It is, directly or indirectly, wholly owned and controlled by the Family Foundation, through an ownership chain exclusively comprised by tax transparent entities for UAE CT purposes.
Ministerial Decision No. 261 of 2024 represents a pivotal step toward refining the UAE’s Corporate Tax framework. By easing compliance requirements for Unincorporated Partnerships and Foreign Partnerships and extending tax transparency options for Family Foundations, the MoF reaffirms its commitment to fostering a business-friendly environment. Businesses operating under these categories should carefully review the updated provisions to ensure full compliance and optimize their tax planning strategies under the new regime.
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Contributor
Matilde Barroso is an accomplished international tax specialist with extensive experience in leading tax roles across the UAE, Saudi Arabia, and Portugal. Currently a Manager at Alvarez & Marsal, she has previously worked with EY and KPMG, advising on corporate tax, M&A, and international tax strategies. A qualified lawyer, she holds a Master’s in Tax Law and a Bachelor’s in Law from Universidade Católica Portuguesa.
