Registration of the Unincorporated Partnership

The Federal Tax Authority (FTA) issued a decision on December 15, 2023, for determining the requirements for the registration of the unincorporated partnership and determining the distributive Shares of Partners in an unincorporated partnership.

What is an Unincorporated partnership?

Unincorporated partnership can be formed by two or more persons by contract, trust, or any similar association under as per Article 16 of the Federal Decree Law no. 47 of 2023.

It may not necessarily be a contractual relationship but even a verbal agreement or even the conduct between parties can give rise to an Unincorporated partnership.

Are Unincorporated partnership considered a Taxable person?

Unless an application to the FTA, an Unincorporated Partnership shall not be considered a Taxable Person. Instead, they will be treated as a Fiscal Transparent Entity.

What is a Fiscal Transparent Entity?

As per OECD (Organization of Economic Cooperation and Development) – Under this the partnership is ignored for tax purposes and the individual partners are taxed on their respective share of the partnership’s income.

The basic understanding is that entities are not taxed at the entity level, but at the level of the persons who have an ownership interest in that entity.

What are the requirements for registration of an Unincorporated partnership?

In an Unincorporated partnership, there should be one authorized partner that is required to meet any tax obligations.

The following is required to be done by the authorized partner –

Submit application with FTA to obtain a TRN for Corporate tax purposes.
Annual declaration on behalf of partners within but not more than nine months from end of relevant of Financial Year.
The declaration will contain data necessary to determine the taxable income of partners in the Unincorporated partnership.

In the scenario, the distributive share in the partnership cannot be determined, then the assets, liabilities, income, and expenditure of the Unincorporated Partnership shall be allocated equally to each partner in the Unincorporated Partnership.

What if an Unincorporated partnership doesn’t elect to be considered a Taxable person under Corporate Tax?

In the scenario, partners don’t elect to be treated as one Taxable Person for corporate tax purposes then they will be taxed individually based on their share of income or losses in the partnership.

In case there is an asset or liability disposed then each partner is treated as owning a fractional share in such asset or liability and will be subject to Corporate Tax on any taxable income derived from them.

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