Taxable Income of partners in an Unincorporated Partnership

Partners in an Unincorporated Partnership are taxed in accordance with the wider Corporate Tax regime. In particular, individuals that are partners in an Unincorporated Partnership are taxed on the same basis as if they were conducting Business on their own. Therefore, they are only subject to Corporate Tax on income arising from categories of Business and Business Activities that are subject to Corporate Tax for individuals (see Section5.3.3).

However, the partners in an Unincorporated Partnership may make an application to the FTA for the Unincorporated Partnership to be treated as a Taxable Person (i.e. to have the Corporate Tax liability be determined and assessed at the level of the partnership).299

Once the application is approved, and to the extent there are any individuals who are partners in that Unincorporated Partnership, Cabinet Decision No. 49 of 2023 will no longer be applicable in relation to the activities of those individual partners in the Unincorporated Partnership, as the Unincorporated Partnership, and not the partners, is treated as conducting the Business (unless the partners conduct other business or business activities separate from the Unincorporated Partnership). This means that all partnership income will be Taxable Income subject to Corporate Tax for the Unincorporated Partnership. The application will be deemed irrevocable except under exceptional circumstances and pursuant to approval by the FTA.300

Where the application for an Unincorporated Partnership to be treated as a standalone Taxable Person has been approved by the FTA, any Taxable Income for the partnership will be excluded from the Taxable Income of the partner.301 The partners will also exclude any gains or losses on the transfer, sale or disposal of all or part of their interest in the Unincorporated Partnership if this interest meets the conditions of the participation exemption (see Section 6.4.2).302

The Unincorporated Partnership needs to notify the FTA in case of any partner joining or leaving the Unincorporated Partnership within 20 business days.303

For further details on Unincorporated Partnerships, readers are advised to consult the relevant Ministerial Decisions, including Ministerial Decision No. 127 of 2023 on Unincorporated Partnership, Foreign Partnership and Family Foundation304

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