Under Article 16(7) of the UAE Corporate Tax Law, a foreign partnership must meet specific conditions to qualify for tax transparency relief:
• Condition (a): ‘The Foreign Partnership is not subject to tax under the laws of the foreign jurisdiction’.
• Condition (b): ‘Each partner in the Foreign Partnership is individually subject to tax with regards to their distributive share of any income of the Foreign Partnership as and when the income is received by or accrued to the Foreign Partnership’.
Earlier the Minister ruled that ‘each partner in the Foreign Partnership will be considered to be subject to tax if they would be subject to tax on their distributive share of
any income in the Foreign Partnership in the jurisdiction in which the partner is a tax resident’.
This (literal) interpretation of Condition (b) places an additional burden in situations where partnerships consist of multiple partners, some of whom may:
• Not be “individually subject to tax” on their distributive share of income, and/or
• Be taxed in their jurisdiction of residence only when the partnership distributes income, rather than when the income is received or accrued by the partnership.
If even a single partner is not subject to tax on the partnership's income within the specified timeframe in their jurisdiction of residence, the entire partnership is rendered opaque. While this requirement is undoubtedly burdensome, it is mandated by law and must be strictly observed.
