The Ministry of Finance has introduced Cabinet Decision No. 261 of 2024, which updates the tax treatment rules for Unincorporated Partnerships, Foreign Partnerships, and Family Foundations. This decision, aligned with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, is a significant step towards enhancing clarity and compliance in the corporate tax framework.
This latest Cabinet Decision has broadened the base of eligible legal, juridical entities that can be considered transparent and might extend to companies incorporated under the companies’ law that meet certain substance conditions.
This article highlights the key aspects of the decision, effective June 1, 2023, and provides guidance to businesses and entities impacted by the changes.
Key Highlights of Cabinet Decision No. 261
1. Unincorporated Partnerships
Unincorporated Partnerships are not considered taxable persons unless they meet specific criteria as juridical persons. However, if they elect or are required to be treated as taxable persons:
- This status becomes irrevocable, barring exceptional circumstances approved by the Authority.
- The responsible partner must report changes in partnership composition (e.g., partner additions or departures) when filing the tax return for the relevant period.
2. Family Foundations
Family Foundations can be treated as unincorporated partnerships provided they meet additional criteria:
- Public benefit beneficiaries must not derive taxable income, or such income must be distributed within six months from the end of the relevant tax period.
Juridical persons wholly owned and controlled by Family Foundations can apply for similar treatment, provided they comply with specific requirements.
3. Foreign Partnerships
Foreign Partnerships may qualify as unincorporated partnerships under specific conditions:
- They must not be subject to a tax similar to Corporate Tax in their home jurisdiction.
- Each partner is liable for their distributive share of partnership income in accordance with the tax laws of their jurisdiction of residence.
- Annual declarations confirming compliance with these requirements must be submitted to the Authority.
4. Repeal of Previous Decision
Cabinet Decision No. 261 repeals Ministerial Decision No. 127 of 2023, ensuring a unified framework under the updated provisions.
How We Can Help
At XB4, we understand the complexities introduced by Cabinet Decision No. 261 and its implications for businesses and partnerships. Our team of seasoned tax professionals is here to guide you through assessing your entity’s compliance, preparing necessary declarations, and navigating the updated provisions with ease. For tailored advice or a consultation on how these changes may impact your organization, connect with our experts today.
