Partnership Electing to Be Taxed as Entity

In the UAE, most partnerships don’t prefer paying corporate tax as a business. Instead, each partner pays tax on their part of the income. But in some cases, a partnership can choose to be taxed like a regular company. In this case, Vertix Auditing helped a consulting firm with multiple partners make that choice. We guided them through the process, so their tax setup matches their business needs.

Client Background

Our client, ABC Partners, is an Abu Dhabi Mainland-based consulting company. The company gives advice on strategy, finance, and project management to both government and private clients in the UAE. The firm was set up as a civil partnership with three equal partners, each contributing their own specific domain of expertise.

The business made over AED 5 million a year, but the partners were worried about the complicated individual corporate tax filings, unequal income sharing, and not having a clear financial system under the default tax rules.

Challenges Faced in Partnership Taxation

The key issue was that, under the default UAE Corporate Tax rules, ABC Partners was not considered a taxable entity. Instead, each partner was required to assess and report their own share of the firm’s profits individually.

This created several practical challenges:

• Partners were involved at different levels and took out different amounts, causing disputes over how income was taxed.
• There was no shared financial report or audit since the partnership wasn’t taxed as a business.
• Tax reporting was inconsistent, especially since one partner lived in the UAE and the other two were from abroad.
• The firm couldn’t access some benefits like bidding for contracts or using corporate banking services.

The partners needed a more centralized, formal, and consistent approach to taxation.

Our Solution

After carefully reviewing the situation and talking with the partners, Vertix Auditing suggested that the partnership should choose to be taxed as a company, as allowed under Article 16 of the Corporate Tax Law.

• We clearly explained the advantages and disadvantages of making this choice, including the legal steps, filing rules, and how it would affect their taxes in the future. All three partners saw the benefits and agreed to go ahead with the change.
• We prepared all the needed documents and sent the application to the FTA, making sure everything was done on time and followed the proper steps.
• To support the new tax setup, we created a clear chart of accounts, set up Quickbooks for their accounting, and prepared financial statements that followed IFRS rules.
• We helped create a clear policy for sharing profits and setting partner salaries as per transfer pricing rules, so everything was fair, easy to understand, and matched the new company setup.
• With the election in place, Vertix Auditing coordinated the first external audit of the partnership and prepared the corporate tax return as a single taxable unit, rather than individual filings.

Results and Client Feedback

Choosing to be taxed as a company has given the partners more clarity and control. They no longer need to file taxes separately. Instead, they have a streamlined financial system that allows them to worry about their business rather than taxes. The client is pleased with the new structure and has begun engaging us for additional corporate services.

Continue Reading: 5 Practical Corporate Tax Case Studies in 2025