One of the more intriguing questions raised by the interaction between the UAE Corporate Tax regime and Pillar Two is whether a UAE unincorporated partnership can enter the GloBE architecture as an “Entity” in the first place.
That question is more important than it may seem. Before asking whether an unincorporated partnership is tax transparent or opaque for Pillar Two purposes, before asking how its income should be attributed, and before asking whether it could become relevant for a domestic minimum tax computation, one must first determine whether there is an Entity to which the GloBE definitions can attach at all. Under the OECD Model Rules and UAE DMTT Rules, that is not a rhetorical point. It is the beginning of the analysis. A Flow-through Entity is, by definition, still an Entity.
The issue becomes especially acute in the UAE because an Unincorporated Partnership is not, as a matter of domestic corporate tax design, treated in the same way as a company. The UAE Corporate Tax Law starts from the proposition that an Unincorporated Partnership is generally fiscally transparent,[1] but it also allows an election for the partnership to be treated as a Taxable Person.[2] The existence of that election invites the tempting conclusion that, once opacity is elected, the partnership simply steps into Pillar Two as an entity-level taxpayer. That conclusion may ultimately prove correct in some cases, but it skips over a prior question: is the arrangement an Entity under the GloBE definitions at all?
[1] Corporate Tax Law, Article 16, Clauses 1, 3 and 4.
[2] Ibid, Clauses 8 to 10.
The OECD starting point
1. Article 10.1 of the Model Rules[1] adopts a broad definition of Entity. It includes not only a legal person other than a natural person (Group A), but also an arrangement that prepares separate financial accounts, such as a partnership or trust (Group B).[2] On these terms, the OECD Commentary[3] makes clear that separate legal personality is not required in every case. In the Commentary to Article 10.3.1, the OECD says that paragraph (a) “does not require the Entity to be a legal person”, and gives as an example “a partnership that is considered a tax resident in a jurisdiction”.[4] That is a powerful interpretive clue. It demonstrates that the GloBE framework is capable of accommodating partnerships that lack separate legal personality, provided they fit within the relevant definitional structure.
2. But that does not eliminate the problem. It only shifts it. If legal personality is not required, then one still needs to identify the alternative basis on which the arrangement becomes an Entity. In the case of a UAE Unincorporated Partnership, that alternative basis is the requirement that the arrangement prepare separate financial accounts.
3. This point matters because the UAE Unincorporated Partnership is, by design, ordinarily understood as a contractual or quasi-contractual arrangement between partners rather than a separate juridical person. The FTA itself explains that unincorporated partnerships are essentially arrangements between two or more persons, rather than distinct juridical persons separate from their partners.[5]
4. Accordingly, if a UAE unincorporated partnership is to fall within the OECD concept of Entity, the more natural route is not the “legal person” limb, but the “arrangement that prepares separate financial accounts” limb.
[1] OECD (2021), Tax Challenges Arising from Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/782bac33-en.
[2] Similar rules are included in Article 18.1 of the UAE DMTT Rules annexed to Decision No. 142 of 2024.
[3] OECD (2025), Tax Challenges Arising from the Digitalisation of the Economy – Consolidated Commentary to the Global Anti-Base Erosion Model Rules (2025): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/a551b351-en.
[4] Para 180.
[5] Corporate Tax Guide on Taxation of Partnerships No. CTGPTN1, Sec. 3.1.
Why the “Entity” question comes before the “flow-through” question
5. The definition of Flow-through Entity in Article 10.2.1 confirms the sequencing. It begins with the words “a Flow-through Entity means an Entity…” and then proceeds to describe the tax treatment of that entity. In other words, the arrangement must already qualify as an Entity before one can ask whether it is flow-through, tax transparent, or a reverse hybrid.
6. This is not merely formalism. It has a real analytical consequence. If a particular arrangement never satisfies the threshold definition of Entity, then the subsequent GloBE categories built on that definition do not apply to it in the ordinary way. In that case, it would be premature to debate transparency or opacity, because the arrangement would first fail to qualify as an Entity.
Transparent and opaque partnerships in the UAE
7. Under the UAE Corporate Tax Law, an Unincorporated Partnership is generally fiscally transparent,[1] but the partners may apply for it to be treated as a Taxable Person.[2] Once approved, the partnership itself determines its Taxable Income and pays Corporate Tax on its own profits instead of the partners. The FTA guide states this expressly.
8. That domestic election does not, by itself, answer the OECD Article 10.1 question. A separate tax return is not the same as separate financial accounts. But it is still highly relevant, because the UAE rules treat fiscally opaque and fiscally transparent partnerships differently in a way that bears directly on whether the Article 10.1 requirement is met.
Fiscally opaque unincorporated partnership: the clearer case
9. For a fiscally opaque Unincorporated Partnership, the UAE materials provide a comparatively clear basis for saying that partnership-level financial accounts are maintained.
10. The FTA guide states that where the partners have successfully applied for the partnership to be treated as a Taxable Person, the FTA may request Financial Statements directly from the Unincorporated Partnership.[3] It further states in section 7.3.2 that, “if the Unincorporated Partnership is treated as a Taxable Person, i.e. fiscally opaque, it is required to file its Tax Return based on the period for which it prepares Financial Statements, in the same way as any other Taxable Person”. That wording is important because it does not merely assume the filing of a tax return. It links the filing obligation to the existence of Financial Statements prepared for the relevant period. The guide also states that if the revenue of a fiscally opaque Unincorporated Partnership exceeds AED 50 million, the partnership is required to prepare and maintain audited Financial Statements.[4]
11. The law supports this reading. Article 54(1) allows the FTA “by notice or through a decision issued by the Authority, request a Taxable Person to submit the financial statements used to determine the Taxable Income … in the form and manner and within the timeline prescribed by the Authority”, while Article 54(2) authorises the Minister of Finance designating categories of Taxable Persons required to prepare and maintain audited or certified financial statements. Since an opaque Unincorporated Partnership is treated as the Taxable Person in respect of the partnership business, the path from UAE domestic law to the OECD requirement of separate financial accounts is relatively direct.
12. Accordingly, in the case of a fiscally opaque UAE Unincorporated Partnership, there is a strong argument that the arrangement falls within the second limb of Article 10.1 as an arrangement that prepares separate financial accounts.
Fiscally transparent unincorporated partnership: the more inferential case
13. The position is more delicate for a fiscally transparent unincorporated partnership. Here, the partnership is not itself the Taxable Person in respect of the partnership business. Rather, the partners are taxed on their distributive shares.[5] That means the explicit provisions directed at a Taxable Person do not map onto the partnership itself in the same way as they do in the opaque case.
14. However, this does not mean that there is no indication of partnership-level financial accounts. On the contrary, Article 54(3) of the Corporate Tax Law authorises the FTA to request a partner in an Unincorporated Association to provide Financial Statements showing both:
- the total assets, liabilities, income and expenses of the Unincorporated Partnership, and
- the partner’s distributive share in those items.
The FTA guide repeats this in almost identical terms for a fiscally transparent Unincorporated Partnership.[6] Section 7.3.1 states that, “if the Unincorporated Partnership is treated as fiscally transparent, the partners are the Taxable Persons who are required to file a Tax Return based on their own Tax Period”, while “the authorised partner … is required to file a declaration with the FTA pertaining to the total assets and liabilities, the income and expenses of the Unincorporated Partnership, and the distributive share of each partner, within 9 months from the end of the relevant Financial Year of the Unincorporated Partnership or part thereof”.
15. That wording is significant. The guide ties the required declaration to the Financial Year of the Unincorporated Partnership itself, even though the partners remain the Taxable Persons and file their own Tax Returns by reference to their own Tax Periods. Article 54(3) does not say that, upon request, the partner must newly prepare such financial statements for the first time. It says the partner may be required to provide them. The natural implication is that such partnership-level financial information is expected already to exist and to be capable of being produced to the FTA. Put differently, while the law does not impose as explicit a standalone maintenance obligation on the transparent partnership itself as it does in the opaque case, it gives a strong indication that the partnership’s assets, liabilities, income and expenses are maintained in a sufficiently separate accounting form to permit those statements to be furnished when requested.
16. This is not the same as saying that every transparent unincorporated partnership is subject to an express partnership-level obligation to prepare and maintain audited financial statements. The FTA guide is careful to distinguish the audit threshold: for a fiscally transparent unincorporated partnership, the AED 50 million threshold applies at the level of each partner, whereas for a fiscally opaque unincorporated partnership it applies at the level of the partnership itself. That distinction should be preserved.[7] But the absence of an equally explicit audit obligation at partnership level does not eliminate the inference arising from Article 54(3): if the FTA may require partnership-level financial statements to be provided, the legislative assumption appears to be that they are already maintained, at least in substance, for the partnership as such.
[1] Article 16, Cl. 1.
[2] Ibid, Cl. 8.
[3] Sec.7.4.
[4] Ibid.
[5] Ibid, Cl. 3.
[6] Corporate Tax Partnerships Guide No. CTGPTN1, Sec. 7.4.
[7] Sections 7.4 and 5.3.
Provisional conclusion
17. The UAE rules suggest that, for Pillar Two classification purposes, both a fiscally opaque and a fiscally transparent Unincorporated Partnership are capable of falling within the same broad Article 10.1 framework as an arrangement that prepares separate financial accounts, although the strength of the argument is not identical in the two cases.
18. In the case of a fiscally opaque Unincorporated Partnership, the argument is the strongest. Once the application under Article 16(8) is approved, the partnership itself is treated as a Taxable Person, and the FTA may request from that Taxable Person the financial statements used to determine its Taxable Income.
In addition, categories of Taxable Persons may be required to prepare and maintain audited or certified financial statements. Therefore, where the opaque partnership exceeds the applicable threshold, the case for treating it as an arrangement with separate financial accounts is especially direct.
Even where the opaque Unincorporated Partnership is below the threshold, the argument remains strong. The absence of a threshold-based audit requirement does not alter the fact that the partnership itself has become the Taxable Person and that the law contemplates the submission of the financial statements used to determine its Taxable Income. Accordingly, the case for Entity classification does not depend exclusively on exceeding the threshold. The threshold simply makes an already strong argument even stronger.
19. In the case of a fiscally transparent Unincorporated Partnership, the route is less explicit but still persuasive. Article 54(3) authorises the FTA to request a partner in an Unincorporated Association to provide financial statements showing the total assets, liabilities, income and expenses of the partnership, together with that partner’s distributive share. That wording does not suggest that such statements are to be created only after the request is made. Rather, the statutory language is more naturally read as presupposing that partnership-level financial information is already maintained and can therefore be furnished to the Authority when called for. On that basis, Article 54(3) provides meaningful support for treating even a fiscally transparent Unincorporated Partnership as falling within the same general Article 10.1 concept of an arrangement with separate financial accounts.
20. Accordingly, the distinction between fiscally opaque and fiscally transparent Unincorporated Partnerships should not be overstated at the level of Entity classification. For Pillar Two purposes, both are likely capable of being analysed within the same conceptual category of arrangement under Article 10.1. The real difference lies not in whether either can in principle be an Entity, but in the degree of explicitness of the supporting UAE rules:
- strongest for an opaque partnership above the threshold,
- still strong for an opaque partnership below the threshold, and
- more inferential but nevertheless substantial for a transparent partnership by virtue of Article 54(3).
Disclaimer
Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.
The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.
You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.
