UAE Corporate Tax Update: FTA releases summary of clarifications

On 9 July 2026, the UAE Federal Tax Authority (FTA) issued a summary of private Corporate Tax (CT) clarifications issued to May 2026.

The summary covers a number of areas, including the UAE tax treatment of foreign partnerships, the scope of specific Qualifying Activities under the Qualifying Free Zone Person (QFZP) regime, and certain general provisions of the CT Law.

This update summarises some of the notable aspects of the new guidance concerning topics that have been subject to ongoing debate and which, in some cases, introduces interpretations that are not immediately apparent from the wording of the underlying legislation.

Foreign Partnerships

The FTA summary has clarified a number of frequently debated questions concerning the application of tax transparent treatment to a foreign (i.e. non-UAE) partnership, including that:

• an unincorporated foreign partnership that is not a juridical person is treated as tax transparent by default, whereas Article 16(7) of the CT Law could only be applied to foreign partnerships that are juridical persons;
• where Article 16(7) applies (in relation to incorporated foreign partnerships), filing of the annual declaration is regarded as one of the conditions / prerequisites to obtain tax transparent treatment.

The first clarification may be unexpected for many taxpayers, particularly as it implies default application of (UAE) unincorporated partnership treatment to both UAE and non-UAE partnerships that lack separate legal personality (i.e. notwithstanding that the CT law defines an unincorporated partnership as “a relationship established… in accordance with applicable legislation in the UAE” and therefore does not, prima facie, confirm default treatment for a foreign partnership lacking separate legal personality).

The apparent default tax transparent treatment for foreign unincorporated partnerships could be helpful in mitigating risk and uncertainty associated with investments by UAE persons in non-UAE partnerships (without legal personality) as this in should, in principle, mitigate the risk of a foreign partnership being regarded as a reverse hybrid (including associated implications in the foreign jurisdictions, if such jurisdictions have anti-hybrid rules in place).

Notwithstanding the clarification, this interpretation also raises a question over whether the remaining provisions concerning unincorporated partnerships also apply to foreign partnerships without separate legal personality (including whether taxpayers may make an election to regard a foreign partnership as a separate taxable person – i.e. not tax transparent, as well as whether such election could be made retrospectively).

QFZP regime: holding of shares and other securities for investment purposes

The FTA has clarified that disposal of shares (or other securities) within the 12 months of their acquisition may not automatically disqualify a taxpayer conducting a qualifying activity of ‘holding shares and other securities for investment purposes’ from the QFZP regime, if the taxpayer can demonstrate that the intention was to hold those shares for at least 12 months. The FTA further referred to a scenario where shares or securities are placed with an investment manager with a discretionary mandate (confirming the specific terms under which disposal of the investment in such scenario should not taint the taxpayer’s QFZP status).

This is a helpful clarification, which suggests greater flexibility for QFZPs undertaking relevant investment activities to navigate the market and business environment, potentially allowing more frequent revision and rebalancing of their investment portfolios (specifically where activities have been delegated to an investment manager).

Notwithstanding this clarification, uncertainty remains as to what other circumstances (if any) might allow a QFZP to demonstrate the intention to hold relevant shares and other securities for more than 12 months, or whether the FTA’s reference to investments placed with an asset manager with a discretionary mandate should be interpreted as a special (and perhaps the only) case where a taxpayer conducting the qualifying activity of holding shares and other securities would not lose that status should such investment(s) be divested before the end of the required 12 months ownership period.

QFZP regime: headquarter services

Whilst a QFZP conducting headquarter services does not need to undertake all of the activities listed as headquarter services, the clarification emphasises the FTA’s expectation that for such a QFZP to act as a headquarter, it should take responsibility for the overall success of the group, or an important aspect of the group’s performance, and ensure corporate governance.

The clarification specifically states that where a company does not provide overall group management and instead only provides a specific service (such as routine IT support ) to a specific related party rather than the whole group, it is unlikely to be regarded by the FTA as conducting the qualifying activity of headquarter services.

QFZP regime: treasury services

The clarification confirms that the qualifying activity of financing and treasury services covers both short-term and long-term investments in securities such as US treasuries and corporate bonds, in addition to cash deposits.

It remains unclear, however, as to what parameters should be considered when determining whether a specific investment has been made that is within the scope of the qualifying activity of ‘financing and treasury services to related parties’ (or for the taxpayer’s own account). For example, it is unclear whether consideration would be given to such matters as:

• the liquidity of the investment(s) made (particularly as liquidity of corporate bonds may vary significantly), in light of the taxpayer’s or group’s expected cash requirements;
• the relative size of the treasury investment portfolio in comparison with the taxpayer’s or group’s business (in cases where the treasury function’s role is the investment of own ‘free funds’) or whether an alternative approach should be adopted to distinguish active investment/proprietary trading business from the investment of ‘free funds’ by way of treasury function.

QFZP regime: QFZPs operating across multiple free zones and jurisdictions

The publication re-confirms the adequate substance condition to access the QFZP regime should be assessed independently in relation to each qualifying activity, whilst aggregating a QFZP’s presence across free zones it operates in (including activities undertaken across free zone branches, where a QFZP operates through multiple branches). The publication also re-emphasises that domestic and foreign permanent establishments should be treated as separate and independent entities such that their income (as adjusted under transfer pricing rules) and activities are not taken into account when assessing compliance with QFZP rules.

Participation Exemption

Clause 1 of Article 23 of the CT Law refers to exemption from UAE CT of all income from participating interests meeting relevant conditions. Clause 5 of the article further provides that specific types of income shall not be taken into account when determining taxable income; however without explicit reference to the position that Clause 5 overrides the apparently more general exemption provided under Clause 1.

The FTA summary clarifies that the FTA’s view is that fair value gains or losses are not covered by the exemption, although impairment gains or losses are covered. Such interpretation creates the potential for unequal treatment of the overall economic return on an investment during its lifecycle, depending on the basis for its recognition in the financial statements (and may penalise businesses recognising their investments at fair value).

Comment

The new clarifications provide welcome additional guidance on the interpretation of the UAE CT framework. At the same time, certain positions (notably those concerning the treatment of foreign partnerships and the scope of the participation exemption) may give rise to practical challenges and warrant careful consideration in the context of both existing structures and future transactions.

Businesses are advised to review the potential impact of these clarifications on their current and intended positions.