Unincorporated business vs incorporated business (Corporate Tax Implications)

Here’s a concise comparison of liability between unincorporated and incorporated businesses:

Unincorporated Business (e.g., Sole Proprietorships and Partnerships, Civil Company)

  • Personal Liability: Owners are personally liable for all debts and legal obligations of the business.
  • Risk to Personal Assets: Personal assets (house, car, savings, etc.) are at risk if the business cannot meet its obligations..
  • Corporate Tax Registration: The partners in an Unincorporated Partnership that is not treated as a Taxable Person must appoint one of the partners to be the authorised partner to act on behalf of all the partners in any tax obligations and procedures. The authorised partner shall be required to do the following: 1. Submit an application to the Authority to register the Unincorporated Partnership for purposes of Corporate Tax in accordance with the forms specified by the Authority in order to obtain a Tax Registration Number. 2. Submit an annual declaration on behalf of all the partners in the Unincorporated Partnership within a period not exceeding (9) nine months from the end of the relevant Financial Year of the Unincorporated Partnership or part thereof
  • Where the Authority approves the application submitted by the partners for the Unincorporated Partnership to be treated as a Taxable Person , the Unincorporated Partnership that is a Taxable Person must comply with the provisions of the Corporate Tax Law.
  • The partners of Unincorporated Business can also elect to be taxed as natural persons individually if their revenue from all business sources (except income from salary, personal investment, real estate income) is 1m or above, then each partner will be register under corporate tax and do compliance of corporate tax law provisions. The same rule will apply to sole establishments and natural persons..
  • Incorporated Business (e.g., Corporations, LLCs)
  • Limited Liability: The business is a separate legal entity, shielding owners from personal liability for most business debts and legal issues.
  • Risk to Business Assets: Only the assets owned by the business are at risk, protecting the owner’s personal assets in most cases.
  • Corporate Tax Registration : All LLC companies are required to register under corporate tax and do compliance of corporate tax law provisions.