The UAE Ministry of Finance has recently announced that a new corporate tax will be applied to all businesses and commercial activities in the country, including freelancers. This means that freelancers who earn more than AED 375,000 (US$102,000) per year will now be required to pay tax on their income.
This change has come as a surprise to many freelancers, who were previously able to enjoy the tax benefits of self-employment. However, the UAE government has said that the new tax is necessary to “level the playing field” between businesses and freelancers, and to ensure that everyone is paying their fair share of taxes.
The new tax regime is still in its early stages, and there are a number of unanswered questions. For example, it is not yet clear how the tax will be calculated for freelancers who work with multiple clients. The UAE Ministry of Finance has said that it will provide more information in the coming months. In the meantime, freelancers in the UAE should start preparing for the new tax regime by understanding their obligations and seeking professional advice if necessary.
The Tax Enigma. A Freelancers’ Dilemma
For a normal freelancer in UAE, the loop of tax and its intricacies has always been tasking. Simply because the choice of work that each individual wants to freelance in will come with their own set of regulations. The introduction of the new corporate tax regulations in 2023 has highlighted the need for freelancers to understand the impact on their financial strategies. As the UAE takes steps to align itself with international tax standards, freelancers are left pondering several significant questions:
- How will the new tax affect freelancers in UAE?
- Does the Emirates’ popularity as a tax-free nation still hold value?
- What exactly does corporate tax involve, and how does it relate to freelancers?
- What changes can freelancers expect regarding licences and permits?
- What exemptions are available for freelancers under the new corporate tax regulations?
- What considerations should freelancers keep in mind when engaged in moonlighting?
- Who can provide expert advice to freelancers wanting to make transitions to strategies that help and protect their financial growth?
The New Tax in UAE marks the beginning of a new era
The UAE’s transformation in 2023 is due to its steadfast commitment to global tax transparency and is also in alignment with the Organization for Economic Co-operation and Development (OECD). Federal Decree-Law No. 47 of 2022 has made it possible for corporate tax on commercial profits, creating a legal framework that will shape the Emirates’ tax plan work in the present and the long term future. It is here to stay. The new law shows the UAE’s intention to embrace international standards while maintaining its popularity as a business-friendly hub.
Corporate Tax. What and for whom?
Let’s break down the new tax in UAE word by word before we tap into its other implications on freelancers.
A “corporate” is any legal entity, individual, group of people, or company allowed to conduct a business. “Tax” is the financial charge a government demands from its people to collect revenues to maintain, protect and build facilities for the public.
The said entity includes but is not limited to :
- Foreigners or foreign entities conducting regular or consistent business in the UAE
- Entities with limited liability, commonly known as LLCs
- Partnerships with limited liability (excluding unlimited partner liability)
- Investment funds are organised as a distinct legal entity
- Companies with public shareholding
- Publicly traded joint stock companies
- Branches of foreign legal entities established within a free zone
A tax-paying citizen is recognised as a responsible citizen and establishes your active participation in supporting government initiatives, making you a valuable contributor to the growth and development of the UAE. Even though the “corporate tax” paints a picture of intimidating paperwork, please know that it also means that freelancers have the opportunity to be part of the tax-paying community. The corporate tax, in essence, is levied on the income and profits earned by businesses, including freelancers who operate as individual entities. However, this does NOT INCLUDE ALL freelancers. For freelancers in UAE, the threshold for taxable income stands at AED 375,000. If your annual earnings hit this number or beyond, the new corporate tax regulations apply only to you.
In simple terms: Any business act transacted in the UAE under a trade licence or permit, including income or profit earned from freelance work (if the taxable income is over AED 375,000), comes under the UAE corporate tax laws. Therefore, if you’re a licensed freelancer in UAE who is earning taxable income over AED 375,000, you must pay the applicable corporate tax as per the new law in UAE.
YOU are Exempted, IF:
Every regulation, every rule has its exemptions. The Corporate tax law is no different.
Within this framework, specific scenarios in new tax in uae provide freelancers with relief from corporate tax:
- Freelancers with New Freelance Permits: If you’re a freelancer who has obtained the new freelance permit, available to self-sponsored expatriates under the new labour law, you won’t have to pay corporate tax on the money you earn as profits from your freelancing work. This means you get to keep more of your earnings.
Example: You are an expatriate in the UAE who decided to become a freelance graphic designer. You applied for and received the new freelance permit. As your earnings cross the threshold, you realise you won’t have to pay corporate tax on the profits you make from your graphic design projects.
- Freelancers Sponsored in a Free Zone: If you’re a freelancer sponsored in a free zone, you might be required to pay corporate tax, depending on your earnings. However, if you’re also employed by a business and receive a salary, you won’t have to pay income tax. Instead, the company that sponsored your visa will be responsible for paying income tax on the money it earns as net profit.
Example: You are a freelance writer sponsored by a free zone in the UAE. You earn money from your writing projects, and because your earnings exceed the threshold, you need to pay corporate tax on those profits. However, you also work part-time for a company as a content creator and earn a monthly salary. In this case, you don’t need to worry about income tax on your paycheck; the company that hired you will handle the income tax on its overall earnings.
To summarise, the rules for freelancers’ taxes depend on whether you have a new freelance permit, where you are sponsored (free zone or employment), and the nature of your income. These rules are designed to ensure fairness and clarity in tax responsibilities for freelancers and the companies you are with.
The Moonlighting freelancer in UAE. How the new tax in uae affects you
In the world of freelancing, moonlighting has progressed massively to being a sizable secondary income. Moonlighting refers to engaging in secondary or alternative work alongside being employed by another entity. As freelancers juggle multiple income streams, understanding the intricacies of moonlighting and its potential impact on tax liability becomes paramount.
Moonlighters in the UAE typically require a licence or permit to engage in freelance work in the UAE legally. The requirement for a licence depends on the type of moonlighting you are doing and the regulations of the specific emirate or free zone you are operating in. This licence ensures that moonlighters are authorised to conduct their freelance activities and comply with relevant laws and regulations.
For instance, if you are a moonlighter working as a freelance graphic designer, writer, or any other service provider, you may need to obtain a freelance licence or permit from the respective authorities. This licence validates your status as a legitimate freelancer and allows you to offer your services within the legal framework.
Now, the big Question. How does the new law in the UAE affect moonlighting in Dubai or UAE? If your total earnings from both jobs go over AED 375,000, you have to pay a 9% tax on the extra money you make. Hence, you must keep track of your earnings, plan for taxes, and file your taxes correctly and on time. You must stay informed and consider seeking expert help to handle your taxes correctly.
The famous Influencer. Tax on the virtual voice.
With virtual media platforms opening up opportunities for everyone, talent has become a huge income source for many individuals. Especially for freelancer in UAE, the opportunity and income is quite sizable. The virtual world has opened up new markets for everyone from graphic designers and content creators to social media influencers and writers. Freelancers encompass a broad spectrum of professions. You may be already familiar with a few such as these:
- Social Media Influencer: A social media influencer creates content and partners with brands to promote products or services. The income earned from collaborations and sponsored posts fall within the scope of taxable income .
- Graphic Designer: A graphic designer offering design services to various clients operates as a freelancer. Your income surpasses AED 375,000 so you must navigate the new corporate tax regulations.
- Content Writer: Freelance writers who produce articles, blogs, and website content are subject to corporate tax if their annual earnings exceed the threshold.
- Web Developer: With a growing demand for digital solutions, freelance web developers must also consider corporate tax implications as their income rises.
Collaborations and Group Ventures
So what happens when you collaborate as a freelancer in UAE? Freelancers collaborating with peers in your industry or forming groups to undertake larger projects introduce complexity.
Imagine you and a fellow freelancer teaming up for a creative project, such as designing, filming, writing, or promoting. If the money you both earn together goes over AED 375,000, the new UAE tax rules come into play. You must calculate and pay a 9% tax on the earnings beyond that limit.
Therefore carefully considering the tax while planning your project and ensuring proper documentation for accuracy is crucial. Awareness of these tax regulations will help you and your collaborator successfully manage your freelancing partnership without any anxiety about the new tax in uae. Collaboration and corporate tax will interact and affect your tax payments in multiple ways.
Collaborations involving freelancers in UAE can lead to the following scenarios:
- Pooling of Income: As a freelancer in UAE, you combine your skills and resources, and the pooled income may surpass the AED 375,000 threshold, which means each of you are liable to pay corporate tax.
- Shared Liabilities: Based on your contributions as individuals, collaborators may allocate tax liabilities, raising questions about the fair distribution of tax obligations.
- Legal Structures: Tax regulations differ if collaborators plan to opt for a legal structure such as a joint venture.
While the above are just a few ways in which your journey as a freelancer will be affected due to the new law in UAE, more scenarios will surely crop up. Hence,you should prioritise accurate income distribution documentation and financial transactions to ensure compliance with tax regulations.
Exploring Art and Entertainment
Freelancers in the art and entertainment sectors occupy a unique space within the corporate tax environment. From musicians and painters to actors and filmmakers, your earnings stem from creative ventures that transcend traditional business models. The introduction of corporate tax raises intriguing questions for these artists:
- How will corporate tax apply to art exhibitions or performances’ incomes?
Artists and entertainers who are freelancers in UAE earn income from creative ventures such as art exhibitions, performances, and entertainment gigs. Under the new law in UAE, the revenue generated from these activities could be taxed if it surpasses the AED 375,000 threshold. Artists and entertainers must carefully track their income from such exhibitions and performances.
- How can artists benefit from the corporate tax exemptions available to freelancers?
As Artists, you can leverage the corporate tax exemptions available to a freelancer in UAE. These exemptions provide a relief mechanism that allows artists to manage their tax liability more effectively. Artists holding the new freelance permit are exempt from corporate tax on their profits. This exemption mainly benefits those who operate under this permit, enabling you to retain more of your earnings. Additionally, artists who engage in collaborations or group endeavours can evaluate the implications of pooled income on your tax liability, potentially optimising your tax obligations.
- What role does collaboration play in the art and entertainment industry, and how can it affect taxation?
Artists often collaborate on projects, exhibitions, and performances as collaborations enhance creativity and offer diverse perspectives. But collaborations also come with complexities related to taxation. As artists, you collaborate, you may pool your incomes, and collectively, your earnings could surpass the AED 375,000 threshold. This collective income could trigger corporate tax liabilities.
While Collaborating, you must carefully consider how you distribute tax liabilities among yourselves based on your contributions to the project. The legal structure chosen for collaboration also impacts taxation. Opting for a partnership or joint venture might influence tax liabilities differently than individual freelancing. Collaborators should also maintain accurate income distribution and financial transaction documentation, ensuring compliance with tax regulations.
In conclusion, UAE freelancers must change how they approach their finances. It is best to keep the following in mind as a summary of this article on the new law in UAE – the corporate tax in 2023.
- Benchmark: As a freelancer, you must pay your taxes if your total income crosses AED 375,000.
- Tax Planning: You should proactively plan to optimise your tax liability. Planning may involve exploring your options with good tax advisors to get the best deductions and exemptions available under the corporate tax regulations.
- Financial Documentation: Accurate documentation of earnings, expenses, and transactions is vital. This documentation not only helps you comply with tax regulations but also assists in making responsible financial decisions.
- Impact due to collaborations: Crossing the income threshold might necessitate a review of pricing strategies. Always understand how a partnership will affect your finances by seeking advice from a good consultancy. Seeking such help ensures that the financial implications of corporate tax are factored into the overall business plan.
- Consulting Experts: Navigating the taxation implications of collaborations requires a nuanced approach. Seeking guidance from financial experts like Nair and Nelliyatt Chartered Accountants can help artists and freelancers make informed decisions, manage tax liabilities, and foster successful collaborative efforts.
Why approach us?
In the ever-evolving domain of corporate tax regulations, freelancers need more than just information; they need trusted partners who can guide them through the intricacies of new tax in uae. Nair and Nelliyatt Chartered Accountants, with years of experience and comprehensive understanding of the UAE’s financial ecosystem, have in-depth knowledge of freelancers’ dilemmas related to tax and related paperwork
Our Approach
Putting all freelancers together under one bracket is unfair. As a freelancer, each of you will have exemptions and regulations that might apply to the specific industry you are working in. We fully understand that. Nair and Nelliyatt’s corporate tax advisory services take pride in catering to freelancers’ unique needs by:
- Assessing Tax Liabilities: Our experts dive into your financial situation to identify potential tax liabilities, offering transparency and assurance.
- Strategising for Tax Optimisation: Working closely with freelancers, we create strategies that optimise tax liability and ensure compliance.
- Accurate Documentation and Reporting: We pay meticulous attention to documentation and reporting to ensure that freelancers are prepared to tackle compliance challenges.
- Getting Through Corporate Tax Registration: Navigating the registration process becomes streamlined with our expert guidance, ensuring freelancers meet all the necessary compliance requirements.
- Expert Insights on VAT Regulations and Exemptions: Nair and Nelliyatt Chartered Accountants provide comprehensive insights into the VAT regulations, enabling freelancers to understand obligations and exemptions.
Embrace the Future: Nair and Nelliyatt by Your Side
The UAE’s corporate tax era presents freelancers in UAE with an opportunity to redefine financial strategies. The shifts are monumental, but you can confidently navigate these changes with the right partners by your side. In this transformative time, trust experts with a proven track record of guiding businesses through changes. With Nair and Nelliyatt Chartered Accountants as your trusted advisors, you’re not just surviving, but thriving in the new law in UAE.
Conclusion
The corporate tax in the UAE and the regulations that it applies to a Freelancer signifies a shift in the country’s business path. As freelancers comprehend and manoeuvre the rules maze; growth and compliance opportunities increase. The world of freelancing in the UAE is evolving, and Nair and Nelliyatt are prepared and equipped to help these multi-skilled economic contributors.
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