Will a Freelance Professional be Subject to UAE Corporate Tax?

As per the regulations of corporate tax in the UAE, any taxable income exceeding AED 375,000 will be subject to Corporate Tax. This tax system will also be applicable to freelancers and independent contractors in the UAE who work for themselves if their income goes beyond the AED 375,000 limit. Before heading deeper into how UAE corporate tax applies to freelancers, let’s take a look at the diverse aspects of corporate tax and implications. 

UAE Corporate Tax

The UAE's business strategy is centred on fostering the entrepreneurs and innovators of tomorrow. Being the pro-business hub, the nation provides businesses with unparalleled access to cutting-edge infrastructure, technological advancements, 100% foreign ownership, and a tax-free culture. These advantages draw hundreds of professionals to the UAE each year in search of intriguing career prospects. This is why the Ministry of Finance of the UAE published Federal Decree-Law No. 47 of 2022, which establishes the legal foundation for corporate tax on commercial profits in the UAE. 

The UAE has taken this step to follow international norms and comply with Pillar 2 of the OECD's Global Minimum Tax Plan. According to the law, starting with their first fiscal year beginning on or after June 1, 2023, taxable individuals and businesses must pay a 9% corporation tax. It is critical to assess how the UAE corporate tax will apply to both individuals and businesses in the future given that it is the first time the country has chosen to impose it.

You can also read: UAE Corporate Tax on Free Zones

Do Freelancers Have to Pay Corporate Tax?

Corporate tax is best understood as a type of direct tax assessed against the net earnings or profits of a corporate entity or other legal entity engaged in business. It is also frequently referred to as "business profit tax" and "corporate income tax." The Ministry of Finance (MOF) has produced a list of important recommendations that serve as instructions for the application of the corporate tax in UAE in conjunction with the announcement of the new tax regime.

Except for resource extraction, all business and commercial activities in the UAE will be subject to the UAE corporation tax. The Federal Tax Authority (FTA), a government body that was established in 2016, is in charge of managing, collecting, and enforcing the UAE's corporation tax system. The UAE announced a federal order on corporate and company taxation on December 9, 2022, setting the stage for a 9% rate on taxable profits of more than AED 375,000 ($102,000). Profits below AED 375,000 will therefore be taxed at 0%; this threshold was established in line with the government's initiatives to support startups and small and medium-sized businesses.

You can also read: How Corporate Tax Will Affect your Business in the UAE?

The Corporate Tax regime will also apply to freelancers in UAE and other independent contractors who work for themselves if their income exceeds the AED 375,000 threshold. The law dictates that these independent contractors must have a license or permit. Many eventualities that apply the corporate tax for freelancers are as follows:

• Those who have the new freelance permit, which is provided under the new labor law for self-sponsored expatriates, are not required to pay corporate tax on their profits.
• If freelancers with business licenses are sponsored in a free zone and engage in any activity for other businesses, the sponsor will be charged corporate tax.
• Freelancers who work for a business will not be subject to income tax on the money they make from salaries; rather, the business that issues the visa will be subject to income tax on its net profit.

Corporate Tax for Freelancers: Exemptions

The following situations are where the corporate income tax law in the UAE exempts individual or freelancer profits made in their capacity:

• Interests, profits, and other earnings made by a person residing in the UAE from bank deposits or savings plans.
• Income derived from real estate investments by individuals in their capacity.
• Dividends, capital gains, and other income received by individuals from their ownership of shares or other securities

How can CDA assist the Freelancers in UAE? 

Business owners have always regarded the UAE as a tax-free oasis. By introducing the new corporate tax regime, the UAE intends to follow worldwide best practices in developing a leading global hub for businesses while advancing the nation's strategic objectives for further growth. This necessitates that organizations and freelancers start preparing right away and engage the services of tax experts like CDA. Whether it's for the deployment of countermeasures, training personnel, or formulating a compliance policy, our professionals can handle your company's accounting and auditing demands and assist you in becoming UAE corporate tax ready. If you are a freelancer having any confusion regarding the corporate tax on your income, get in touch with CDA professionals for your guidance. 

With our assistance, you can ensure compliance and reduce your tax liability. For a FREE CONSULTATION, get in touch with our tax professionals today.