Will income earned by a freelancer be subject to UAE CT?

The United Arab Emirates (UAE) has recently expressed that it will begin collecting a state corporate tax on corporate earnings in the year 2023. Earnings from operations conducted under a valid UAE license or permit are subject to corporate tax in UAE, however, no corporate tax is due unless the freelancer’s annual net income is more than AED 375,000^[1]. Since freelancers hardly earn this much money on an annual basis, it can be said that freelancers have nothing to worry about regarding corporation tax.

The UAE Ministry of Finance has clarified how individuals will not be taxed on salaries, rents, dividends, or any personal income that is unrelated to a trade or business conducted within the UAE, even though the tax hike will apply to all firms and commercial activities within the country.

In contrast, how would independent contractors be affected by the corporation tax charged to people who have, or are needed to get, a business license or license to engage in the appropriate commercial, manufacturing, and/or professional operation in the UAE? Individual earnings of those who have obtained the new freelance permission under the new labor law for self-sponsored ex-pats should be exempt from corporate taxation.

If a freelancer with a business license is sponsored in a free area and is carrying out certain activities for other enterprises, that supporter will also be subject to tax. Freelancers and independent contractors who do business through a corporation or license should not be taxed on the money they bring in as salary, but the business or license that is hosting their visa should pay taxes on the money they make. Contact Tax consultant Dubai for detail.

Who Will Pay Corporate Tax?

Even businesses operating in tax-free zones on the mainland will have to pay corporate tax returns online. Aside from the incentives, free zones will also be supposed to enter for corporate tax as submit it on a regular basis. In addition, it applies to people who do business, industry, or professional in the UAE. As an example, corporate tax in UAE will be applied to the income of self-employed people and people who work for themselves and make money. Also subject to taxation are non-UAE companies and citizens who maintain continuous or regular business operations within the Emirates. Therefore, the corporate tax would apply to foreign subsidiaries operating in the UAE. Furthermore, under certain conditions, a group of firms in the UAE can choose to form a tax cooperative and be classified as a single-taxed company.

What is the Taxable Income of an Individual?

If you’re an individual and you own a piece of real estate in your own name, you probably won’t have to pay corporate tax on it. A real estate firm would be liable to corporate tax at the usual rate if it owned a real estate company. Investors or other smaller assets are not taxable on an individual basis. However, corporate tax in UAE will be applied to freelance consulting and other comparable services because they are considered taxable companies. Foreign entities that execute temporary projects in the UAE but have no permanent establishment there are exempt from corporate tax. Dividends, capital gains, royalties, and other forms of investment return earned by a foreign investor are exempt from corporate taxation. However, international organizations and people will be required to pay corporate tax if they maintain continuous or periodic business operations in the United Arab Emirates.

Which income will be taxed?

Following the application of certain adjustments, a company’s taxable income will equal its accounting net profit (conditions to be specified).

The accounting net profit of a corporation is the amount shown in the financial statements made in line with widely accepted accounting standards. Losses incurred (as on the business tax effective date) are used to offset earned profit in succeeding financial quarters. As a recap, a loss for corporation taxes (called a “revenue loss”) would emerge when the entire deductions the company can claim are more than the income for the pertinent financial period.

What are the tax rates?

Different income tax for major corporations that meet particular conditions set with regards to Pillar Two of the OECD Energy efficiency improvement guidelines; 0% tax on taxation up to Dh375,000 (about USD 102,000); 9% tax on taxation above Dh375,000.

It’s a smart move on the part of the UAE government to impose a tax on freelancers with earnings above USD 102,000 since this would bring in a sizable sum of money for the government coffers. However, it will be difficult for freelancers with lower earnings to comply with the tax requirements. No matter if you earn this much annual income or not as a freelancer, you may still have to worry about regulatory requirements and obligations set out by the UAE corporate tax law.

Corporate Tax Advisory Services

Corporate tax is yet another huge step of the government of the United Arab Emirates towards the fastest growing and also it is a vitally significant framework that can influence almost all businesses in the UAE. It is always better to be prepared in advance when the government announces such laws and regulations. Consult Tax consultant Dubai to learn deeply about different aspects of corporation tax in the UAE.

^[1] https://u.ae/en/information-and-services/finance-and-investment/taxation/corporate-tax