Are you a freelancer in the UAE? Do you know if you're required to pay corporate tax? As a freelancer, navigating the regulations around taxes can be confusing and overwhelming. 

Especially with recent changes to UAE's corporate tax laws, it can be challenging to understand what your obligations are. In this blog post, we'll explore whether freelancers have to pay corporate tax, how it works, and share some tips on how you can minimize your taxes. Keep reading to learn more!

What is UAE's new corporate tax?

The United Arab Emirates (UAE) recently implemented a new corporate tax system, which took effect on June 1st, 2023. This new tax applies to businesses operating within the UAE, including freelancers.

Under this new system, eligible companies will be subject to a flat rate of 9% on their annual taxable income. However, not all types of income are subject to this tax; for example, income from oil and gas activities is exempt.

The primary objective behind implementing the UAE's new corporate tax is to diversify its revenue streams away from oil and gas production. By introducing this taxation system at a relatively low rate compared to other countries in the region, it aims to promote business growth and attract foreign investors.

While some may view this change as an added burden on their operations, others recognize that it represents an opportunity for fairer competition among businesses. As such, freelancers should ensure they familiarize themselves with these updates if they haven't already!

Do freelancers have to pay corporate tax in UAE?

Salary, rent, dividends, and other forms of personal income that are unrelated to a trade or business performed within the UAE are not taxable, as has been made clear by the UAE Ministry of Finance. What about the corporate tax levied on those who hold or seek the relevant licenses to conduct commercial, manufacturing, and/or professional operations in the UAE, and how might that affect independent contractors? 

People who have been granted permission to work independently as a result of the new labor law for self-sponsored ex-pats should not be subject to corporate taxation on their individual income.

 If a worker with a business license is sponsored in a tax-free area and does work for other businesses, the sponsor will also have to pay taxes. Freelancers and independent contractors who operate under the umbrella of a corporation or license should not be taxed on the income they earn, but rather, the corporation or license hosting their visa should be responsible for paying employment taxes. 

How much corporate tax do freelancers have to pay in UAE?

When it comes to corporate taxes, freelancers in UAE are subject to a flat rate of 9%. This applies to the annual profits earned from their freelance work and is paid annually. However, the tax is only applicable if the freelancer's income exceeds AED 375,000 per year.

It is vital for freelancers in UAE to keep accurate records of their income and expenses throughout the year, as this will be used to calculate their taxable profits. Additionally, freelancers should also be aware that failure to pay corporate tax can result in penalties and fines.

Although paying corporate tax may seem like an additional expense for freelancers, it is essential to note that it contributes towards the development of infrastructure and public services within the UAE. Furthermore, paying taxes can also help boost a freelancer's credibility with potential clients.

While filing corporate tax returns may seem daunting at first glance, keeping accurate records throughout the year and seeking assistance from a professional accountants in UAE or tax advisor can make the process much simpler for freelancers operating in UAE.

Are there any exemptions for corporate tax for freelancers in UAE?

The UAE's corporate income tax law provides the following exemptions for income earned by individuals and independent contractors:

• A UAE resident's interest, dividends, and other earnings from deposits and savings plans. 
• Investment returns on real estate properties made by private individuals. 
• Individuals' gains in the form of dividend payments, capital gains, and other forms of investment income

Conclusion

Freelancers in UAE are not required to pay corporate tax unless their annual income exceeds the AED 375,000 threshold. The introduction of corporate tax may affect some freelancers who decide to set up a company in the future, but it is crucial to seek professional advice and understand the requirements before doing so. 

It is also worth noting that there are certain exemptions available, such as income from rent, dividends, capital gains, etc. While the introduction of corporate tax may seem daunting at first glance, it is essential for both individuals and businesses alike to stay informed about their tax obligations in order to avoid any potential penalties or legal complications down the line. It is best advised to consult a tax consultant in UAE.