Does UAE Corporate Tax apply to Freelancers?
AED 375,000 or more of taxable income is subject to corporate tax in the UAE under the Corporate Tax regulations.
As long as their income exceeds AED 375,000, the tax system will also apply to freelancers and independent contractors in the UAE.
In this article, Zyla Accountants take a look at how UAE corporate tax impacts freelancers will give you a better understanding of how the tax works.
UAE Corporate Tax
Creating entrepreneurs and innovators of tomorrow is at the heart of the UAE's business strategy. With a tax-free culture and high-tech infrastructure, the nation is regarded as a pro-business hub. These advantages attract hundreds of professionals to the UAE every year in search of exciting career opportunities. In order to establish the legal framework for corporate tax on commercial profits in the UAE, the Ministry of Finance published Federal Decree-Law No. 47 of 2022.
It follows international norms and complies with Pillar 2 of the OECD's Global Minimum Tax Plan. From June 1, 2023, all taxable individuals and businesses will have to pay 9% corporation tax.
The UAE corporate tax must be assessed in light of the fact that this is the first time the tax has been imposed on both individuals and businesses.
Is Corporate Tax payable by freelancers?
An entity engaged in business is given a corporate tax as a direct tax on its earnings or profits. In conjunction with the announcement of the new tax regime, the Ministry of Finance (MOF) has released a list of important recommendations that serve as instructions for how to apply the corporate tax in the UAE. It is frequently called "business profit tax" and "corporate income tax."
The UAE corporation tax will apply to all business and commercial activities except for resource extraction. As the government body responsible for managing, collecting, and enforcing the UAE's corporation tax system, the Federal Tax Authority (FTA) was established in 2016. As of December 9, 2022, the UAE will tax taxable profits of more than AED 375,000 ($102,000) at a rate of 9%. Small and medium-sized businesses will therefore be taxed at 0% on profits under AED 375,000; this threshold was established in line with government initiatives to support startups.
Freelancers and other independent contractors working for themselves in UAE will also be subject to the Corporate Tax regime if their income exceeds AED 375,000. Licenses and permits are required for these independent contractors. The corporate tax is applicable to freelancers in many circumstances, including:
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.
Exemptions for freelancers from corporate tax
Profits made by individuals or freelancers in their capacity are exempt from corporate income tax in the UAE in the following situations:
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
If you would like support with the new Corporate Tax, get in touch with Zyla Accountants today to prepare you and your business.