Corporate tax is a new topic for businesses operating in the UAE. Therefore, everyone has a different question in mind regarding corporate tax. One of these questions is what will be the case for freelancers in the new corporate tax regime. The question is simple; however, there are different ways of looking at it. In this blog, we will try to answer this question with the available information. The primary source of information for corporate tax is Federal Decree-Law No. 47 of 2022.
Corporate Tax for Freelancers in the UAE
The general rate of corporate tax is 9% for taxable income of over AED 375,000. However, the rate of corporate tax for taxable income of up to AED 375,000 is 0%. Furthermore, there are several reliefs available to businesses. For instance, businesses can avail themselves of small business relief if they meet certain conditions.
Who is a freelancer?
The word “freelancer” covers a lot of different aspects. Commonly, a person who is self-employed is regarded as a freelancer. A freelancer usually works on his or her own. Unlike traditional employees, freelancers work independently and are not bound to a long-term contract with a single employer. Instead, they engage in short-term contracts or projects with multiple clients. Some advantages of freelancing include the ability to have a diverse clientele and the potential for a higher income. Furthermore, freelancers usually work on their terms, thus providing them with freedom.
Corporate tax for freelancers
If the freelancer is carrying on a business or business activity, then it will be subject to corporate tax. The topic is subject to further clarification.
What if a freelancer needs a permit or a license?
If an individual in the UAE needs a license or permit to operate his or her business, then it will be subject to corporate tax. Therefore, if a freelancer obtains a license or a permit, he or she will be subject to corporate tax. This applies to all commercial, industrial, and professional activities.
What if a freelancer is subject to corporate tax?
Even if a freelancer is subject to corporate tax, he or she may not be liable to pay corporate tax. This is because there is a 0% corporate tax on taxable income (adjusted net profits) up to AED 375,000. So only income above AED 375,000 will be subject to 9% CT. Furthermore, if the revenue does not exceed AED 3 million in a relevant tax period, the business might claim relief. This is called small business relief. However, it is subject to other conditions. For further details, check out this blog on Small Business Relief. In order to maintain its attractiveness for individuals and entrepreneurs, the UAE offers relief for small businesses.
Key to success: always consult an expert
There are areas in taxation where there is a need for an expert opinion or consultancy. Corporate tax for freelancers is an area where consulting an expert might be necessary, at least in the beginning. Therefore, in order to free your mind from legal issues, try consulting an expert. Creative Zone Tax & Accounting will be a suitable choice in this case, as they have a team of tax experts.
Conclusion:
In conclusion, the introduction of corporate tax in the UAE has ignited inquiries regarding its impact on freelancers. While there are certain provisions and reliefs in place, such as the 0% tax rate for income up to AED 375,000 and small business relief, the precise implications for freelancers remain somewhat unclear and require further clarification. Consulting with tax experts can be instrumental in understanding the intricacies of corporate tax. As the UAE continues to evolve its tax regime, staying informed and seeking professional guidance will be key for freelancers to navigate the complexities of corporate tax and thrive in their independent ventures.
Creative Zone Tax & Accounting
Not sure whether you will be liable for corporate tax as a freelancer? Making the wrong decision is sometimes more harmful than making no decision. It is never too late to consult an expert. We at Creative Zone Tax & Accounting assist small businesses and entrepreneurs with our in-house team of experts. From your bookkeeping needs to financial statements and taxation, we are here to assist you. Feel free to contact us for any of your business needs.
