The introduction of corporate tax in the United Arab Emirates (UAE) will impact many individuals conducting business there including freelancers, consultants and solo entrepreneurs. Here’s what you need to know and things to consider.
The new 9% corporate tax applies to individuals based in the UAE who offer consultancy, freelance, or other business services to local and international businesses and generate an annual income of AED 1 million or more (approximately £215,000) with at least Dh375,000 profits on that income. Under UAE corporate tax, the 9 per cent applies to those businesses that exceed Dh375,000 in profit over a year. That means a freelancer will be able to benefit from the 0 per cent rate on the first Dh375,000 (£80,443) of taxable income.
Who is affected by corporate tax in the UAE?
- Freelancers and consultants: Whether you’re a web developer, marketing freelancer or a legal consultant, if you’re operating as a sole trader in the UAE and hit the income threshold, you’ll need to register for corporate tax.
- Social media influencers: Your carefully curated Instagram feed and TikTok dances might generate big bucks, but they also fall under the tax net if you cross the AED 1 million mark.
- Retired professionals: If you’ve swapped the corporate grind for freelance gigs in the UAE, your expertise might come with a new tax bill.
What to prepare for:
- Registration: If you meet the income criteria, you’ll need to register for corporate tax with the UAE Federal Tax Authority. This involves providing details about your business and income.
- Tax filing: Get ready to file annual tax returns, reporting your income, expenses, and any applicable deductions.
- Tax payments: Prepare to pay corporate tax on your net profits, based on the established tax rate.
What are the next steps?
- Seek professional advice: Navigating the new tax landscape can be tricky. Consider consulting a tax adviser familiar with both UK and UAE regulations to ensure compliance and optimize your tax situation. Go to official government sites and professional legal and accounting associations for the latest news on doing business in the UAE and a list of professional advisers.
- Stay informed: Keep yourself updated on the latest developments and regulations regarding the UAE corporate tax. The Federal Tax Authority website and professional resources can be valuable sources of information.
- Plan ahead: Review your business structure, income and expenses, and potential tax implications to make informed decisions about your future operations in the UAE.
Under the corporate income tax legislation in the UAE, certain scenarios grant exemptions to individual or freelancer profits earned in their personal capacity, according to UAE accountancy Markef Accounting.
- Earnings such as interest, profits, and other income derived by individuals residing in the UAE from bank deposits or savings plans.
- Income generated from real estate investments by individuals in their personal capacity.
- Dividends, capital gains, and other income received by individuals from their ownership of shares or other securities.
Remember, every Emirate will have its own trading and tax rules depending on the type of business or services you provide and whether you are hoping to have Emirati clients or those outside the UAE. There are also some taxes you may not be aware of like rental tax, so we encourage you to look into this before heading out or signing any rental agreements.
Digital nomad v. freelancer
Both digital nomad visas and freelancer visas in the UAE allow you to live and work in the country remotely, but there are some key differences to consider when choosing which one is right for you:
- Digital Nomad Visa:
- Open to both employed and self-employed individuals.
- If you’re a business owner, proof of ownership of your company for one year or more.
- Three preceding months’ bank statements.
- Requires proof of high income (typically a minimum of £4420 (USD 5,000) per month).
- Cannot work directly with UAE-based businesses.
- Freelancer Visa:
- Primarily for self-employed individuals.
- It may have more lenient income requirements depending on the specific visa type.
- Allows you to work with UAE-based businesses.
Visa Duration and Renewability:
- Digital Nomad Visa:
- Typically valid for one year with limited or no renewal options.
- Designed for individuals who want to work and travel in the UAE for a shorter period.
- Freelancer Visa:
- Usually valid for two or three years with renewable options.
- Can offer a pathway to permanent residency for successful entrepreneurs.
- Digital Nomad Visa:
- Prohibited from taking on local clients or employment.
- Limited opportunities for building a professional network within the UAE.
- Freelancer Visa:
- May have restrictions on the types of work you can do depending on the visa type.
- Requires compliance with UAE business regulations and taxes.
- Cost: Both visa types involve application fees and associated expenses, but costs may vary depending on the specific visa and processing time.
- Documentation: Both require proof of income, health insurance, and other documents, but the specifics may differ.
What to consider:
- Choose a digital nomad visa if you’re a high-earning remote worker looking for a temporary base to explore the UAE while working for your overseas clients.
- Choose a freelancer visa if you’re self-employed, plan to work with UAE-based clients, and potentially envision building a longer-term career in the country.
It’s important to consult with a qualified immigration specialist to determine the best visa option for your specific circumstances and ensure you meet all the requirements. They can also provide you with the latest information on visa fees, processing times, and any changes to the visa regulations.
Setting up on the mainland v. Free Trade Zones
Setting up a freelance business in Dubai can be done in either the mainland or one of the many free trade zones (FTZs), but each option comes with its own set of advantages and disadvantages. Here’s a breakdown of the key differences:
- Direct access to the local market: Operating from the mainland allows you to directly engage with local clients and build a strong presence in the UAE market.
- A wider range of activities: Businesses on the mainland have more flexibility in terms of the types of services they can offer, compared to some FTZs which may have specific industry restrictions.
- No foreign ownership restrictions: Local sponsors are not required for most freelance businesses on the mainland, although specific licenses may have individual requirements.
- Higher setup costs: Establishing a mainland business typically involves higher costs, including licensing fees, office rentals, and visa expenses.
- More complex procedures: Setting up a business on the mainland involves navigating more bureaucratic processes and obtaining various licenses and permits.
- Local sponsorship may be required: Some professions on the mainland require a local sponsor, even for freelancers.
Free Trade Zones (FTZs):
- Simplified setup: FTZs offer streamlined procedures and reduced paperwork compared to the mainland, making it quicker and easier to establish your business.
- Tax benefits: FTZs typically offer various tax benefits, including exemptions from corporate income tax, import duties, and VAT.
- 100% foreign ownership: FTZs generally allow full foreign ownership of companies, eliminating the need for a local sponsor.
- Limited access to the local market: Operating from an FTZ may limit your direct access to the local market and require additional steps to engage with local clients.
- Restricted activities: Some FTZs have specific industry limitations, so it’s crucial to ensure your business activity is permitted within the chosen zone.
- Renewals and visa fees: Certain FTZs have annual renewal fees and visa requirements that can add to ongoing costs.
Best choice for your freelance business will depend on your specific needs and priorities:
- Consider your target market: If your main focus is on local clients, the mainland might be a better option. For international clients, an FTZ could be advantageous.
- Evaluate your budget: Mainland setup costs are generally higher, while FTZs offer tax benefits that can offset ongoing expenses.
- Think about your business activity: Ensure your desired business activity is permitted in your chosen location, whether mainland or FTZ.
It’s always recommended to consult with a professional business setup advisor in Dubai who can analyse your specific situation and provide personalized recommendations based on your business goals and budget.
- Always verify the qualifications and experience of any advisor before working with them.
- Be clear about your specific needs and requirements when seeking advice.
- Obtain quotes from multiple advisors before making a decision.
Remember, the UAE corporate tax is still in its early stages, and there might be future adjustments and clarifications. But by staying informed and taking proactive steps, you can ensure your freelance business in the UAE thrives under the new tax regime.
- Network with other freelancers in the UAE to gain insights and support.
- Stay updated on the latest regulations and requirements for foreign freelancers in the UAE.
Here are some resources:
- Dubai International Financial Centre (DIFC): https://www.difc.ae/
- Abu Dhabi Global Market (ADGM): https://www.adgm.com/
- Sharjah Media City (SMC): https://www.uaefreezones.com/fz_sharjah_mediacity.html
- Ministry of Human Resources and Emiratisation: https://www.mohre.gov.ae/en/home.aspx
- Golden Visas: ICP Smart Services
- Federal Authority for Identity and Citizenship: https://smartservices.icp.gov.ae/
- Local lifestyle and things to do: Time Out Dubai