Corporate Tax for freelancers in UAE

UAE Corporate Tax (CT) is a tax companies and some natural persons (for example, freelancers and sole proprietors) pay on their profits.

To calculate it:

1. Start with the company's total income;
2. Subtract allowed expenses;
3. The result is taxable profit.

Important things to know:

• Not all income is taxable;
• Not all expenses can be subtracted;
• How dividends are taxed depends on where they come from.

CT rules can be different for each type of business. It's best to talk to a tax expert who can help you understand the rules for your company and pay the right amount of tax.
For example, to us.😉

Corporate Tax isn't just about companies. Let's check out the law:

For tax purposes, Resident Persons are people who are considered UAE residents regardless of where they actually live. Foreign individuals can also be considered residents if they meet certain criteria for being engaged in business activities.

Taxable Person is any person who earns more than AED 1 million annually from business operations in the UAE.

The tax base for the natural person is the worldwide income related to the business conducted by the natural person in the UAE.

In simpler terms, companies and people who do business in the UAE have to pay CT. All the money a person makes from their business, no matter where in the world it's from, will be taken into account when calculating their Corporate Tax in the UAE.

Tax threshold for natural persons is a lot higher than for companies.
Freelancers and natural persons conducting entrepreneurial activities can elect SME Relief and pay taxes only after turnover exceeds AED 3 million. If you don't cross it, your CT rate is 0%. If your revenue exceeds this amount, you'll have to pay a 9% Corporate Tax on any profits in excess.

Please note that you must register for Corporate Tax if your annual income exceeds AED 1 million.

In the UAE, there's no clear-cut definition for the term "freelancer" in law. It's generally understood as a person who does business or provides services on their own, with a license or not.
So, freelancers fall under the "individual" category, which means they have to pay taxes on the same basis.
Many freelancers work without a license, but this is not safe and can lead to heavy fines for the employers contracting such freelancers.

According to the new rules, companies and people who hire workers without the right registration could get fined from AED 100,000 to AED 1,000,000. If it happens again, the penalties will be from AED 50,000 to AED 200,000 for the same violations. It could also lead to other administrative issues, up to and including expulsion from the country.

FTA (Federal Tax Authority) can easily detect a blogger who sells advertising in his account without registration or a beautician who provides services without a license.

So, you've got your license, and what now? Registration and tax payments are only required if your yearly revenue is over AED 1 million. Once you hit that mark, you'll also need to keep accounting records in line with FTA and IFRS.
If your income is lower, just keep working and don't stress about the paperwork.

Tax period
Natural persons (and freelancers) taxes are calculated on a yearly basis. For this, use the period from January to December, based on the Gregorian calendar.

For example, if you start freelancing in 2024, your tax year would be January to December 2024. This fiscal year's reports need to be submitted by September 25th, 2025.

Calculate taxable income
Calculate your total income from freelance work. Taxable earnings are all the money you make from your business, minus any expenses you can claim like business costs.

Once you've got all the numbers and done the math, you need to work out how much you owe. By law, the first AED 375,000 will be tax-free. So if your income is less, you don't have to pay any taxes.

If your income was higher, then take the amount left after subtracting all your expenses, and that's the number you'll pay 9% in taxes on.

500,000 (you income) — 375,000 (tax-free income) — 25,000 (expenses) = 100,000 (taxable income). So, you have to pay AED 9,000.

So, as you can see, the formula might seem pretty simple, but it has a lot of pitfalls. We've covered all the possible problems in this article, so you know what to look out for. If you don't want to deal with the hassle of figuring it out yourself, just leave it to the experts.

You can get payments into a personal account if you want. But it's usually better to keep work expenses and personal expenses separate in two different accounts. It makes your accounting process much easier.

The FTA is a one-stop shop where all taxpayers can file their returns. Here are your steps to file your tax returns:

1. Register on the FTA website;
2. Log in to your account;
3. File your tax return.

Use the tools and forms on the website to prepare your report. Make sure you fill in all the required information, like your income, expenses, and any other financial details.

If you are a natural person, please pay attention to these fields:

• Is natural persons the Taxable Person a partner in one or more Unincorporated Partnerships?
• What is the TRN of the Unincorporated Partnership(s)?
• What is the Person’s Turnover from Business and Business Activity conducted in the UAE?
• Has the Taxable Person’s Financial Statements been prepared under the cash or accrual basis?

Actually, there are a lot of them. The rest of the fields and instructions on how to finish it you'll find in paragraph 4.1 of the actual law document.

If you're new to this or just need a break from the paperwork, feel free to ask for some help! We'd love to help out. We do accounting for businesses, entrepreneurs, and freelancers, and we know how to do it well. Why don't you give us a free intro call and we can talk about it? I'm sure we can figure out a solution for you.