Corporate Tax can be defined as direct Tax applied to a corporation's or business entity's net income or profit. It's also known as a 'business profit tax' or a 'corporation income tax.' For the first time in the UAE, a federal Corporate tax is implemented in 2023. Even though the new Tax will apply to all UAE enterprises and commercial activities, the UAE Ministry of Finance has stated that individuals will not be taxed on income from employment, real estate, equity investments, or other sources unrelated to a UAE trade or business. For freelancers in Dubai, comprehending the taxation framework and the essentials surrounding freelance taxes and licenses is pivotal to ensuring compliance and optimizing financial endeavours. Thus, in today’s blog, Dhanguard will discuss, in length, the new Corporate Taxation Regime in the United Arab Emirates. So, without any further ado, let’s begin!
Who will fall under the Influence of the UAE's Corporate Tax?
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It will be imposed across the board as a federal tax. As a result, corporation tax administration, collection, and enforcement will fall under the jurisdiction of the Federal Tax Authority. The UAE Ministry of Finance will continue to be the "Competent Authority" for the UAE in terms of bilateral and multilateral agreements and international tax information exchange.
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Except for extracting natural resources, which will remain subject to emirate-level corporate taxation, the corporation tax will apply to all firms and commercial activities in the UAE.
Below are those who will be taxed under this Regime-
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All actions carried out by a legal entity will be considered "business operations" and subject to corporate taxation.
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Individuals who hold (or are obliged to) a company license or permission in the UAE to conduct the appropriate commercial, industrial, and professional activity will also be liable to corporation tax. This category can be used by freelancers with a business license or permission.
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Corporate Tax will be imposed on companies and individuals who do business in the UAE regularly or continuously.
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Enterprises operating in free zones will be subject to corporation tax. Still, the new tax regime will keep the incentives offered to businesses that meet all regulatory criteria and do not conduct business on the mainland.
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UAE corporate tax applies to companies that operate in banking, real estate management, construction, development, agency, and brokerage.
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All legal businesses and individuals must register and file an annual tax return for corporation tax reasons.
Who can avail of Exemptions?
The following will not be Taxed under this Regime-
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Salary and other sources of income from employment (public or private).
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Individuals may invest in real estate in their capacity in the UAE if they do not require a license or authorization.
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Dividends, capital gains, and interest are all examples of earnings from owning stocks or other securities for personal use.
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Interest and other types of revenue from bank accounts and savings plans.
The following income should not be subject to UAE corporate tax for firms - the circumstances for these exemptions are still being worked out:
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Dividends and capital gains from the company's "qualified shareholdings"
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Intragroup trades and reorganizations are evaluated. Firms may need to adopt specific reporting and presentation templates for their accounts to separate tax-exempt earnings.
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Foreign investors' dividends, capital gains, interest, royalties, and other investment returns usually are not taxed.
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Under the new corporate tax structure, no withholding tax will be paid on domestic or cross-border payments.
When will it be Applicable?
The UAE corporation tax will be implemented beginning on July 1, 2023, and ending on June 30, 2024. However, a company whose financial year starts on January 1, 2023, and ends on December 31, 2023, will be liable to UAE corporation tax starting January 1, 2024. This necessitates organizations and individuals to begin planning, whether for the execution of the measures, providing employee training, or maintaining a compliance strategy. Of course, the UAE corporate law has yet to be published. Therefore, carefully examining the document to determine the threshold parameters and the applicable tax rate is necessary.
What effect will it have?
The new corporation legislation might have a multifaceted impact on foreign direct investment into the UAE, where investors are concerned about profits. For existing firms, issues could include the applicability of pre- and post-tax returns and double tax treaties. The UAE intends to follow international best practices in developing a leading global hub for investment and enterprises while accelerating the country's strategic objectives for future growth, having introduced a new corporate tax regime. The recent changes also underscore the country's commitment to satisfying international tax transparency and anti-avoidance requirements.
Freelancing in Dubai: Understanding the Landscape
With its thriving economy and encouraging business environment, Dubai has been welcoming freelancers from diverse industries. As a freelancer in this vibrant city, your tax obligations depend on various factors, including your residency status, the nature of your services, and the income you generate.
Freelancer License: A Prerequisite
One of the initial steps for freelancers in Dubai involves acquiring the necessary permits and licenses. The freelancer license, also known as the 'Dubai Economic Department (DED) Permit', is typically required for conducting business activities as an independent professional. This license legitimizes your freelance actions and is mandatory to operate legally in the region.
Tax Obligations for Freelancers in Dubai
Understanding Tax Residency
Tax residency plays a pivotal role in determining your obligations. For instance, if you reside in Dubai for a significant period exceeding 180 days in a fiscal year, you are considered a tax resident. As a tax resident, you are subject to taxation on your global income. However, Dubai, known for its favourable tax policies, does not impose personal income tax on individuals, including freelancers.
Corporate Taxes and Freelancers
While there is no personal income tax in Dubai, freelancers might be subject to other taxes related to their business activities. The UAE's Corporate Tax Regulations provide that taxable income over AED 375,000 is subject to corporate tax. Once their income is over the AED 375,000 threshold, freelancers and self-employed independent contractors in the UAE are subject to this tax framework. Corporate tax implications come into play when a freelancer operates as a corporate entity. For instance, specific tax regulations may apply if a freelancer establishes a company or serves as a 'Free Zone Entity'. Understanding the tax structure concerning corporate entities is crucial, and seeking professional advice is recommended for compliance.
Do freelancers are obligated to Pay Corporation Tax?
It's crucial to remember that if their income exceeds the AED 375,000 threshold, freelancers in the United Arab Emirates and other self-employed independent contractors are also liable to the corporate tax structure. But when it comes to corporate tax, particular situations apply to independent contractors:
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Under the new labour law for self-sponsored ex-pats, freelancers who possess the new freelance authorization are immune from paying corporate tax on their earnings.
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The sponsoring company will be responsible for corporation tax if freelancers with business licenses are sponsored in a free zone and work for other companies.
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When freelancers work for companies, they are not personally liable for income tax on their wages. Instead, the company that grants their visa will pay income tax on net profit.
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When freelancers work for companies, they are not personally liable for income tax on their wages. Instead, the company that grants their visa will pay income tax on net profit.
Corporate Tax Exemptions for Freelancers
Certain situations allow individual or freelancer revenues made in their capacity to be exempt from corporation income tax under UAE law.
These consist of:
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Earnings from bank accounts or savings plans that residents of the UAE get, including interest, profits, and other sources of income.
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Money received by people acting in their capacities from their real estate investments.
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Income obtained by individuals from their ownership of shares or other securities, including dividends and capital gains.
Key Considerations and Best Practices
Some critical Considerations to follow are:
Record-Keeping and Accounting
Maintaining meticulous income and expense records is essential for efficiently managing tax obligations. Efficient bookkeeping ensures transparency in financial transactions and aids in accurate tax filings.
Consultation and Compliance
Seeking guidance from tax consultants or legal experts like Dhangurad specializing in Dubai's taxation laws is highly advisable. We can offer tailored advice and assist in navigating the intricate landscape of corporate taxes and freelancing.
Continuous Awareness and Adaptability
Given the dynamic nature of tax regulations, staying updated with any amendments or changes in the tax laws is crucial. Adaptability and proactively aligning with revised tax requirements are pivotal for compliance.
Conclusion
For freelancers in Dubai, the interplay between corporate taxes and independent work mandates a comprehensive understanding of legalities and obligations. While the absence of personal income tax offers an advantageous landscape, navigating the intricacies of freelancer licenses, corporate entities, and tax residency status necessitates diligent attention and proactive measures. By staying informed, seeking professional guidance, and maintaining accurate records, freelancers can effectively manage their tax responsibilities and thrive in Dubai's flourishing freelance industry. The taxation regime is also recurring; therefore, having proper knowledge about all the new and relevant changes in the taxation regime can immensely benefit you and help you grow and support your Freelancing Career. We hope this blog provided you with insightful information. For more information on other related aspects, check out our website.