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Corporates Taxes and Freelancing: What You should Know if You are a Freelancer!

By Sakshi Srivastava - 16 May 2022 Last Updated: 16 May 2022
Corporates Taxes and Freelancing: What You should Know if You are a Freelancer!

Table of Contents 

  1. 1. What will be covered in this Blog?
  2. 2. Who will fall under the Purview of the UAE's Corporate Tax?
  3. 3. Who can avail Exemptions?
  4. 4. When will it be Applicable?
  5. 5. What effect will it have?
  6. 6. Conclusion

Corporate tax can be defined as a type of direct tax applied on 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 country's history, the United Arab Emirates has enacted a federal company tax.

For the first time in the UAE, a federal Corporate tax will be implemented in 2023. Despite the fact that 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. How will the corporation tax affect freelancers who have company licenses or authorizations to engage in commercial, industrial, and/or professional activities in the UAE? 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!

What will be covered in this Blog?

The following questions as illustrated below will be covered in this Blog-

Who will fall under the Purview of the UAE's Corporate Tax?

  • 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, as well as international tax information exchange.

  • Except for the extraction of 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 mentioned are those who will be taxed under this regime-

  1. All actions carried out by a legal entity will be considered "business operations," and will be subject to corporate taxation.

  2. Individuals who hold (or are obliged to hold) a company license or permission in the UAE to conduct the appropriate commercial, industrial, and/or professional activity will also be liable to corporation tax. This category can be used by freelancers who have a business license or permission.

  3. Corporate tax will be imposed on companies and individuals who do business in the UAE on a regular or ongoing basis.

  4. Enterprises operating in free zones will be subject to corporation tax, but the new tax regime will keep the incentives currently offered to businesses that meet all regulatory criteria and do not conduct business on the mainland.

  5. UAE corporate tax applies to companies who operate in banking, real estate management, construction, development, agency, and brokerage.

  6. All legal businesses and individuals are required to register and file an annual tax return for corporation tax reasons.

Who can avail Exemptions?

The following will not be Taxed under this Regime-

  1. Salary and other sources of income from employment (public or private).

  2. Individuals may invest in real estate in their own capacity in the UAE if they do not require a license or authorization.

  3. Dividends, capital gains, and interest are all examples of earnings from owning stocks or other securities for personal use.

  4. 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:

  1. Dividends and capital gains from the company's "qualified shareholdings"

  2. Intragroup trades and reorganizations are evaluated. To separate tax-exempt earnings, firms may need to adopt specific reporting and presentation templates for their accounts.

Foreign investors' dividends, capital gains, interest, royalties, and other investment returns are normally not taxed.

Under the new corporate tax structure, no withholding tax will be paid on any domestic or cross-border payments of any sort.

Read More:How do VAT Implications affect the Healthcare Sector in the UAE ?

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 begins on January 1, 2023, and ends on December 31, 2023, will be liable to UAE corporation tax beginning January 1, 2024. This necessitates organizations and individuals to begin planning ahead, whether it is 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 a careful examination of the document to determine the threshold parameters and applicable tax rate is a must.

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, as well as double tax treaties, among other things. The UAE currently 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 for the first time in the country. The new changes also underscore the country's commitment to satisfying international tax transparency and anti-avoidance requirements.

Conclusion

With the rising economy and growing business opportunities in the United Arab Emirates, the scope for Freelancing has also escalated. Taxation regime is also recurring therefore having true knowledge about all the new and relevant changes in the taxation regime can be immensely beneficial to you and help grow and support your Freelancing Career as well. We hope this blog provided you with insightful information. For more information on other related aspects, feel free to check out our website as well.

Dhanguard provides the business setup and company formation services in Dubai, UAE with the guidance of our professional team of consultants. Faster and hassle-free company setup in Mainland and Freezone in UAE.

Dhanguard provides faster and hassle-free Trade License with minimum paper work. With the guidance of our professional team of consultants you will get General trading license, Freelance license, Etrader license, Event Management License, Travel Agency license in Mainland and Freezone in UAE.

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