Navigating the new year: Freelancers, small businesses and the corporate tax law

Insights into the implications, relief mechanisms and compliance strategies
Navigating the new year: Freelancers, small businesses and the corporate tax law
2024 is the first taxable year for most businesses and entrepreneurs under the new UAE corporate tax law.

With the dawn of a new year, we encounter resolutions and fresh beginnings. For freelancers and small businesses in the United Arab Emirates, this year marks a significant change in the tax landscape with the introduction of the new UAE Corporate Tax Law (Federal-Decree Law No.47 of 2022). This legislation becomes effective for financial years commencing from June 1, 2023. Since the majority of businesses in the UAE adopt a financial year beginning on January 1, 2024 signifies the first taxable year for most businesses and entrepreneurs under this new law.

Will I be subject to tax if I am an individual freelancer?

The short answer to the above is: It depends. Generally, individuals earning income from employment, personal investments and real estate investments would not be subject to tax in the UAE on such income. Conversely, individuals would be subject to corporate tax in the UAE on income generated from conducting business or business activities in the UAE, permanent establishments in the UAE, or UAE-sourced income.

Freelancers in the UAE are considered to be engaged in a business or business activity for tax purposes. Consequently, individual freelancers would be liable for corporate tax on their business or business activities. This includes freelancing in the UAE if the total turnover derived from activities exceeds AED 1 million during a Gregorian calendar year. However, freelancers may wish to explore the potential application of double tax treaties to their tax residency, the extent of tax, and their eligibility for small business relief.

Small business relief

Earlier last year, the Ministry of Finance introduced the small business relief mechanism to alleviate the tax burden on smaller enterprises. This initiative is particularly beneficial for start-ups, and small and micro businesses with limited resources to meet the tax compliance costs. Businesses with an annual revenue not exceeding AED 3 million can elect for this relief, provided specific conditions are met.

corporate tax law

Non-compliance with the Corporate Tax Law

Failure to comply with corporate tax obligations in the UAE can result in significant adverse consequences. If a person fails to pay the corporate tax due, they would be subject to a monthly penalty of 14 percent per annum on the outstanding tax amount payable for each month or part thereof.

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With the enactment of the Corporate Tax Law in the UAE, individuals, freelancers, entrepreneurs and small businesses should proactively assess their income and tax position. This includes considering the small business relief mechanism, where applicable. Moreover, as the corporate tax regime in the UAE evolves, it is crucial for individuals, freelancers and entrepreneurs to remain informed about developments in the tax landscape and seek professional advice as needed to optimize financial strategies and ensure compliance with the Corporate Tax Law.

About Janet Gooi

Janet is a UK and Malaysian qualified lawyer. Before joining Al Tamimi, Janet practiced in the tax, trade, and wealth management practice group at Wong & Partners. She is a member firm of Baker McKenzie International in Kuala Lumpur, Malaysia. She also worked for a Magic Circle firm in London, United Kingdom.

Janet specializes in advising on corporate tax, withholding tax, and VAT aspects in a broad range of industry sectors, including technology, finance, luxury retail, real estate, and telecommunications. She has in-depth experience and knowledge of international tax structuring, complex tax litigation, and tax aspects of cross-border M&A, restructuring, and private equity transactions.

Janet is recognized as a Rising Star Tax Practitioner in the UAE by the prestigious World Tax Rankings, a global tax directory.

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Disclaimer: Opinions conveyed in this article are solely those of the author. The information presented in this article is intended for informational purposes only. It does not constitute advice on tax and legal matters; neither are they financial or investment recommendations. Refer to our full disclaimer policy here.