With the commencement of a new year, we are greeted by resolutions and fresh starts. For freelancers and small businesses in the United Arab Emirates, the introduction of the new UAE Corporate Tax Law (Federal-Decree Law No.47 of 2022) signifies a notable shift in the tax landscape. This legislation takes effect for financial years beginning on or after June 1, 2023. The majority of businesses in the UAE typically adopt a financial year starting on January 1, 2024, which marks the inaugural taxable year for most enterprises and entrepreneurs under this new law.
For individual freelancers, the question arises: Will I be subject to tax? The answer depends on various factors. Generally, individuals earning income from employment, personal investments, and real estate investments are not subject to tax in the UAE on such income. However, individuals engaged in business activities in the UAE, including freelancers, are liable for corporate tax on the income generated from these activities. This includes freelancers in the UAE if their total turnover from activities exceeds AED 1 million during a Gregorian calendar year. Freelancers may explore the potential application of double tax treaties, tax residency, and eligibility for small business relief.
The small business relief mechanism, introduced by the Ministry of Finance earlier last year, aims to alleviate the tax burden on smaller enterprises. This relief is particularly advantageous for start-ups, small, and micro businesses with limited resources to meet tax compliance costs. Businesses with an annual revenue not exceeding AED 3 million can opt for this relief, subject to meeting specific conditions.
Non-compliance with the Corporate Tax Law in the UAE carries significant consequences. Failure to pay corporate tax may result in a monthly penalty of 14 percent per annum on the outstanding tax amount payable for each month or part thereof. In light of the new Corporate Tax Law, individuals, freelancers, entrepreneurs, and small businesses should proactively assess their income and tax positions. This includes considering the small business relief mechanism and staying informed about developments in the tax landscape. Seeking professional advice is crucial to optimize financial strategies and ensure compliance with the Corporate Tax Law.
