Recently, the United Arab Emirates (UAE) has introduced corporate tax regulations with an impact for individuals involved in consultancy, freelancing, and influencer-driven enterprises. The Federal Tax Authority has provided detailed guidelines outlining the application of corporate tax, particularly for sole proprietorships, when their earnings surpass AED 1 million. This update holds substantial implications for diverse professionals, encompassing social media influencers, freelance workers, and retired individuals engaged in business pursuits.
Fundamental Concepts of Corporate Tax in the UAE
The corporate tax law in the UAE is applicable to any taxable entity engaged in commercial activities within the country. As per the Corporate Tax Law, a taxable entity includes:
- Individuals residing in the UAE and earning business income locally.
- Companies established in the UAE under the local Companies Law.
- Foreign companies conducting business activities through a permanent establishment in the UAE.
- Any individual or entity meeting the aforementioned criteria and generating annual revenues of AED 375,000 or more from business activities in or from the UAE will be subjected to corporate tax.
- The standard tax rate is 9% for most businesses, while small businesses generating up to AED 375,000 in annual turnover enjoy a 0% tax rate.
Applicability of Corporate Tax to Various Business Segments
The implementation of corporate tax in the UAE carries significant impact for different business categories, including consultants, freelancers, and influencers.
Below are the implications for each category:
1. Consultants
Individuals providing independent consultancy/professional services will be considered sole proprietors for tax purposes. Here are the key points about taxation of consultant businesses in the UAE under the new corporate tax system:
- Their entire self-generated consultancy income will be assessed for tax if annual revenues exceed AED 1 million.
- The standard 9% corporate tax rate applies to taxable income above AED 375,000.
- Direct costs incurred wholly for generating consultancy income can be deducted as business expenses to reduce taxable profits.
- Consultants must file annual tax returns within 4 months of the financial year ending December 31st.
- New consultancy startups get a 100% tax exemption for the first 3 years under the Small Business Relief.
- Income earned from consultancy work done physically in other GCC countries is not taxed in the UAE.
- Invoices, receipts, contracts, bank statements etc. must be properly organized and kept for minimum 5 years.
- Consultants have the option to register as sole proprietorships or form partnerships/LLCs for joint compliance.
- Maintaining good records and ensuring all documentation is available can help minimize tax risks for consultants.
Taking expert tax advice is recommended to understand compliance requirements and optimize tax planning.
2. Freelancers
Freelancing or running an independent consultancy/business on the side while maintaining a regular job is allowed. Only income from the freelance/independent business will be considered for tax purposes. Here are the key points about the taxation of freelancer businesses in the UAE under the new corporate tax system:
- Income from freelance/consultancy work will be taxed if total annual revenues exceed AED 1 million.
- The standard corporate tax rate of 9% will apply to taxable income above AED 375,000.
- Directly related business expenses can be deducted to reduce taxable income. This includes costs of services, supplies, salaries, rents, utilities etc.
- Tax returns must be filed annually within 4 months of the financial year end (December 31st for most).
- New startups get a 100% tax exemption for the first 3 years under the Small Business Relief.
- Income earned from freelance work done in other GCC countries is not taxed in the UAE. Only UAE-sourced income is taxable.
- Proper documentation like invoices, receipts and accounting records need to be maintained for 5 years minimum for tax purposes.
- Freelancers can register as sole proprietorships or form partnerships for joint tax compliance.
Seeking tax advice and ensuring compliance with Federal Tax Authority guidelines is recommended to optimize the tax position for freelancers.
3. Influencers
Influencer-run businesses involve using social media platforms to promote brands and earn advertising income. The Federal Tax Authority guidelines provide clarity on their tax treatment:
- Income from influencer activities conducted in the UAE will be taxable if over AED1 million annually
- Income includes payments from brands, sponsors, affiliates and other monetization streams
- Expenses directly related to influencer activities like production costs are deductible
- Portion of personal expenses like phones/internet allocated to business may be deducted
- Influencers can be sole proprietors or form partnerships for joint tax compliance.
It is essential for affected individuals to familiarize themselves with the relevant guidelines and ensure compliance with the new regulations. By staying informed and taking proactive steps, businesses can thrive under the new tax regime.
UAE Corporate Tax Registration in UAE
Consultants, freelancers, and influencer-run businesses generating an annual income of AED1 million or more are required to register for corporate tax. Tax reporting involve several key aspects:
- Register for Corporate Tax UAE: Consultants, freelancers and businesses must complete corporate tax registration with the Federal Tax Authority if their annual turnover exceeds AED 3.5 million within a given tax period (year or period specified by the authority).
- Obtain a Tax Registration Number: If the total income exceeds AED1 million, obtain a Tax Registration Number from the Federal Tax Authority.
- Maintain Accurate Records: Keep accurate records of income and expenses related to the business activities that fall under corporate tax, such as office rent, utilities, supplies, professional services, marketing and advertising, travel and entertainment, insurance and benefits, and other allowable expenses.
- Document Income and Expenses: Maintain detailed records and evidence of the business purpose of expenses, such as receipts, invoices, and contracts.
- File Annual Tax Returns: Prepare and file annual tax returns, reporting the income, expenses, and any applicable deductions. Be aware that the 9% corporate tax rate applies to businesses that exceed AED375,000 in profit over a year.
- Consider Small Business Relief: Review the Small Business Relief package, which offers exemptions for businesses that meet specific criteria, including not exceeding AED3 million in total revenue for the year.
- Stay Informed: Keep up-to-date with the latest regulations and guidelines related to tax reporting requirements in the UAE, as the tax system is still in its early stages and there might be future adjustments and clarifications.
Table: UAE Corporate Tax Rates
| Taxable Income | Tax Rate |
| Up to AED375,000 | 0% |
| Over AED375,000 | 9% |
Frequently Asked Questions
In order to help consultants, freelancers and influencer-run businesses better understand their obligations under the UAE corporate tax system, here are answers to some commonly asked questions:
Q1. Is income earned through social media influencing subject to corporate tax?
A1: Yes, if the total annual income generated from social media influencing activities conducted within the UAE exceeds AED 3.5 million, it will be considered business income and taxed accordingly.
Q2. What is the tax rate applicable in the UAE?
A2: The standard corporate tax rate set by the UAE government is 9% of the taxable profits for all taxable persons.
Q3. How do I calculate my annual turnover for tax purposes?
A3: Your turnover includes all income earned from providing services or goods in the UAE and other GCC countries, excluding wages received as an employee. You must account for revenue from all streams of business to determine if registration thresholds are crossed.
Seek the Expert Services of Top Tax Consultants in UAE
It is essential for consultants, freelancers, and influencer-run businesses to seek professional advice and stay informed about the specific rules and regulations related to corporate tax registration to ensure compliance with the corporate tax UAE. Thus, contact us today and we shall be glad to assist you.