High earning freelancers and self-employed professionals have some paperwork to do on their UAE Corporate Tax obligations. But forming a company for their operations need not be one of them. Image Credit: Shutterstock

Dubai: UAE-based freelancers and other self-employed professionals generating a turnover of Dh1 million plus (or likely to do so) need not convert their operations into a company format to register for the corporate tax.

There had been talk in some circles that creating a company structure would be beneficial for these self-employed individuals in the long-term. Especially if they were at a stage where their income and business growth possibilities were showing significant potential, and with a good chance to breach the Dh1 million a year in revenue threshold.

Registration has not opened for individual tax payers yet. That for businesses started from June 1, 2023.

As things stand now, the corporate tax rules only state that such individuals must register with the tax authorities ‘if their turnover exceeds Dh1 million with the January 2024 to December 2024 period’. 

Thus, ‘the individual can register before the due date of filing returns, which is September 2025’, according to Rakesh Nair, Director – Corporate Tax at the consultancy Crowe UAE. “The UAE Corporate Law refers to turnover as the calendar year (which is January to December).

“We will have to await further clarification from the FTA Federal Tax Authority) if the individual is following a different financial year other than a calendar year.” (One can safely assume that such cases will be minimal, if at all.)

If the turnover exceeds Dh1 million, an individual has to file return of income within 9 months from the end of the taxable period.

- Rakesh Nair of Crowe UAE

It is conceivable that extremely popular social media influencers with a pan Gulf/Middle East following, tech professionals, especially those specialising in high-demand categories such as AI services, and others could be running highly successful one-person operations. And netting more than Dh1 million in turnover - and Dh375,000 as profit for a year.  

On whether these professionals are better off incorporating as a company, Nair said: “There is no requirement to upgrade into a full-scale business under the UAE Corporate Tax law - unless mandated by any other law.

“If the turnover exceeds Dh1 million, an individual has to file return of income within 9 months from the end of the taxable period.” (This is where the September 2025 cut-off period comes into play for the first payment under the tax law.)

Maintain the books

As is the case with all businesses, these self-employed professional must maintain a book of accounts.

'Cash-basis' accounting

They do, however, have the option to maintain the accounts on a ‘cash basis’ if the turnover does not exceed Dh3 million under the corporate tax law.”

A ‘cash basis’ accounting is where revenues are recorded when the cash due to the entity is received. Similarly, expenses get recorded when payments are actually made. The cash basis accounting is typically used by individuals or micro-businesses that hold inventory.

Single person ‘businesses’

Late January, the UAE Ministry of Finance outlined the corporate tax obligations that single-person businesses must comply. The tax – at 9 per cent - is payable only if the income for the calendar year exceeds Dh375,000.

At the time, the Ministry cited this example, where a resident generating income of Dh1 million plus from an online venture obviously comes under the tax net. But any income the individual derives from rental property and personal investments are not covered by the corporate tax.