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Understanding VAT for Freelancers in the UAE: A Practical Guide

Businesses in the UAE have adjusted well to the VAT system over the past five years, given their size and experience. However, freelancers and self-employed individuals may face some difficulties as they may not fully understand the requirements. This article examines the impact of UAE VAT on freelancers and provides guidance on how to file a VAT return.

In recent years, the UAE has taken several measures to make it easier for freelancers to operate, including introducing various low-cost license options. A freelance license is an attractive option for those with expertise who want to work on multiple projects or for different companies. However, there are several misconceptions that freelancers with a freelance license should be aware of regarding UAE VAT legislation.

 Who Should Register?

As per UAE law, businesses that have made taxable supplies (sales and imports) exceeding 375,000 AED in the previous 12 months or the next 30 days are required to register within 30 days of surpassing the threshold. Companies can also choose to register voluntarily if their taxable supplies reach a minimum of 187,500 AED, which is the threshold for freelancers. Since most businesses registering for UAE VAT hold trade licenses, independent contractors and freelancers are unsure whether they need to register or not.

What Does This Mean for Freelancers?

The UAE government promotes and permits freelance work as long as the relevant license is obtained prior to commencing work. The number of freelance licenses in the country is consistently increasing. Freelancers and independent contractors must be knowledgeable of their responsibilities. If freelancers’ operations generate an economic gain, whether in the form of money or goods, they are obligated to register for VAT and adhere to VAT regulations.

How To Register for VAT as Freelancer?

Businesses can now register for VAT online with the Federal Tax Authority (FTA) portal. The FTA has set business turnover deadlines and the registration process will take place in phases. For businesses, knowing how to apply for VAT registration as well as understanding the level of detail necessary to complete the registration process online is critical, as is determining their VAT registration obligation.

 VAT Registration Advantages for Freelancers

Credibility is crucial in today’s competitive market, and one effective way to enhance credibility is by obtaining VAT registration. Freelancers who own VAT-registered businesses can create a favourable impression in their market by promoting their services. However, only entities with an annual turnover of 375,000 AED or 187,500 AED can register for VAT. Clients may prefer to hire a VAT-registered business over a freelancer due to the uncertainty of a good working relationship. Freelancers who register for VAT can access larger clients and enjoy the advantage of complying with government licensing requirements, thereby gaining credibility as reliable and sustainable business operators.

Late VAT Registration

If you don’t register for VAT despite meeting the mandatory threshold for freelancers, you’ll face administrative penalties. Late registration incurs a fee of 10,000 AED. To avoid future problems with the Federal Tax Authority, it’s essential to maintain accurate transaction and financial records, register for VAT and comply with UAE VAT regulations. If you’re unsure whether you’re required to register for VAT as a freelancer, our team of experts at the Creative Zone can provide guidance to help you save money and avoid legal issues with the FTA.

This article was published on 8 March 2023

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