How to freelance legally in the UAE: avoid these mistakes and save on licences & taxes

Are you self-employed or planning to become a freelancer? Make sure you operate legally. In the UAE, you'll need a Freelancer license to avoid fines, issue invoices, and keep your bank transactions transparent. Getting this right is crucial.

This is a true story of one of our clients that will be helpful if:

• You're about to start your freelance journey;
• You're already a freelancer but have no idea how to do your work legally;
• You're wondering whether you need to incorporate a company or obtain a freelance license in the UAE.

Anna (name changed) clicked on an Instagram ad promising a "fast and cheap solution for freelancers." She obtained a personal trainer license as a legal entity in a different Emirate. Later, she discovered that this activity wasn't exempt in her Free Zone, contrary to what the ad had claimed. As a result, she now had to:

• Pay for license renewal every year;
• Pay a 9% tax on profits above AED 375,000;
• Register for Corporate Tax;
• Maintain books of accounts as per FTS & IFRS standards to avoid fines of up to AED 20,000.
• She discovered all this at one of our Corporate Tax webinars and was shocked.

Research shows that a freelancer license is clearly the better option here:

• Tax threshold for freelancers is AED 3 million income — not applicable to legal entities.
• Freelancers only need to register for Corporate Tax if their income exceeds AED 1 million.
• They don't have to worry about business reports and audits like legal entities do.

When Anna consulted us, we carefully reviewed her situation. We concluded that her current business registration setup wasn't ideal. There was no need for her to register a business far from Dubai when she could easily establish one locally.

The location of business registration significantly impacts various aspects of life — from visa processing to driver's license applications. Being registered in Fujairah while living in Dubai meant Anna had to make frequent, time-consuming trips across the country for administrative tasks, resulting in considerable inconvenience and expense.

After days of calculations, Anna realized that while both options would result in losses, getting a proper Freelancer License was the better long-term solution. Here's what she had to do:

• deregister from Corporate Tax, paying AED 1,500 to a tax agent
• liquidate the company through her previous agent (a process impossible to handle independently — an important warning about some contract terms) at a cost of AED 20,000
• obtain the new Freelancer License for AED 18,000

Total losses exceeded AED 60,000 (including the costs of the initial incorrect incorporation 😨)

UAE Corporate Tax, introduced in 2023 with a 9% rate, is relatively new. While the Corporate Tax law is straightforward, there are important details everyone wants to know — like when the tax rate drops to 0% and who qualifies for exemptions. We've covered these details in this article. Understanding SME Relief and its implications for freelancers is also crucial. You can learn more about it here.

A common misconception is that Corporate Tax applies only to corporations and legal entities. In reality, it extends to freelancers and self-employed individuals as well.

During our Corporate Tax webinars, we frequently encounter this misunderstanding. Many participants are surprised to learn that even solo practitioners must pay taxes, albeit with a much higher threshold than companies.

This is where our story began.

Here are essential tips to help you avoid similar pitfalls and make the most of your resources:

1. Get advice before you start: starting a business in a new country is challenging. Understanding the tax landscape is crucial for your success.
2. Choose those who don't promise a gold mine: beware of companies offering quick, easy solutions — these are often misleading. Instead, work with advisors who provide complete information without magical promises. Like us 😉
3. The final decision is yours: while delegating tasks is normal, remember that companies often prioritize their Free Zone partnerships over your interests. Always make informed decisions by carefully evaluating all information, risks, and benefits.

We pride ourselves on honesty and transparency. Rather than offering unrealistic solutions, we provide a clear assessment of your situation, recommend practical options, and highlight potential risks and costs. This approach benefits everyone in the long run.