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Do Freelancers Have to Pay Taxes in the UAE?

Feb 21, 2024

The foster future entrepreneurs and innovators, the UAE has carefully positioned itself as a pro-business hub. The country has unrivalled access to cutting-edge infrastructure, technological breakthroughs, full foreign ownership, and a tax-free environment, making it an appealing destination for freelancers looking for interesting employment opportunities.

Overview of the UAE Tax System

Individuals in the UAE do not have to pay income tax. However, it imposes a 5% Value-Added Tax on the purchase of goods and services, which is charged at each stage of the supply chain and eventually borne by the end customer. The UAE additionally imposes excise taxes on health-hazardous commodities, as well as corporate taxes on the net revenue or profit of corporations and other entities from their operations. Emirate-based income tax decrees may apply to all firms, but they are only implemented for income from oil and gas exploration and production. 

Direct Taxes

The UAE does not levy tax on individuals’ income, and there is currently no legislative basis for income taxation under its federal legislation. Businesses in the UAE can get a tax domicile certificate from the Ministry of Finance, proving their tax residence and allowing them to benefit from applicable Double Tax Treaties, subject to specific restrictions such as management and direction. 

Indirect Taxes

According to the agreement with the Gulf Cooperation Council (GCC) countries, the UAE charges a 5% customs duty.

The same 5% rate applies as Value Added Tax (VAT) on the provision of goods and services in the UAE. In addition, the UAE levies an excise tax ranging from 50% to 100% on tobacco goods, alcohol, energy drinks, and sweetened beverages.

For many expats, the tax structure in the United Arab Emirates, or rather the lack of taxes, is one of the most appealing aspects of the region. For example, employees are not required to pay income tax. Until January 2018, there was no VAT. This tax on goods and services was implemented at a very modest rate of 5%. There is also an excise tax placed on certain products that the government considers to be hazardous to human health or the environment, such as energy drinks and tobacco. In June 2023, the UAE implemented a new company tax.

Tax Obligations in the UAE

Companies operating in the UAE are required to enroll for Value Added Tax ("VAT") if the total value of their taxable supplies and imports exceeds the mandated registration threshold of AED 375,000 within the preceding 12 months.

The UAE Legislation requires "Every person" who exceeds the 375,000AED level for taxable supply in the past 11 months and the future thirty days to register within thirty days. Voluntary registration is permitted after turnover reaches at least 187,500 AED. It is evident that the majority of applicants for UAE VAT Registrations are corporations with trade licenses, which raises the question of whether independent contractors or freelancers must register for VAT.

Working as a freelancer in the UAE has been significantly easier during the last several years. The UAE has launched many initiatives to enable individuals to conduct commercial operations, including a variety of company license choices that lower operational costs. Many people prefer freelance licenses because they allow them to work independently for a variety of businesses and projects. There are various misconceptions about VAT legislation that can harm your freelance company license.

Penalties for Non-Compliance

Noncompliance with tax requirements can lead to significant penalties. These penalties, which go into effect in August 2023, can be levied for failing to file tax declarations on time, paying income taxes late, or failing to keep the documents and information required by the Corporate Tax Law.

Penalties may also be applied if taxpayers fail to notify the Federal Tax Authority of any changes to their tax records. As a result, maintaining education about your tax duties and ensuring timely compliance is critical.

Working on a visit visa in the UAE is unlawful, as is working without a UAE work authorization number. As a result, businesses and employees may face hefty fines and sanctions. Both employers and employees must comply with UAE labour rules and get a valid work permit before beginning employment. Especially since the consequences of operating without one are severe. Failure to comply with these requirements may result in hefty fines and even jail. In particular, a corporation failing to provide a work visa is a criminal offence in the UAE. 

The UAE Tax Landscape

The UAE's tax structure provides considerable benefits for foreign workers and firms, including the absence of income tax and special tax-free zones.

While the landscape is complex, a thorough understanding of the rules and regulations can help assure compliance and get the most out of the unique framework. The UAE has steadily diversified its revenue sources away from oil, with taxes emerging as a crucial tool for government revenue.

Thus, an informed approach to the UAE's tax structure benefits all foreigners who live or wish to do business in the country. It is always advisable to get professional guidance when dealing with tax issues to maximize opportunities and avoid pitfalls.

Enjoy the benefits of a freelance license and visa, such as a Work Permit, Emirates ID, Residency, and Option to Sponsor Family.

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