Is VAT applicable to Freelance Professionals?
The dawn of the world of the internet and technology has opened many doors to others, making things easier. The emergence of freelancing gave people the ability to work at home’s comfort, or wherever they were, without even having to move to an office. As a result, the hustle and struggle of going to work every day are scraped off and one works just during their own chosen hours; this has been very beneficial to them. The government does not regulate freelancing business in many countries around the world hence it is not taxed. In the UAE, the case is different, The value-added tax was implemented in a bid to regulate the business.
New Law for Freelancers
For VAT purposes, freelancers are divided into three brackets.
- Those who produce income over Dh375,000 per year must apply for VAT.
- Those who generate revenue between Dh187,500 and Dh375,000 have an optional choice of registration.
- Freelancers receiving Dh187,500 who cannot register under current law.
Although the categories can be a relief to unregistered low-income freelancers, they can fail to secure future work. That is because many UAE companies refuse to work with non-VAT registered freelancers. Additionally, freelancers in Freezone aren’t required to keep accounts and they’re not subject to audits. Think of all the time that frees up! The government just wants you to focus on building your business and generating deliverables.
Effect of the Law on Freelancers and Companies That Are Not Registered
Since there is an earnings threshold, some of the freelancers, start-ups, and SMEs (Small to Medium Enterprises) are supposed to be exempted from compliance with VAT legislation. Such organizations, however, risk reaching their profit margins by not filing for VAT.
Ultimately, unregistered freelancers/entities can not reimburse the VAT amount that they pay out to their suppliers. We have to either cover the burden of the VAT charges or integrate the tax into the prices of their goods. Thus, the cost to smaller companies of not registering is likely to be high.
Meanwhile, SMEs applying for registration will find themselves undertaking a daunting adjustment phase. Especially in terms of recalibrating product costs or conducting a comprehensive redesign of the program. The compliance costs are likely to be prohibitive for these SMEs or freelancers. Sole proprietorships may either lack the software or financial means needed to comply with the law successfully.
