Freelancing is very beneficial as it provides an opportunity to earn without joining any organisation and thus has become a favourite choice among people of UAE. However, they now have to take into account the recent introduction of the Value Added Tax. The VAT in UAE was introduced on 1st January 2018 and has brought new rules and regulations to be followed by the freelancers. Not having been registered for VAT may cause some problems to the freelancer and therefore it is required that the freelancers are registered for VAT.
Let’s take a look at how a freelancer can register for VAT in the UAE.
Steps to Register for VAT
There are five necessary steps that a freelancer needs to follow to get registered for VAT. They are as follows:
1.Check Your Accountability
For checking the accountability, the government has the freelancers split into three brackets according to their revenue generated:
- If the revenue is higher than AED 375,000, then the freelancer must register for VAT
- If the revenue is between AED 187,000 to AED 375,000, then it is optional for the freelancer to register for VAT
- If the revenue if less than 187,000, a freelancer cannot register for VAT
The revenue of the freelancer mentioned should include all imports, exports, taxable and reverse charge supplies. It is also necessary for a freelancer to have received an income of more than AED 187,000 in the last 12 months. If you are eligible for registering for VAT, then you need to follow the next step.
2.Acquire a License
The eligible freelancer must acquire a license, and only then the freelancer is allowed to register for VAT. To obtain a license, the freelancer must first get the permission of the employer and then apply for a license. Various free zones offer such freelancing licenses for a cost. The list of such free zones and the cost they would incur is given below.
Cost of license (In AED)
Twofour54 Free Zone
D-Tech Free Zone
Ajman Free Zone
UAQ Free Zone
Fujairah Free Zone
RAK Free Zone
3.Register Yourself Online
The procedure of VAT registration is online based. After obtaining the required license, the freelancer must go to the portal of the Federal Tax Authority and create an account. After logging in, they need to register for VAT. They should keep the necessary documents handy while registering for VAT. A list of all the documents required for VAT registration is given below:
- Certificate of Incorporation
- Trade license
- The Memorandum of Association (MOA) or The Articles of Association (AOA)
- Description of Business Activity
- Projected Future Revenues
- Freelancer Passport and a copy of the Emirates ID
- Bank Account Details
- Revenues Details for the last 12 months
- The Agreement by the Sponsor and the Custom Details will only be required if the freelancer deals in such kind of business.
After submitting all the documents mentioned above, the registration will be approved by the concerned Ministry, and the freelancer would be assigned a Tax Registration Number also known as TRN.
4.Maintain Financial Records
This step needs to be followed by all the freelancers regardless of their eligibility for VAT. This is because VAT will apply to all of UAE and even if a freelancer might fall into the third category, their customers’ may not. In such a case the clients will ask the freelancer to draft their invoices in a particular manner or a specified format. This would require all the freelancer to keep their books updated and keep a keen eye on all the records.
A freelancer must also follow some basic guidelines for VAT compliance such as:
- All the invoices drafted by the freelancer should contain the Tax Registration Number (TRN)
- The invoices should be numbered in sequence
- The total cost and the additional VAT must be disclosed separately
5.File VAT Return on Time
It is required of a freelancer to file the returns on every quarter. The returns should be accurately mentioned or else they may have to incur heavy penalties. The freelancer needs to calculate the Total Output Tax and the Total Input Tax. The difference between these two taxes is the amount that the freelancer needs to pay to the government.
The primary purpose of the implementation of VAT is to strengthen the economic and business position of the country. The decision of keeping the registration process online was an excellent decision from the side of the government as it would not only make the process of registration easier but will also reach every freelancer in UAE. All in all, the choice of the implementation of VAT can be a boon for the freelancers in UAE.
We, at JAXA, can make the process of registering for VAT easier for you assisting all along the process. We also offer various other services such as Audit and Assurance Services, Accounting Services, Tax Management Services and many more. To have a detailed understanding of the services that we provide do contact us – we’d be happy to help.