Petar Stojanov is lucky, all things considered.
Although the introduction of VAT will cost the organisational change consultant up to Dh3,000 a month to pay for an accountant to help him keep his books, he will at least continue to secure work going forward.
Others may struggle though, experts have revealed.
Freelancers are split into three brackets for the purposes of VAT: those who generate revenues of more than Dh375,000 a year, who must register for VAT; those generating revenues of between Dh187,500 and Dh375,000, for whom the choice is optional; and freelancers earning under Dh187,500, who cannot register under current rules.
While the categories may be a relief for low-income freelancers that have not registered, they may struggle to secure work in the future. This is because many UAE companies are refusing to work with freelancers that are not VAT registered.
“I have spoken to a couple of tax experts and accounting firms and they are saying that almost all of the companies their clients are coming into contact with are telling them if they don’t have a TRN (tax registration number) then they cannot work with them,” says Steve Ashby, the founder of Businessmentals, a consultancy for freelancers.
“A freelancer can say ‘I don’t have a TRN and I don’t need one,’ and they will say’ you are telling us that but we don’t know. We don’t know what will happen to us if we work with you, without a TRN and we pay you’.
This is the reality being faced by Angela, a freelance production specialist based in Abu Dhabi and licensed by twofour54. She would prefer not to register and undertake all of the responsibilities associated with a tax registration number, like quarterly returns, but she says she may ultimately have to do so if her clients demand her TRN.
“I work in the production side of things so I don’t have gear that I can buy. Perhaps a laptop once in a while, and then I am saving Dh200 [by claiming back the VAT – which only VAT registered companies can do], for all that paperwork?” says the freelancer, from South Africa who asked for her name to be changed for the article.
“But I have heard directly and through a lot of other freelancers, that many production companies will refuse to work with those who are not VAT registered.”
Mr Ashby says it is understandable for companies to refuse to work with freelancers not VAT registered.
“Put yourself in their shoes," he says. "They could be colluding with you and breaking the law. For all they know, you could be earning a lot more than Dh375,000.”
But there is a solution for those not currently earning enough to register.
Freelancers earning under Dh187,500 can team up with others to ensure their revenues meet the minimum threshold requirement.
This is a trend Rajeev Samtani, the cofounder and managing partner, Xcel Accounting has encountered.
“Some freelancers are getting together to collectively make sure that their revenue meets the threshold requirements for VAT registration,” he says.
“They come under a single licence and form a business. They still maintain their separate profit centres within the business, but for external reasons, their revenues are collectively considered for VAT registration purposes.”
Mr Ashby expects to see more of these type of collectives going forward.
“In this particular market, the amount of money an average freelancer makes puts them under extraordinary pressure, if they are going to operate on their own," he says.
“Hence I think what will happen is these collectives. I think people will flock to them, get properly licensed as freelancers, and be able to get work and sleep at night knowing that they are not going to be fined for allocating work out that they are supposed to pick up VAT on.”
And the UAE Ministry of Economy is keeping this momentum going, recently meeting with officials of several free zones including twofour54, Masdar City, Dubai Airport Free Zone, Dubai Creative Clusters Authority, Dubai Silicon Oasis Authority, and Ajman Free Zone to strengthen partnerships and mutual cooperation.
For those who are unclear, a Free Zone is basically a free economic area and registering a trade licence in one has several benefits for start-ups. These include 100 per cent foreign ownership, repatriation of capital and profits, free transfer of funds, and exemption of import and export duties. Free zone company formation is also much quicker than incorporation outside and is generally less expensive.
Getting a free zone licence is the only way a firm can start operations in the country without local partnership. GN Focus gets expat entrepreneurs in the UAE to share a list of dos and don’ts while setting up business in a free trade zone in the country.
Study all options
British expat Will Rankin and two friends pooled their resources in 2013 and set up a Fujairah Creative City free zone consultancy through Creative Zone in Downtown Dubai. He says doing your research makes a big difference.
“Investigate all the business set-up options — there are dozens, and some might fit your needs better than others.”
“And plan ahead, certain company types have visa limits or geographical restrictions.”
Avoid legal trouble
Rankin urges wannabe licence holders to ensure they are not breaking UAE regulations when setting up. “Don’t fall foul of the law — the onus is on you to understand employment, health insurance, safety and banking laws.”
Sort out all paperwork
German expat Sebastian Tontsch set up a photography company in 2014 through Ras Al Khaimah Free Trade Zone Authority. He feels it is a good idea to get all paperwork in order from day one: “Every step of the way you need stacks of forms with the appropriate stamps and signatures, and if you forget something on one of your many trips to the bank or free zone office, you will waste a lot of time,” explains Tontsch. “I learned to carry everything on a memory stick, and my company stamp became an extra limb.”
Forget fancy bank accounts
Tontsch also urges caution when setting up a business account. “Avoid rushing into getting a bank account for high-flyers with [terms such as] a minimum Dh100,000 balance account.
“Be realistic about your business level and go for the simplest account you can find to begin with — and watch out for those high fees and so on.”
Factor in hidden costs
South African expat Angela Boshoff Hundal set up a copywriting company, Scribe, in 2015 through Dubai Silicon Oasis Authority’s Dubai Technology Entrepreneurship Centre. She found out that aside from licence and visa fees, there were other unexpected costs along the way.
“While free zone licences can be cost-effective, I would advise keeping an additional Dh5,000 aside to pay for unexpected administration fees, access and other card fees, and any other costs that might not have been listed as part of the licence. That way you won’t be caught by surprise.”
Ask for help if you need it
Hundal encourages entrepreneurs to pick up the phone and talk to other business owners when setting up shop.
“I spoke to several people who had already been through the free zone process before deciding on the one I wanted to use,” says Hundal. “Not only did it help me find the most ideal, cost-effective space for my business, it also helped me save time in that I had an idea of the sorts of administration or submission challenges I might face.”
She adds that it’s important to keep track of the names of the people you’re talking to while setting up so you can follow up if there are any problems.
––http://gulfnews.com : http://gulfnews.com/gn-focus/special-reports/free-zones/dos-and-don-t-s-for-start-ups-eyeing-uae-free-zones-1.1886581