Self-Employment Income: How Does It Work When Living in the UAE?
Self-employment is the ultimate goal for most individuals. This career route has been hailed as the key to financial independence for decades. The appeal of being your own boss, working your own hours, and even being able to work in any part of the world has only increased with time. This also comes with more opportunities to carry out one’s contractual work outside their country.
What is self-employment income?
Self-employment income arises when a US individual in the UAE works for themself. It could be as an independent contractor, working in the gig economy, or driving for Uber around Dubai.
Earning income from various sources for services rendered is all reportable as foreign self-employment income on your US tax return. These individuals often incur costs to perform these services, ranging from home office expenses to advertising and license fees.
It’s essential to report non-US self-employment income on Form 8858. Form 8858 needs to be filed along with your 1040 individual tax return.
Are there other tax filing requirements for self-employed individuals?
Alongside the individual 1040 tax return, self-employed individuals need to file an additional form detailing their gross revenue and incurred expenses. Form 8858 allows for the deduction of various business-related expenses, ultimately leading to the calculation of net income.
Additionally, the net income from self-employment may qualify for the foreign-earned income exclusion, provided the individual meets the criteria, such as living outside the US for 330 days in a 12-month period.
However, regardless of the foreign-earned income exclusion, self-employment income is subject to a 15.3% tax rate, which covers Social Security and Medicare contributions.
What are the key points to remember if I’m self-employed in the UAE?
- Reporting Income and Expenses: Accurate reporting of all income and eligible expenses related to your self-employment activities is essential.
- Tax Obligations: While your net income might be excluded at the federal level, it still incurs self-employment tax.
- Seek Professional Advice: Consulting with a tax professional can ensure compliance and optimize your tax situation.
For US citizens and green card holders residing in the UAE and earning self-employment income, it’s essential to understand the tax requirements and benefits available. Proper reporting and knowledge of applicable deductions and exclusions can significantly impact your tax liabilities and obligations.
Why partner with a specialist Expat accountant?
Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in the UAE. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.
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AM I ELIGIBLE FOR FOREIGN EARNED INCOME EXCLUSION? Learn from Tanveer Mannan, a highly experienced IRS Enrolled Agent based in Dubai. Having worked at EY and PWC before joining EXPAT US TAX, Tanveer has 15 years’ experience of helping Americans get the correct advice when they come to work in UAE. Getting the correct tax […]
