TAX ADVICE

Tax exemption in Dubai

Dubai as a tax-free environment for private individuals and entrepreneurs: recognizing opportunities, avoiding tax repercussions

The United Arab Emirates has been considered a tax haven for private individuals and companies for many years – and rightly so. In Dubai there are No income tax for natural persons, no capital gains tax, no inheritance tax and no withholding tax on dividends, interest or royalties. Company profits up to an annual profit of AED 375,000 (approx. EUR 94,000) are also exempt. completely tax-freeabove that a moderate moderate corporation tax rate of 9 % applies.

A central issue is the determination of tax residency in Dubai. In order for the UAE to be recognized as your new tax residence, certain requirements must be met. These include a valid residence permit (residence visa), a local residential address local residential addressregular residence in the country and, in the case of business owners operational substance in the form of business premises, local employees or active management.

At the same time, it is important to avoid tax repercussions – especially from the home country. This means for people who were previously resident in Germany: Only if the unlimited tax liability in Germany has been effectively terminated and no extended limited tax liability according to § 2 AStG applies, you actually benefit from the UAE tax exemption.

As there has no longer been a double taxation agreement (DTA) between Germany and the United Arab Emirates since the end of 2021, particular caution is required. Germany can still record certain income – even if you formally reside in Dubai.

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Typical risk factors
  • Continued residence or key authority in Germany
  • economic interests such as real estate, management positions or shareholdings
  • Incorrect or retroactively contestable contractual arrangements

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Our performance promise:
  • Examination and establishment of tax residency in Dubai
  • Development of legally compliant residential and corporate structures
  • Avoidance of tax repercussions in Germany and other countries
  • Tax optimization of capital gains, gifts and current income
  • Ongoing support and adaptation to changes in the legal situation

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Corporate taxation
  • Classification of free zone and mainland companies in the UAE corporate tax law, registration & obligations.
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Nyikolaj Szmolenkov M.A.

Dubai Steuern

Your contact for tax advice

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Our mission

Exit taxation – Avoid loads, Protect assets

The so-called exit taxation (§ 6 AStG) is one of the most significant tax hurdles when leaving Germany – especially for entrepreneurs and GmbH shareholders. Anyone who moves their tax residence abroad and in doing so holds significant shareholdings in corporations (at least 1% within the last five years) must, under certain conditions, pay tax on the hidden reserves of this participation as if he had sold it. as if they had sold them. A purely fictitious tax without actually generating liquidity – often with considerable financial consequences.

But there are solutions. The exit tax can be avoid, postpone or significantly reduceif structured at an early stage. DBC will show you legal, tax-audited structuring options that will protect your assets while allowing you to remain flexible internationally.

Steuerberatung Dubai

Our strategies for minimizing the exit tax:

Early structuring of the corporate structure in the UAE

Early structuring of the corporate structure in the UAE

Through the targeted establishment of an operational holding company in Dubai (e.g. LLC), investments can be held in a legally secure manner and at the same time benefit from the tax exemption there. A correctly structured Dubai holding company can receive income – such as dividends from a German GmbH – almost tax-free. The advantage: In Dubai no additional tax on dividends or capital gains. is due.

Use of the nesting privilege (Section 8b KStG)

Use of the nesting privilege (Section 8b KStG)

Distributions from a German corporation to a foreign holding company are generally taxable. However, if German tax law is complied with 95 % of this income is tax-freeonly a flat-rate corporation tax of 5% remains (around 1.5%). Significant tax advantages can be realized through a legally secure holding structure.

Application for deferral or remission of exit tax

Application for deferral or remission of exit tax

Under certain conditions, an application for deferral can be made, currently possible when moving to EU/EEA countries. When moving to third countries such as Dubai, additional requirements must be met, e.g. security deposits or prohibitions on utilization.

Transfer of shareholding before departure

Transfer of shareholding before departure

In selected cases, an early transfer of GmbH shares, for example to a domestic or foreign holding company, may make sense. This allows hidden reserves to be realized or hedged at an early stage.
Documentation

Documentation

Without a real economic presence in the UAE, there is a risk of being accused of having a sham registered office. It is therefore all the more important to document all assets and liabilities in a clean and structured manner and to pass them on to the responsible authorities.

Avoid retroactive effect

Avoid retroactive effect

Particular caution is required with shareholdings and license structures: If the departure is later classified as ineffective for tax purposes, there is a risk of retroactive tax claims.

Arrange your free initial consultation now

and find out how DBC can support you.

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International structuring of income and investments

Avoidance of double taxation (DE, AT, CH vs. UAE):No double taxation agreement

Since December 31, 2021, there is no longer a double taxation agreement (DTA) between Germany and the UAE. This means that Germany can continue to access certain income, even if you have long since emigrated. Capital gains, managing director salaries, rental income and income from shareholdings are particularly affected.

We help you to make optimum use of the advantages of the applicable double taxation agreements – so that your income is not taxed more than necessary.

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Germany
  • Avoidance of withholding tax on license or consultancy fees, e.g. through unlimited transfer of rights
  • Avoidance of extended limited tax liability if you continue to have domestic income or economic interests
  • Structuring the ownership structure and contractual content in accordance with German regulations

02

Austria

In contrast to Germany, Austria has an active double taxation agreement with the UAE that covers many types of income, such as dividends, interest, licenses and corporate profits. Double taxation is therefore largely avoidable here.

For you this means

  • Income is generally only taxed in one of the two countries
  • Company profits, dividends, interest and royalty payments are clearly regulated and mostly preferential
  • The agreement rules reliably protect you from double loads

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Switzerland

Switzerland also has a modern double taxation agreement with the United Arab Emirates, which is closely based on the OECD Model Tax Convention. This effectively protects you from double taxation. However, this requires precise knowledge of the details:

  • A lot of income, especially from business activities, is tax-free in Dubai and is exempt from taxation in Switzerland
  • At the same time, the progression proviso applies in many cases – the tax-free income increases the tax rate on other taxable income
  • The 183-day rule is decisive for determining residency

FAQ

Frequently asked questions

Is Dubai really tax-free?

Yes – there is no income tax for private individuals in Dubai no income tax, no capital gains tax, no inheritance tax and no withholding tax. Companies are subject to a corporate tax rate of 0% up to AED 375,000 profit and 9% above that.

What are the requirements for tax residency in Dubai?

You need:

  • A valid residence visa
  • A local address
  • A regular stay in Dubai
  • Company substanceif you run a business (e.g. office space, employees)
What are the risks despite residing in Dubai?

The tax exemption only applies onlyif the unlimited tax liability in Germany was effectively terminated. Particularly risky:

  • Residence or key authority in DE
  • Shareholdings, real estate or management activities in DE
  • Incorrect contract design with retroactive effect
When does my tax liability in Germany end?

As soon as you no residence and habitual residence in Germany, your unlimited tax liability may end – please supporting documents and a deregistration are crucial.

What is the extended limited tax liability (§ 2 AStG)?

This also applies after moving awayif you still have still have significant economic interests in Germany – e.g. through significant shareholdings, real estate or management activities.

Is there a DTA with Austria and Switzerland?

Both countries have an active DTA with the UAE:

  • Income is regularly taxed in only one country
  • Avoidance of double taxation for dividends, interest, licenses, etc.
  • In Switzerland: Note the progression proviso
What needs to be considered with capital gains and gifts?

In Dubai, these are generally tax free. In Germany, however Recourse if contracts or residence conditions are incorrectly structured.

What is exit taxation (§ 6 AStG)?

When moving away hidden reserves in significant shareholdings (from 1 %) are taxed – even without a sale. A notional tax on future profits.

How can I avoid or reduce exit tax?
  • Structuring via Dubai holding company
  • Use of the nesting privilege (§ 8b KStG)
  • Transfer of shareholding before departure
  • Application for deferral (subject to conditions, especially for third countries)
  • Avoidance of retroactive arrangements
Does corporate tax now apply in Dubai?

Yes – since June 2023, the rates:

  • 0 % up to AED 375,000 profit
  • 9 % from AED 375,001
  • 15 % for large corporations with >EUR 750 million turnover (OECD minimum tax)
Are free zone companies still tax-privileged?

Yes – if real substance (offices, staff, operating activities). Without substance, there is a risk of losing tax privileges.

What does this mean for my contract design?
  • Indefinite transfer of rights avoid withholding tax
  • Arm’s length principle for license and service agreements
  • Clear allocation of functions and risks
Do I have to keep accounts?

Yes – double-entry bookkeeping in accordance with IFRS or locally recognized standards is mandatory. Also Tax returns and archiving are required by law.

How high is the sales tax in the UAE?

The regular VAT rate is 5 %. Companies with a turnover of AED 375,000 or more per year must register. Cross-border services are often subject to special regulations (e.g. reverse charge).

What are the advantages of a Dubai holding company?
  • Dividends from German GmbHs can be 95 % tax-free be received
  • No capital gains tax in Dubai
  • International tax optimization through license models & service contracts
What is the nesting privilege (Section 8b KStG)?

Profits from investments are 95 % tax-free for German corporations – the remaining 5% is subject to corporation tax (approx. 1.5%).

What substance requirements apply to holding companies?
  • Own office in Dubai (ideally Free Zone)
  • Local management or employees
  • Documented business activities
Is there a DTA between Germany and the UAE?

No – since 31.12.2021 no longer. This means that Germany can continue to access certain income (e.g. capital gains, remuneration of managing directors).

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