Dubai is considered a hotspot for entrepreneurs, investors, and private individuals looking for a tax-advantageous place of residence. However, anyone relocating their residence from Germany to the United Arab Emirates should prepare the move carefully – primarily from a tax perspective. Because although Dubai itself does not levy income tax, the German tax authorities can still have a say. This article explains the most common tax pitfalls and what you need to consider when moving away.

Urban Thier & Federer (UTF) has its own representation in Dubai, operated by the US partner law firm UTF PA. The firm brings years of experience in transnational and international business law and supports clients worldwide with cross-border tax and structuring issues. Thanks to this international orientation, UTF is excellently positioned to provide comprehensive support to German clients relocating to Dubai – both legally and tax-wise, in cooperation with external tax advisors.

That depends on whether you are still considered “unlimitedly taxable” under German tax law. This is the case if you are in Germany a place of residence (§ 8 AO) or Their usual residence (§ 9 AO) have.

a) When is there a tax residency?

You have a tax residence if you could use a dwelling in Germany – even if it's only occasionally. A guest room at relatives' can be sufficient. It's not the registration with the residents' registration office that counts, but whether you actually have housing, which is intended for the long term.

b) Ordinary residence: more than just a visit

If you stay in Germany for more than six months (even with short interruptions), this is considered “ordinary residence,” with the consequence that you remain fully liable for taxes.

c) Spouse or children remain in Germany?

If a spouse or children continue to live in Germany, this can be considered an indication that you have retained your tax residence. Again, document thoroughly and consult with a tax advisor.

d) What applies in the year of the move?

If you move mid-year, you are fully liable for tax until the date of departure – and possibly subject to limited tax liability thereafter. Your income after moving away must still be partially declared on your tax return (§ 2 para. 7 German Income Tax Act).

What many don't know: Even after moving away, Germany can still tax certain income for up to ten years. – under the heading „extended unlimited tax liability“ (§ 2 AStG).

This applies if you:

• have been tax residents in Germany for at least 5 out of the past 10 years,
• now live in a low-tax country (e.g., Dubai),
• and continue to be economically connected to Germany (e.g., through investments, real estate, significant income).

The thresholds are specifically regulated:

• 30 % of global income from Germany, or
• German income over 62,000 EUR annually,
• or German assets worth over 154,000 EUR.

The Series: Worldwide Income must be declared in Germany. – even if they were actually earned abroad.

Do you own shares in a German GmbH or UG? Then you should pay attention to the so-called Exit taxation (§ 6 AStG) Moving abroad is treated for tax purposes like a sale of your shares – with all the consequences.

When does this regulation apply?

• You have been a tax resident in Germany for at least 7 years in the past 12 years.,
• You are giving up your residence or your stay,
• and you hold at least 1 % of the shares in a corporation (Section 17 of the Income Tax Act).

The result: A fictional capital gain is taxed, even if you haven't sold anything at all. Upon request, the tax can be paid in installments or deferred – especially if the departure is only temporary (§ 6 paras. 3 and 4 AStG).

Germany and the United Arab Emirates have no comprehensive double taxation agreement. This means: There is no international legal protection against potential double taxation – nor is there automatic avoidance of conflicts between tax regimes.

A move to Dubai can be worthwhile – but only if the tax consequences are thoroughly considered. In particular, the topics of residency, extended tax liability, and exit taxation should be before logging out be thought through with a specialized tax advisor.

Urban Thier & Federer is here to assist you with cross-border expertise in tax law, international civil law, and corporate structuring.