Anyone considering moving to Dubai should familiarize themselves with the local conditions in advance. Tax issues are particularly important in this regard. Does Dubai levy income tax? What is the tax rate? Is there a double taxation treaty with Germany? These are all important questions that we’d like to address below.

How much is the income tax in Dubai?

Dubai is an attractive destination for people from all over the world for many reasons. Dubai is often considered a tax haven. In fact, there is no income tax or business tax in the United Arab Emirates.

Individuals can live in Dubai completely tax-free. There is no tax on income from employment. Renting out real estate in Dubai is also tax-free. Income from stocks or dividends is likewise not subject to taxation.

Anyone who truly wants to live tax-free must maintain permanent residence in the United Arab Emirates and be registered for tax purposes there. Dubai itself does not require residents to register or maintain a permanent residence. There is also no minimum length of stay.

Do I really not have to pay any taxes in Dubai?

There is no income tax in Dubai, and there are no other personal taxes either. However, care must be taken to avoid becoming liable for taxes in another country. Reasons for this may include the 183-day rule regarding habitual residence or, specifically in Germany, having control over usable real estate.

No changes to income tax in Dubai are planned in the foreseeable future. This means that income from employment will remain tax-exempt. However, there are still some restrictions. Individuals who engage in business activities in Dubai and earn more than 375,000 AED per year from such activities are subject to taxation.

Is Dubai a tax haven?

Anyone who compares taxes in Dubai with those in Germany will quickly come to this conclusion. If certain conditions are met, the tax burden can actually be zero percent. The only tax applicable is the 5 percent value-added tax. Depending on their lifestyle, expats may be subject to consumption taxes. These are relatively low. The United Arab Emirates has been removed from the blacklist of European tax havens. Does this, conversely, mean a complete exemption from the tax burden?

Dubai has experienced rapid economic growth over the past few decades. Economic policy has focused on making Dubai attractive to potential investors. One reason for this is tax-free income. Dubai’s position is closely linked to its tax-free status. Dubai serves as a key hub for trade and transit traffic between Europe, Africa, and Asia. Its own economy is strengthened through indirect participation in the economic gains of neighboring countries.

What is the tax rate in Dubai? Even Dubai isn’t entirely tax-free. Of particular relevance to the real estate sector is the annual rent tax, which is set at five percent. Anyone who takes a job in Dubai must pay 26 percent of their gross salary in social security contributions. These contributions must be paid by all employees who hold permanent employment in the Emirates and have acquired UAE citizenship. The contributions are not paid by the employee alone. The employer pays 15 percent of the tax. In 2023, corporate income tax was introduced in Dubai. It amounts to nine percent and is payable by businesses that exceed certain revenue thresholds.

Does Germany have a double taxation treaty with Dubai?

If an individual or a company is required to pay taxes on the same income or profit to two different tax authorities, this constitutes double taxation. This can be avoided if the countries in question have signed a double taxation treaty.

There is currently no double taxation treaty between Germany and Dubai. Such an agreement was in effect until December 31, 2021. To date, the old agreement has not been extended, nor has a new agreement been signed. To avoid double taxation, it is helpful to understand Dubai’s tax regulations. All documents and supporting evidence must be retained so that tax liability in Germany and Dubai can be documented as completely as possible. At Canaletto Sky, we not only advise our clients on the purchase of real estate but also offer comprehensive legal counsel.

Tax Exemptions and Exemption Thresholds

Only income earned in Dubai remains truly tax-free. If you also earn income in Germany, German tax regulations and laws continue to apply to that income. To secure all tax benefits in Dubai, your income must be earned entirely in the United Arab Emirates. Anyone who moves to Dubai but does not make the Emirates their primary place of residence remains subject to taxation in Germany.

To take advantage of all the tax benefits offered by the emirate, follow these steps:

• Terminating Residency in Germany: Moving out of Germany should be done without compromise. You must end your habitual residence in the country in order to become tax-independent and avoid a high tax burden.
• Primary Residence in Dubai: Anyone who wishes to benefit from Dubai as a tax haven must provide proof that they have moved their primary residence to the emirate.

Termination of Unlimited Tax Liability

To terminate unlimited tax liability in Germany, proof of domicile and habitual residence must be provided. Emigrants should have no intention of returning and should no longer own an apartment or real estate in Germany. The demonstrable relocation of one’s center of life to Dubai must be substantiated by various documents. These include proof of the new residential address, evidence of potential employment or business activities in Dubai, and documentation of integration into society. Transparent and convincing explanations of the facts help avoid tax-related questions and potential problems.

Relinquishing Real Estate in Germany

Anyone who emigrates to Dubai and continues to own real estate in Germany cannot become tax-independent. In such cases, limited tax liability applies to income derived from renting and leasing. It is also important to note the extended limited tax liability. This remains in effect for up to ten years, provided that a substantial economic interest in Germany continues to exist after emigration to Dubai.

Only those who sell their real estate assets in Germany can be released from their tax liability. Even after moving their residence to Dubai, income resulting from the rental and leasing of real estate continues to be subject to tax in Germany, and the individual remains liable for tax in Germany. Rental income must still be reported on a German tax return. The deadlines must be met to avoid back payments and fines.

To take full advantage of Dubai as a tax haven, it is important to resolve any outstanding tax liabilities in Germany. Since the legal framework is quite complex and multifaceted, expatriates should seek comprehensive tax and legal advice before moving abroad. At Canaletto Sky, we not only advise clients before they purchase real estate, but we also provide comprehensive legal counsel. Tax advice is also included in our services and is handled by a partner firm.

Photo credit: Depositphotos.com – Mehaniq (Mikhail Polenok)