Double taxation treaties are concluded between Germany and other countries. The purpose of these treaties is to prevent income earned abroad from being taxed twice. We will clarify whether a treaty exists between Germany and Dubai and what can be done to prevent double taxation.
Why do double taxation treaties exist?
Individuals who receive income from other countries face the risk of double taxation. Each country has its own tax laws. If the tax treaty does not apply, both countries may apply their own tax laws and may also impose the full double tax rate on the same income.
The double taxation treaty applies to both limited and unlimited tax liability. Individuals who reside in Germany for at least half of the year are considered to have unlimited tax liability. If this is the case, all income earned worldwide is subject to taxation in Germany. In contrast, individuals with limited tax liability are only required to report income earned in Germany for tax purposes.
Under a double taxation treaty, Germany enters into an agreement with another country under international law. The tax authorities aim to prevent double taxation while also preventing double non-taxation.
Germany has currently concluded double taxation treaties with approximately 100 countries. These treaties may contain different provisions and therefore vary significantly in their wording.
How can double taxation be avoided?
Double taxation can be avoided if individuals take advantage of a double taxation treaty concluded between two countries or refer to national tax laws.
The double taxation treaty clearly regulates the taxation of cross-border income. Depending on the type of income, double taxation can be avoided by using the credit method or the exemption method.
The exemption method prevents income that has already been taxed in one country from being taxed twice. The credit method makes it possible to receive a tax credit for taxes already paid in another country.
Even though the Germany-Dubai double taxation treaty is no longer in effect, German tax law includes several provisions that prevent double taxation.
According to Section 34c(1) of the Income Tax Act (EStG) and Section 26(1) of the Corporate Income Tax Act (KStG), foreign tax may be credited against tax in Germany. Under Section 34c(2) and (3) of the Income Tax Act (EStG), foreign tax may be deducted from the domestic tax base. However, these options do not apply in the case of Dubai and Germany, as no taxes are levied in the United Arab Emirates. In practice, income earned in Dubai is fully taxable in Germany, provided that individuals and/or legal entities meet the requirements for unlimited tax liability.
Is there a double taxation treaty between Dubai and Germany?
Germany and the United Arab Emirates concluded a double taxation agreement in 2011. This agreement remained in effect until December 31, 2021. By that date, both parties would have had to agree to extend the agreement. However, Germany announced that it would not extend the existing agreement with Dubai. As a result, there has been no double taxation agreement between Germany and Dubai since January 1, 2022.
What is the current legal situation?
The Dubai–Germany double taxation treaty was not renewed and has therefore been defunct for several years. In the United Arab Emirates, individuals are not required to pay income tax. As a result, full taxation in Germany remains in effect.
Anyone who works in Dubai and gives up their residence in Germany is subject to only limited tax liability in Germany and is not required to pay taxes in Germany on income earned in the United Arab Emirates.
For companies, the expiration of the Dubai–Germany double taxation treaty does not have any adverse effects. The German tax authorities did not consider Dubai to be a developing country and therefore did not apply the exemption method. Instead, the credit method was used. Under this model, the tax paid in the country of origin is credited. In Dubai, this rate is zero percent. This provision applies to companies that maintain a tax domicile in Germany.
Does Dubai have a double taxation treaty with Austria and Switzerland?
The legal situation varies across the DACH region. There is a double taxation treaty between the United Arab Emirates and Austria. The treaty was signed in 2002 and entered into force the following year.
Switzerland and the United Arab Emirates have also concluded a similar agreement. The Dubai-Switzerland Double Taxation Agreement was signed in 2004 and has been in effect since 2008.
The Ministry of Finance of the United Arab Emirates periodically publishes a list indicating which countries have a double taxation agreement with Dubai. In 2024, 142 countries had entered into such an agreement with the United Arab Emirates.
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