Income from Dubai is often subject to special tax treatment, which is attractive to many. There is no income tax on individuals in Dubai, which means that income earned there is tax-free in many cases. This applies in particular to employees and the self-employed. Despite this advantageous regulation, the tax situation remains complex, especially for people who are resident in another country. For example, the leasing of real estate in Dubai by foreign owners can generate income that is subject to different tax obligations in their home country. It is therefore important to consider double taxation agreements to avoid unnecessary tax payments. Anyone who generates income in Dubai, whether through business activities, investments or rentals, should always be well informed and consult a tax advisor if necessary. Knowledge of the tax framework in Dubai can bring valuable financial benefits and avoid potential tax pitfalls.
Fundamentals of taxation in Germany
In Germany, taxation is based on specific provisions of the Income Tax Act (EStG) and international agreements to avoid double taxation. The distinction between limited and unlimited tax liability and the double taxation agreement (DTA) with the United Arab Emirates (UAE) are particularly relevant.
Tax liability under German law
Tax liability in Germany is essentially determined by residence and habitual abode. Persons who have their permanent residence or habitual abode in Germany are subject to unlimited tax liability in accordance with Section 1 EStG. Unlimited taxpayers must pay tax on their worldwide income in Germany. This includes income from self-employment and employment, capital gains, rental income and more. Persons without residence or habitual abode in Germany are subject to limited tax liability. This only includes domestic income earned in Germany, such as rental income from German real estate.
Double taxation agreement between Germany and the United Arab Emirates
A double taxation agreement (DTA) prevents double taxation of the same income in both countries. The agreement between Germany and the UAE was not extended and ended on December 31, 2021 (source). Since then, automatic legislation to avoid double taxation has applied in accordance with German tax law. Income from employment earned in the UAE may be taxed in the UAE. In this case, Germany grants a credit for the foreign tax against German income tax (Section 34c EStG).
Distinction between limited and unlimited tax liability
Limited tax liability applies to persons without residence or habitual abode in Germany. It only applies to domestic income. Example: A German citizen works temporarily in Dubai and earns his full income there. He is subject to limited tax liability in Germany for domestic income. Unlimited tax liability, on the other hand, applies to all persons who are resident or ordinarily resident in Germany. Their worldwide income is taxable. This difference is decisive for the amount of tax payable and the areas of application of double taxation agreements.
Income from Dubai
Income from Dubai can take many different forms, from earned income to income from investments. Special allowances and lump sums apply depending on the type of income, which can be applied to the respective income.
Types of income
Employment income: There is no income tax for natural persons in Dubai. Employees benefit from the fact that their salaries are tax-free. Rental and leasing income: German property owners in Dubai must pay tax on their income in Germany, as there is no double taxation agreement. Rental income must be declared as global income in Germany. Income from capital assets: Interest and dividends from capital investments in Dubai are generally not subject to direct taxation in the UAE. However, they must be reported and taxed in Germany in accordance with the tax laws applicable there.
Allowances and lump sums
Basic tax-free allowance: Germany has a basic tax-free allowance that exempts part of your income from tax. This allowance is independent of the type of income. Flat-rate allowance for income-related expenses: In Germany, flat-rate allowances for income-related expenses can be taken into account for income from letting and leasing. These reduce the amount of taxable income. Depreciation: Property owners can also take depreciation on their properties to reduce taxable income. This includes straight-line depreciation of buildings in accordance with Section 7 EStG. Lump sums for capital gains: There is a saver’s lump sum for capital gains, which reduces the taxable amount. Knowing the detailed regulations and tax allowances can help to minimize the tax burden on income from Dubai.
Tax return
The tax return for income from Dubai requires precise documentation and compliance with specific deadlines. This ensures correct taxation by the German authorities.
Documentation requirements
For the tax declaration of income from Dubai, it is necessary to carefully collect and archive all relevant documents. This includes proof of income, rental agreements and bank statements that prove the origin and amount of income. Particular attention should be paid to the obligation to provide supporting documents in order to be able to answer any queries from the tax office effectively. Complete documentation of income and taxes is essential in order to secure tax advantages in Germany and avoid double taxation, especially after the termination of the double taxation agreement with the United Arab Emirates.
Deadlines and dates
The deadlines for submitting tax returns must be strictly observed in order to avoid penalties and surcharges. In Germany, tax returns usually have to be submitted by July 31 of the following year. If the tax return is prepared by a tax consultant, the deadline is often extended to the end of February of the year after next. It is advisable to find out about the specific deadlines in good time and to prepare the tax documents in good time. Precise adherence to these deadlines and comprehensive documentation can ensure that the tax return is processed smoothly.
Avoidance of double taxation
In the context of income from Dubai, there are various methods for avoiding double taxation. These include the crediting of foreign taxes as well as the exemption method and proof of tax payment in Dubai.
Foreign tax credit
When foreign tax is credited, the tax paid in Dubai is credited against German income tax. This means that the tax burden in Germany is reduced by the amount of tax paid in Dubai. Art. 22 para. 1 of the DTA between Germany and the UAE regulates this process. In order for the credit to be granted, the tax paid in Dubai must be a tax equivalent to German income tax. This method can effectively reduce double taxation and is particularly relevant for people with high incomes from Dubai.
Exemption method
The exemption method stipulates that income earned and taxed in Dubai is exempt from taxation in Germany. This is done according to the principle of territorial taxation. This method is often used to avoid the same income being taxed in two countries. It is important that the income is properly taxed and documented in Dubai. The application of this method requires careful planning and examination of the tax regulations of both countries.
Proof of tax payment in Dubai
An important aspect of avoiding double taxation is the proof of tax payment in Dubai. Taxpayers must provide appropriate evidence to prove that the income has been properly taxed in Dubai. This includes tax assessments, payment receipts and other official documents from the Dubai tax authorities. Without this evidence, the German tax authorities may not accept the exemption or credit. Timely and complete documentation is therefore crucial for tax recognition in Germany.
Legal framework in Dubai
In Dubai, there is specific taxation for both individuals and companies. This taxation varies depending on the type of income and the tax status of the individual or company.
Overview of the tax system in Dubai
Dubai offers an attractive tax environment with no income tax for individuals. Income from non-business activities such as employment, private investments and dividends are not subject to income tax. Companies are required to pay a 9% corporate tax from June 1, 2023, as per the new Corporate Tax Law. Tax-free zones and incentives for certain types of companies make Dubai particularly attractive for international investors. There are numerous free zones where companies often enjoy significant tax benefits. In addition, there is no VAT on many types of goods and services.
Special features of the taxation of foreigners
Foreigners who work or invest in Dubai benefit from the tax-free structure for income from employment and private investments. They are not subject to income tax, as can be seen from the tax framework in Dubai. In order to be tax resident, foreigners must provide proof of residence in the UAE or have a suitable tax certificate. This allows them to enjoy the same tax benefits as locals. Real estate investments also offer tax advantages, as rental income is generally not taxed. There are clear regulations in place to ensure that investors and business people can comply with the complex tax requirements.
Frequently Asked Questions
This section deals with frequently asked questions on the taxation of income from Dubai in Germany. Specific tax regulations and special features are discussed.
How is rental income from Dubai taxed in Germany?
Rental income from Dubai is subject to limited income tax liability in Germany. Income from renting and leasing (§ 21 EStG) is taxable in Germany, even if the immovable assets are located in Dubai. Details can be found at Haufe.
Which regulations apply according to the double taxation agreement between Germany and Dubai?
The double taxation agreement (DTA) between Germany and the United Arab Emirates expired on January 1, 2022. This means that there are currently no bilateral regulations to avoid double taxation. Further information can be found at WTS.
Under what circumstances are individuals considered taxable in Dubai?
Individuals are considered taxable in Dubai if they either hold citizenship and reside there or are immigrants who obtain an appropriate tax certificate from the local authorities. Further details can be found on the JUHN Partner website.
How is the taxation of income earned in Dubai regulated for private individuals in Germany?
Income earned in Dubai is taxed in Germany as global income. Even if Dubai does not levy income tax, German taxpayers must declare their income in their German tax return. In Germany, the tax is then calculated using the German income tax rate.
What special features apply to the taxation of self-employment income earned in Dubai?
Self-employed persons who earn income in Dubai must also pay tax on this income in Germany. The regulations of the German Income Tax Act apply. Due to the lack of a double taxation agreement, there are no special reliefs and all income must be included in the German tax return.
What impact does the 183-day rule have on tax liability in Dubai?
The 183-day rule states that a person is deemed to be resident in a country for tax purposes if they spend more than 183 days a year there. In Dubai, this rule has no effect on income tax, as there is no personal income tax. In Germany, however, residence counts towards the assessment of tax liability.
