More and more Germans who emigrated to Dubai a few years ago are currently returning. Many underestimate the tax consequences of returning. Anyone who runs a company in Dubai, has built up assets, or still has ties to Germany must keep several tax issues in mind at the same time.

When does tax liability in Germany resume?

Unlimited tax liability in Germany is linked to two criteria: 

• Residence (§ 8 AO) or 

• Habitual abode (§ 9 AO)

It is sufficient if one of the two criteria is met.

Residence means: There is a dwelling in Germany that can be used continuously and is intended for a certain duration. It does not matter whether you are the owner or tenant. Even a dwelling permanently available at relatives’ home can be sufficient if you have a key and stay there regularly overnight.

Habitual abode applies if you stay in Germany for more than 183 days within a 12-month period. Short interruptions (vacation, business trips) are included.

The day you move into a dwelling in Germany is the day the German tax office treats you as subject to unlimited tax liability. From that point on, your entire worldwide income is subject to German taxation.

No DTA between Germany and the UAE

Germany does not have a double taxation agreement with the United Arab Emirates. This is the key point that makes returning from Dubai tax-wise different from returning from most other countries.

In the UAE, you do not pay income tax. And because no DTA exists, Germany can fully access your income if tax liability applies. There is no possibility of crediting taxes paid abroad (because none were paid) and no exemption method.

For returnees, this means in concrete terms: As soon as you are taxable in Germany, all income from Dubai is taxed in Germany, without any treaty protection in between.

Place of effective management: When the Dubai company suddenly becomes German

In my advisory practice, this is the most common mistake. Many clients operate a company in Dubai (Free Zone LLC, Mainland Company, etc.) and assume that this company will remain a purely UAE company even after returning.

According to § 10 AO, the place of effective management is where the center of top-level business management is located. This is the place where the key day-to-day decisions are made. The question is not where the company is registered, but: Where is the person who actually runs the business located?

If you return to Germany and manage your Dubai company from Germany (acquiring customers, concluding contracts, approving transfers, instructing employees), the place of effective management shifts to Germany. The consequence under § 1 para. 1 KStG is that the Dubai company becomes subject to unlimited corporate income tax in Germany. You then pay German corporate income tax (15%) on the Dubai company’s profits, plus solidarity surcharge and, where applicable, trade tax.

Anyone who wants to keep the company in Dubai must keep management there. This requires either a managing director on site who makes the key decisions, or a genuine liquidation of the Dubai company before returning.

Permanent establishment risk with remote management

Even if you formally appoint a managing director in Dubai: if you regularly intervene in operational business from Germany, the tax office may assume a permanent establishment in Germany. § 12 AO defines a permanent establishment as a fixed place of business that serves the company’s activity.

Your home office in Germany can become a permanent establishment if you work there regularly and not just occasionally for the Dubai company. The threshold is not high. Even weekly video conferences with decision-making character may be sufficient.

The profits attributable to the permanent establishment are subject to German taxation. Depending on how the profit allocation looks, this can affect a substantial portion of the profit.

Progression clause: Foreign income increases the tax rate

For income from a period before German tax liability is established, the progression clause applies.

Example: You return to Germany on July 1. Income from Dubai from January to June is used to calculate the tax rate, which is then applied to your German income from July onward. The tax rate rises, even if the Dubai income itself is not directly taxed.

With total income of EUR 200,000, the difference can quickly amount to several thousand euros.

Controlled foreign company taxation under § 7–14 AStG

If, after returning, you retain a shareholding in a company in Dubai, controlled foreign company taxation comes into play. It applies if a foreign company with passive income is low-taxed (below 25%) and a taxpayer in Germany holds more than 50%.

Dubai companies almost always fall under low taxation. UAE corporate tax of 9% is well below the 25% threshold. The profits of the Dubai company are directly attributed to the German shareholder and taxed in Germany, even if no money is distributed.

This mainly affects passive income: interest, license fees, rental income, asset management. Active income (operating business with local substance) is generally exempt, but only if the company has genuine economic activity in Dubai: its own offices, its own staff, its own decision-making structures.

Tax return in the year of return: Practical notes

The year of return is tax-wise complex because you are generally subject to limited tax liability for part of the year and unlimited tax liability for the other part. You must file a complete income tax return for the entire year.

You should prepare the following documents:

• Registration certificate with the exact date of registration in Germany

• Lease agreement or purchase contract for the German residence

• Proof of income from Dubai (tax returns, salary statements, bank statements)

• Certificate of the previous tax situation in the UAE (if available)

• Articles of association and commercial register extract of the Dubai company

Recommendations for action when returning

• Clarify in advance from which day German tax liability applies. The start date of the lease or move-in date is decisive, not registration with the residents’ registration office.

• Decide whether to liquidate the company, appoint a managing director on site, or convert the company into a structure that is tax-manageable in Germany.

• Prepare a list of all accounts, shareholdings, real estate, and fund units with current values. 

• When returning, you must obtain health insurance in Germany. Self-employed persons must take out private insurance or voluntary statutory insurance.

• Returning from a non-DTA country with an active company is one of the most complex tax cases in international tax law. Without professional support, you risk back payments and penalties.

Frequently asked questions

1. Can I simply keep my Dubai company running?

Yes, but only if management remains in Dubai. As soon as you manage the company from Germany, it becomes taxable in Germany. A mailbox in Dubai is not enough. Controlled foreign company taxation must be considered separately.

2. Do I have to pay tax in Germany on Dubai income from before my return?

No, income from the period before unlimited tax liability is established is not taxed directly. However, it can increase the tax rate on your German income via the progression clause.

3. What happens to my Dubai bank account?

You can keep the bank account. However, you must declare it in your German tax return. Interest income is subject to German withholding tax on investment income. In addition, reporting obligations under the Foreign Trade and Payments Act (AWG) apply for accounts over EUR 12,500.

4. Is there a minimum length of stay in Dubai to save taxes?

There is no rigid rule. What matters is that your center of life and tax residence are in the UAE. Anyone who spends 11 months a year in Germany and only 1 month in Dubai will have difficulty credibly establishing Emirati residence.

5. Is returning worthwhile from a tax perspective at all?

The tax burden on return is almost always higher than in Dubai. The decision should not be made purely on tax grounds. Those who return generally do so for personal reasons. However, the tax consequences can be mitigated with good planning.