Incorporating a company in Dubai does not, by itself, move where you or your business are taxed. If you live in Germany, three German rules outlast the trade licence: your personal tax residency (Wohnsitz or gewoehnlicher Aufenthalt, Secs 8 to 9 AO), your company's tax residency by place of management (Sec 1 KStG with Sec 10 AO), and the exit and CFC regime (Sec 6 and Secs 7 to 14 AStG). The Germany-UAE double tax treaty expired on 31 December 2021 and was not replaced, so today there is no treaty relief, only unilateral relief under Sec 34c EStG. Dubai's 0% and 9% rates and its absence of personal income tax are real, but they reach you only after German residency and place-of-management ties are genuinely severed, and an exit tax bill can arrive before your first euro of UAE profit.
For how the UAE side actually works once those German ties are clean, read our pillar guide on the mainland, free-zone and offshore routes to a Dubai company.
Key Takeaways
- A Dubai company run from Germany is fully liable to German corporate tax, because its place of management sits in Germany under Sec 1 KStG and Sec 10 AO (Bundesamt fuer Justiz, 2026).
- There is no Germany-UAE tax treaty. It expired on 31 December 2021 and is absent from the BMF DBA status list dated 1 January 2026 (Bundesfinanzministerium, 2026). Claims that a new treaty now applies are false.
- The Wegzugsteuer under Sec 6 AStG deems a sale of shareholdings of 1% or more at fair value when you leave, taxing unrealised gains with seven interest-free annual installments on application (Bundesamt fuer Justiz, 2026).
- Germany's CFC low-tax threshold fell from 25% to 15% from assessment year 2024, so a 0% Qualifying Free Zone Person company sits below it on passive income (EY, 2024).
- UAE Corporate Tax is 0% on taxable income up to AED 375,000 and 9% above, for financial years beginning on or after 1 June 2023 (UAE Ministry of Finance, 2026).
- Without a treaty, your only relief is Sec 34c EStG: credit or deduction of UAE tax. Since UAE tax is often 0% or 9%, there is little to credit, so the German charge stands close to gross.
Can you set up a company in Dubai while still living in Germany?
Yes, you can set up a company in Dubai from Germany, and you can own 100% of it, but that step alone changes nothing about your German tax position. Germany taxes residents on worldwide income, and a foreign registration does not break residency or move your company's tax home (Bundesamt fuer Justiz, 2026). The licence is the easy part. The tax outcome turns on four German gates.
Think of incorporation and taxation as two separate questions. Registering an FZE, FZCO or mainland LLC in Dubai is an administrative act you can complete remotely or on a short visit. Where the profits are taxed is decided by German law: your own residency, your company's place of management, the exit tax on the way out, and the CFC rules that pull foreign income back. A Dubai trade licence touches none of these four gates.
So the honest framing is structuring and a genuine, substance-backed relocation, not a paper escape. If you keep living and working in Germany while running the Dubai entity from your German desk, German tax follows you and the company. If you genuinely move yourself and the company's management to the UAE, the picture changes, but the exit tax and CFC mechanics still have to be planned for first. The rest of this guide walks each gate in order.
Citation capsule: A German resident can own 100% of a Dubai company, yet that incorporation does not change where tax is paid. Germany taxes residents on worldwide income, and a company is fully liable to German corporate tax whenever its place of management sits in Germany under Sec 1 KStG (Bundesamt fuer Justiz, 2026). Four German gates, not the trade licence, decide the result.
What actually decides your German tax home?
Your tax home is decided by where you live and where your company is managed, not by where the company is registered. Germany imposes unlimited tax liability on individuals with a residence (Wohnsitz) or habitual abode (gewoehnlicher Aufenthalt) in the country under Secs 8 to 9 AO, and that liability covers worldwide income (Bundesamt fuer Justiz, 2026). Until you genuinely break both, German tax follows you.
Personal residency under Secs 8 to 9 AO
A Wohnsitz exists wherever you keep a home available for your use, and a habitual abode generally arises after a continuous presence of more than six months. Keeping a German flat, a family there, or simply spending most of the year in Germany can each preserve unlimited liability. You do not break residency by registering a company abroad or by spending a few weeks in Dubai. The break has to be real: give up the home, move the centre of your life, and document it.
Why a Dubai company is often taxed in Germany anyway
Even after you address your own residency, the company has a separate residency of its own. Under Sec 1 KStG a corporation is subject to unlimited German corporate tax if either its registered seat or its place of management is in Germany (Bundesamt fuer Justiz, 2026). A Dubai-registered company with no German seat can still be caught entirely on the management limb. That trap is important enough to get its own section next.
Citation capsule: Germany applies unlimited tax liability to anyone with a residence or habitual abode in the country under Secs 8 to 9 AO, taxing worldwide income (Bundesamt fuer Justiz, 2026). A residence is any home kept available for use, and a habitual abode generally follows a continuous stay above six months. Registering a Dubai company does not break either test.
What is the place-of-management trap (Geschaeftsleitung) for a Dubai company?
The place-of-management trap is the rule that taxes a Dubai company in Germany whenever its real decisions are made from German soil. Under Sec 1 KStG a company is fully liable to German corporate tax if its place of management (Geschaeftsleitung) is in Germany, and Sec 10 AO defines that place as the centre of the company's top-level management (Bundesamt fuer Justiz, 2026). Dubai registration does not help if you direct the company from Germany.
How Sec 10 AO locates the Geschaeftsleitung
Sec 10 AO places management where the central, day-to-day commercial direction (Mittelpunkt der geschaeftlichen Oberleitung) actually happens. This is a facts test, not a paper test. The question is where the managing director takes the recurring business decisions: signing contracts, instructing staff, setting prices, running operations. If that desk is in Munich or Hamburg, the company's management is in Germany, no matter what the Dubai licence says.
The consequence is severe. A Dubai FZE, FZCO or LLC managed from Germany becomes unbeschraenkt koerperschaftsteuerpflichtig: fully liable to German corporate tax on its worldwide profits, plus trade tax, exactly as a German GmbH would be. The Dubai 0% or 9% rate becomes irrelevant, because the company is being taxed as a German one. This is the single most common and most expensive mistake German founders make.
What real UAE substance looks like
Defending a UAE place of management means moving the decisions, not just the paperwork. In our experience the difference is concrete: a real office in the Emirates, a director who lives and decides there, local staff, board meetings held and minuted in the UAE, and a genuine operational footprint. A nominee director who rubber-stamps decisions taken in Germany does not move the Geschaeftsleitung. The management test looks at where control truly sits, so the substance has to be lived, not staged.
Citation capsule: Under Sec 1 KStG a company is subject to unlimited German corporate tax if its place of management is in Germany, and Sec 10 AO locates that place at the centre of top-level commercial direction (Bundesamt fuer Justiz, 2026). A Dubai company run from a German desk is therefore taxed in Germany on worldwide profit, whatever its trade licence states.
The same management test sits at the heart of holding structures, which we unpack in our note on the UAE holding company in 2026.
Does the Wegzugsteuer (exit tax) apply when you move to Dubai?
Yes, the Wegzugsteuer can apply the moment you leave, and it can tax gains you have never cashed in. Under Sec 6 AStG, when your unlimited German tax liability ends, the law deems a sale of your shareholdings at fair market value, taxing the unrealised gain as if you had sold (Bundesamt fuer Justiz, 2026). No actual sale is needed for the bill to land.
Who it hits: the 1% and 7-of-12-years tests
Two conditions define the target. First, the holding test: Sec 6 reaches shares within Sec 17(1) EStG, meaning a direct or indirect interest of at least 1% in a corporation held at any point in the prior five years (Bundesamt fuer Justiz, 2026). Second, the residence test: it applies to individuals who were subject to unlimited German tax liability for at least 7 of the 12 years before departure. Most established GmbH founders meet both with room to spare.
How the charge is paid, and the third-country point
The assessed exit tax may, on application, be paid in seven equal annual installments, interest-free, generally against security (Bundesamt fuer Justiz, 2026). This is the key relief, and it replaced the older open-ended interest-free deferral that the ATAD-Umsetzungsgesetz abolished. A move to the UAE is a move to a third country, not an EU or EEA state, so the harsher third-country treatment applies and the planning has to assume the installment route, not indefinite deferral.
The 2025 extension to fund units
The reach widened recently. The Jahressteuergesetz 2024 extended the exit tax to certain investment-fund units with effect from 1 January 2025 (Der Betrieb, 2025). So an investor who holds significant fund positions, not only company shares, now has to model the exit charge before leaving. The trend is toward broader coverage, not narrower.
Here is a plain illustration of the mechanics, grounded in Sec 6, using our own round numbers rather than any external figure. Suppose a founder built a GmbH worth EUR 2,000,000 with an acquisition cost of EUR 25,000. The deemed gain is EUR 1,975,000. With Germany's partial-income method taxing 60% of that gain at the personal rate, a large tax charge falls due on departure, despite no sale and no cash received. Spread over seven installments it is manageable, but it must be funded. Treat this as our illustration of the mechanic, not a quote of your number.
Citation capsule: Under Sec 6 AStG, ending unlimited German tax liability triggers a deemed disposal of shareholdings of at least 1% (Sec 17 EStG) at fair value, taxing unrealised gains, for individuals taxed in Germany for 7 of the prior 12 years (Bundesamt fuer Justiz, 2026). The charge may be paid in seven interest-free annual installments on application.
Founders from other countries face their own departure rules, and the way out should be costed before any move. We set out the German side of the cost in our guide to the cost to set up a company in Dubai in 2026.
Do German CFC rules apply to a Dubai free-zone company?
Yes, German CFC rules can apply, and the recent threshold change makes a 0% Dubai company especially exposed. The Hinzurechnungsbesteuerung in Secs 7 to 14 AStG attributes the low-taxed passive income of a German-controlled foreign company to its German shareholders, whether or not it is distributed (Bundesamt fuer Justiz, 2026). The income is taxed in Germany even if it never leaves the UAE.
The 15% low-tax threshold and why 0% trips it
The trigger moved against Dubai structures. Germany lowered the CFC low-tax threshold from 25% to 15% under Sec 8(5) AStG, effective from assessment year 2024 (for CFC financial years ending after 31 December 2023), through the Mindestbesteuerungsrichtlinie-Umsetzungsgesetz (EY, 2024). A company taxed below 15% is "low-taxed". A Qualifying Free Zone Person on 0% Qualifying Income, or a small company under the AED 375,000 0% band, is by definition below 15%. So on passive income, it sits squarely inside CFC range.
Here is the insight competitors usually miss. The 9% UAE corporate rate is below 15%, and 0% is further below, so the German CFC test on the rate limb is met before you start. What then saves an operating business is the nature of the income, not the rate. Active operating income generally falls outside the passive-income catalogue, while interest, certain royalties and passive holding income do not.
Passive versus active income
The CFC rules bite on passive income, not on a genuine trading business. A Dubai company that really operates, makes and sells products, delivers services, employs people, generally earns active income that escapes the attribution, provided the substance is real. A Dubai company that mainly holds investments, licenses IP, or lends money earns passive income that, taxed below 15%, gets pulled back to the German shareholder. The structure's exposure turns on what the company does, so design the activity, not just the rate.
Citation capsule: Germany's CFC regime (Secs 7 to 14 AStG) attributes a controlled foreign company's low-taxed passive income to German shareholders regardless of distribution, and the low-tax threshold fell from 25% to 15% from assessment year 2024 (EY, 2024). A 0% QFZP or sub-AED-375,000 company is below 15%, so its passive income falls in range.
The threshold interacts directly with the AED 375,000 band and the QFZP regime, which we explain in our note on UAE Small Business Relief in 2026.
Is there a Germany-UAE double tax treaty in 2026?
No. There is no Germany-UAE double tax treaty in force in 2026. The previous treaty expired on 31 December 2021 and was not replaced, and it does not appear on the Federal Ministry of Finance DBA status list dated 1 January 2026 (Bundesfinanzministerium, 2026). Only a narrow air and sea transport agreement survives. Any page telling you a new treaty now applies is wrong.
Why the treaty ended, and what "no treaty" means
Germany chose not to renew it. Germany notified the UAE on 14 June 2021 that it would not prolong the agreement, so from 1 January 2022 the UAE income of German residents is governed solely by German domestic law (EY, 2021). No treaty means no allocation of taxing rights, no tie-breaker for dual residence, and no reduced withholding tax. The full German rules apply with nothing to soften them.
Debunking the "new treaty" claim
Let me be blunt about a claim circulating online. Several setup pages state or imply that a "new Germany-UAE treaty now applies" or that UAE income is treaty-protected. That is false. The BMF list dated 1 January 2026, the definitive German source on which treaties are in force, does not list a Germany-UAE income tax treaty. If an adviser relies on a treaty benefit for your Dubai income, ask them to point to it on that BMF list. They cannot, because it is not there.
Sec 34c EStG: the only relief left
Without a treaty, your relief is unilateral and modest. Sec 34c EStG lets you either credit the UAE tax against German tax on that income (Anrechnung, Sec 34c(1)) or deduct it from the income base (Abzug, Sec 34c(2)), with the credit capped at the German tax on that income (Bundesamt fuer Justiz, 2026). The catch is arithmetic. Since UAE tax is often 0%, and at most 9%, there is little or nothing to credit, so the German charge stands close to the full German rate. Low UAE tax is not a saving here; it simply leaves more for Germany to take.
Citation capsule: No Germany-UAE income tax treaty is in force in 2026; the prior treaty expired on 31 December 2021 and is absent from the BMF DBA status list dated 1 January 2026 (Bundesfinanzministerium, 2026). Relief is only unilateral under Sec 34c EStG, and with UAE tax at 0% or 9% there is little to credit.
What does the UAE side actually offer in 2026?
The UAE side is genuinely attractive, but its numbers need stating precisely. UAE Corporate Tax is 0% on taxable income up to AED 375,000 and 9% above, effective for financial years beginning on or after 1 June 2023 under Federal Decree-Law No. 47 of 2022 (UAE Ministry of Finance, 2026). There is no personal income tax. Both facts are real, and both are subject to the German gates above.
Free Zone QFZP and the substance conditions
The free-zone benefit is conditional, not automatic. A Qualifying Free Zone Person pays 0% on Qualifying Income and 9% on non-qualifying income, only where it keeps adequate UAE substance, earns qualifying income, complies with transfer-pricing rules and documentation, stays within the de-minimis limit (non-qualifying revenue not exceeding the lower of AED 5,000,000 or 5% of total revenue), holds audited accounts, and does not elect into the standard regime (UAE Ministry of Finance, 2026). Breach loses QFZP status for that year and the following four tax periods. This is not a blanket tax-free zone.
Ownership, personal tax, and the DMTT clarifier
Three more facts complete the UAE picture. Since the 2021 Commercial Companies Law reform, 100% foreign ownership of mainland companies is allowed for most activities, and free zones were always 100% foreign-owned. There is no UAE personal income tax, though Germany may still tax you as an individual until you break residency. And the Domestic Minimum Top-up Tax of 15% applies only to MNE groups with consolidated global revenue of at least EUR 750 million, for financial years on or after 1 January 2025, so it is irrelevant to a typical owner-managed founder.
Citation capsule: UAE Corporate Tax is 0% up to AED 375,000 and 9% above, for financial years from 1 June 2023, with no personal income tax and 100% foreign ownership of mainland companies for most activities (UAE Ministry of Finance, 2026). The free-zone 0% on Qualifying Income is conditional, not a blanket exemption, and the 15% DMTT touches only EUR 750m+ groups.
What does a clean Germany-to-Dubai exit checklist look like?
A clean exit is sequenced, because more than 80% of the tax risk for a German founder sits on the German side, not the UAE side, until residency and management are genuinely moved. The order is deliberate: cost the exit before you trigger it, then break residency properly, then site real management in the UAE, then keep the activity outside the CFC passive net. Skip a step and the Dubai rate never reaches you.
The sequence that protects you
Work through the gates in order, with a German adviser at each one. First, model the Wegzugsteuer on your GmbH or fund holdings before you leave, and plan the seven-installment funding (Bundesamt fuer Justiz, 2026). Second, break your Wohnsitz and habitual abode for real: give up the German home, move your family and life, document it. Third, build genuine UAE substance so the company's Geschaeftsleitung truly sits in the Emirates, not on a German laptop. Fourth, design the Dubai company's activity so its income is active, keeping passive holdings outside the 15% CFC trap. Fifth, file in Germany using Sec 34c relief for any UAE tax actually paid.
This is a structuring and relocation plan, not a shortcut. Done properly, with substance and patience, the UAE regime can apply to genuinely UAE-managed, UAE-resident business. Done as a paper exercise from a German desk, every German gate stays shut and you simply add UAE setup cost on top of an unchanged German tax bill.
Citation capsule: The German side carries most of the early risk for a Dubai move, so the exit must be sequenced: model the Sec 6 AStG exit tax first, break residency under Secs 8 to 9 AO, site real management in the UAE under Sec 10 AO, then keep income active to avoid the 15% CFC threshold (Bundesamt fuer Justiz, 2026). Each step needs a qualified German adviser.
Frequently asked questions
Can I set up a company in Dubai while still living in Germany?
Yes, and you can own 100% of it, but it does not change your German tax. Germany taxes residents on worldwide income, and a Dubai company managed from Germany is fully liable to German corporate tax under Sec 1 KStG (Bundesamt fuer Justiz, 2026). The licence is administrative; the tax outcome depends on residency and place of management.
Do I pay German tax on my Dubai company's profits?
Often yes. If the company is managed from Germany, its place of management is in Germany under Sec 1 KStG and Sec 10 AO, so its worldwide profits face German corporate and trade tax (Bundesamt fuer Justiz, 2026). Even when management moves to the UAE, German CFC rules can attribute low-taxed passive profit back to you.
Is there a double taxation agreement between Germany and the UAE?
No. The Germany-UAE treaty expired on 31 December 2021 and is absent from the BMF DBA status list dated 1 January 2026 (Bundesfinanzministerium, 2026). Claims that a new treaty now applies are false. Your only relief is unilateral, under Sec 34c EStG.
Does the Wegzugsteuer apply if I move from Germany to Dubai?
If you hold at least 1% of a corporation and were taxed in Germany for 7 of the prior 12 years, yes. Sec 6 AStG deems a sale of those shares at fair value on departure, taxing unrealised gains, payable in seven interest-free annual installments on application (Bundesamt fuer Justiz, 2026). The UAE is a third country, so deferral is limited.
Do German CFC rules apply to a Dubai free-zone company?
They can, on passive income. Germany's CFC threshold fell from 25% to 15% from assessment year 2024, so a 0% QFZP or sub-AED-375,000 company sits below it (EY, 2024). Low-taxed passive income is attributed to German shareholders; genuine active operating income generally is not.
Plan the German side before you incorporate
Setting up in Dubai is simple. Keeping the German tax authorities out of your Dubai profits is the hard part, and it has to be sequenced before you incorporate, not after. The place-of-management trap, the Wegzugsteuer, the 15% CFC threshold and the expired treaty each have to be planned for in the right order. When you are ready to build a properly structured, substance-backed Dubai company, you can talk to Ancova's company formation team about the UAE side of the plan.
This guide is general information, not tax advice, and German tax rules carry serious personal consequences if handled wrongly. Before you act on any of it, consult a qualified German Steuerberater who can review your residency, your holdings and your timing against your own facts.
Written by
Amine Derag
Director of Strategy, Ancova Associates
Amine Derag is Director of Strategy at Ancova Associates, the Dubai advisory firm for company formation, residency, citizenship by investment, and cross-border tax structuring. He advises founders and private clients relocating to the UAE on how a UAE structure interacts with their home-country tax and reporting obligations.
Connect on LinkedInThis article is general information for educational purposes only and is not legal, tax, financial, or immigration advice. Investment thresholds, processing times, and program terms change — speak with a qualified Ancova adviser before acting.
