Many entrepreneurs today are considering whether to emigrate to Dubai. Whoever is a GmbH shareholder must also pay attention to the exit tax. This applies exclusively to corporations or their shareholders. There are several ways to avoid the exit tax. Thus, the transformation into a partnership is an elegant solution, because there is no double taxation agreement (DTA) with the United Arab Emirates (UAE). This also eliminates the tax easing requirement for partnerships, which becomes relevant when moving to a country with which Germany has concluded a DTA.

1st Emigration to Dubai – Introduction

Dubai has become a hotspot for new markets, a magnet for all entrepreneurs looking for the greatest possible entrepreneurial freedom. Young entrepreneurs in particular have followed this call and many continue to follow them, including many influencers.

But who wants to emigrate from Germany as a GmbH shareholder to Dubai or elsewhere abroad, is confronted with the exit tax. It is a reinsurance of the German state in order to tax the increase in value that a corporation has developed in Germany until the departure of its shareholders. As soon as a shareholder lays off unlimited tax liability in Germany in order to settle abroad, the taxation right on the once realized increase in value also passes to the new home state, while Germany then waives the taxes on this profit.

2. emigrating to Dubai: the exit tax as a hurdle

So let’s talk about the fabled exit tax. First of all, it is standardized in § 6 AStG. As already mentioned, it is a measure to tax the increase in value experienced by shareholders in their limited liability company up to the time they move abroad while this is still possible. One likes to speak of the legal last second, i.e. the expiry of the last day on which such a shareholder is tax resident in Germany.

What exactly happens then? The law then provides for the simplified income value method. It requires you to calculate the average of the profits of the previous three years and then multiply by a factor of 13.75. The result of this calculation is a flat-rate estimate of the value of the enterprise. Since most GmbHs are founded with the minimum share capital of EUR 25,000, hardly any initial costs are usually deducted. In any case, the anticipated taxation of a fictitious company sale profit is then carried out on this basis.

And this is exactly the point that GmbH shareholders who want to move abroad find it difficult to convey: They should pay taxes on a profit that was never received. Of course, this means in concrete terms that they then have to pay the exit tax from net overtaxed private assets. And so it is no wonder that many affected persons are looking for ways out to avoid the exit tax.

3rd Options to Avoid Exit Tax

So let’s talk about the options available to avoid the exit tax. Two conditions must be observed: the departure to a country with which Germany has concluded a double taxation agreement (DTA) and to one with which there is no agreement.

The move to a country with a DTA is probably the more likely case, because Germany has agreed such an agreement with about 100 tax regimes worldwide. Here there are several options to avoid the exit tax. For this purpose, one can either carry out a conversion into a partnership or transfer the corporation as a subsidiary into a holding structure in which a partnership is a parent company. The reason for this is that the exit tax only affects corporations and therefore not partnerships. For the same reason, you can also enter into an atypically silent company with your own GmbH. Or you transfer the GmbH to a foundation, so that you no longer hold shares in the GmbH at the time of the move.

The second case – moving to a country without a DTA – is more relevant for our project – emigration to Dubai. There is currently no valid double taxation agreement with Germany with the United Arab Emirates. A few years ago it was actually different. But there has been no interest on the part of Germany to extend this. Therefore, the DTA with the UAE expired at the end of 2021. In the next chapter, we look at the possibilities if you want to emigrate to Dubai or elsewhere in the UAE. Of course, this also applies to all other countries with which Germany does not maintain a DTA.

4. When emigrating to Dubai, avoid the exit tax

Option 1: Immigrate to Dubai without giving up German residence

In purely practical terms, the first alternative we can offer you to emigrate to Dubai without an exit tax is the easiest: you remain taxable in Germany. Exactly, because if you are still taxable in Germany, Germany also loses no right to tax a former capital gain. Or in other words: everything remains as it is, only then you stay in Dubai.

How to achieve this? This is also quite simple, namely with a key. This is not a magic key, but a key that gives you access to accommodation in Germany. This can be your previous house or apartment. It can also be a specially rented apartment. Or the guest room of a relative or acquaintance in Germany. There are no demands on the premises themselves. Only the key that can provide access to this residence at any time is important; This is called key power. Because the key also goes along with the tax justification of a residence. And with a residence in Germany you are taxable in Germany unrestricted. Germany will thus retain the right to tax a future capital gain. The fact that you only visit the residence every few days of the year and otherwise stay mainly in Dubai is irrelevant.

However, maintaining a residence in Germany has a serious disadvantage. Since Germany collects taxes according to the world income principle and you are then still subject to unlimited tax liability in Germany, this means that you have to tax all your income from home and abroad in this country, thus also those from Dubai. And since we do not have a DTA with Dubai, this can, at least hypothetically, lead to double taxation in both countries. In any case, the goal of paying less taxes in Dubai than before in Germany is unattainable.

4.2 Option 2: Conversion of the GmbH into a partnership

How good that there is another way to emigrate to Dubai without an exit tax. And in this design, double taxation is no longer an issue. However, you have to plan and implement a little more for this.

Actually, we have already mentioned the path we want to take here. After all, what we are concerned with is the use of a partnership, which is excluded from exit taxation anyway. So the question is how to create a partnership from a GmbH. There are several ways to do this. On the one hand, a conversion of the GmbH into a GmbH & Co. KG is possible. We prefer this legal form because it has several advantages over other partnerships, including the fact that it can be set up without further co-partners. On the other hand, you can set up a holding structure and bring the GmbH shares into the Holding GmbH & Co. KG. This also preserves Germany’s right to tax, because the GmbH & Co. KG as a commercial enterprise, even if it is completely empty apart from the GmbH shareholding, remains tax-arrested in Germany.

The advantage of this design is clear: you can now emigrate to Dubai or another tax regime with which Germany does not have a DTA, without leaving tax and without remaining taxable in Germany. In this way, one can fully benefit from the tax advantages in the new homeland.

emigrating to Dubai without an exit tax – Summary

Therefore, our clear recommendation is: if you as a shareholder of a GmbH intend to move abroad, then discuss this wish with a tax consultant. Better yet, seek the advice of a team of experts specialized in this topic. Because if you deviate from the necessary steps in only tiny details, this can have a negative impact on the tax level. And we'd like to spare you that. Therefore, we recommend ourselves at this point and look forward to your call. He would have to come to us at any moment.