Anyone who emigrate to Dubai in the United Arab Emirates (UAE) as a shareholder of a German GmbH or GmbH & Co. KG despite an exit tax or other tax deregulation must continue to expect high taxes. Because the profits remain taxable in Germany, so that there are no positive tax effects by the move to Dubai – initially. Because German profits can be tax optimized in Dubai. For this purpose, you set up a Dubai LLC and receive the profits of the German GmbH or GmbH & Co. KG via this holding company. This has the advantage that Dubai LLC does not have to pay taxes on profits obtained from abroad. In addition, profit distributions from Dubai LLC to the Dubai-based shareholders do not trigger any further taxation there. In this way, the overall tax is reduced to around 30%, i.e. a saving of around 20% compared with taxation in Germany.

1st German profits in Dubai tax optimization – Introduction

For some emigrants from Germany who decide to live a privileged life in Dubai, their company in Germany is still financially important. However, when moving to Dubai, as elsewhere, there are some tax aspects to consider. At least, as a shareholder or shareholder of a German GmbH, you have to consider the exit tax. In the case of a partnership or a sole proprietorship, it is another form of tax easing that takes effect. After all, the German state is by no means interested in the tax substrate, i.e. the hidden reserves that have grown in the companies, being moved abroad by the shareholders.

But well, assuming you have paid or avoided these taxes and still continue to participate in your own company in Germany. What exactly is the taxation of profits generated in Germany? And based on the answer to this, another question follows: How can I tax optimize German profits in Dubai?

2. How German Profits Are Taxed in Dubai

If we want to think about tax optimizations of German profits in Dubai, we first have to consider how to tax them internationally. It is best to start in Germany.

A German GmbH pays 15% corporate tax on its German profits and about the same amount of business tax. This takes place regardless of whether their shareholders are resident in Germany or abroad. But if these decide at some point a profit distribution, it plays a role where they are unlimited and where they are only limited taxable. In any case, under German law, the GmbH retains the capital gains tax of 25 % as withholding tax in Germany. If there is a double taxation agreement (DTA), it can later come to a refund of at least partial amounts. There is currently no DTA with the United Arab Emirates. In the end, as a shareholder in Dubai, you get paid out about 50% of the original profit. One can still speak of luck, because in the UAE no further taxation takes place. Income of private individuals from capital income is tax-free there. Without the DTA, there would have been double taxation in Germany and abroad.

The situation is similar for a German GmbH & Co. KG or another company. Since these are taxed transparently in this country, the shareholders in Dubai bear both the trade tax incurred in Germany and the income tax. But at least here there is no further tax in Dubai. But what are our chances of being able to optimize German profits in Dubai?

German profits in Dubai tax optimize: this is how it works!

With the German company in Germany and the relocation of the center of life to Dubai, we can now apply our tax design model. For this purpose, an LLC is founded in Dubai. A Dubai LLC is a pure capital company and corresponds almost exactly to the German GmbH. “Another GmbH?” you will ask now. Oh, yes, it is the key to tax optimization of German profits in Dubai.

3.1. German GmbH profits in Dubai tax optimized

On the one hand, the German GmbH is now distributing its profits to its holding company in Dubai. Even then, according to § 8b (1) sentence 1 KStG, the taxation between the two limited companies is in principle tax-free, because it is irrelevant whether the taxation takes place within the framework of an unlimited or limited corporate tax liability. Only the provision that 5 % of the profit is considered to be taxable on a flat-rate basis leads to a minimum tax of approximately 1,5 % on corporation tax and business tax. In Dubai, on the other hand, people are relaxed, because the UAE does not levy taxes on profit distributions on a private level, so we were able to optimize our German profits.

3.2. Deutsche GmbH & Co. KG tax optimization profits in Dubai

On the other hand, in the case of a German GmbH & Co. KG, taxation must be carried out according to the rules of the transparency principle. This means that instead of GmbH & Co. KG, income taxation by trade tax and income tax is payable by the shareholders of the partnership. Whether these are now in Germany unlimited or limited tax, is from a tax point of view first of all secondary. However, what has considerable consequences is whether the shareholders of Deutsche GmbH & Co. KG are natural or legal persons.

Because we have founded a corporation as a holding company in Dubai, you have to carry out income taxation by way of the German corporate tax. This in turn provides for a tax of 15 % of profits. For business tax, however, this has no new impact. It is then generally a further 15%. In sum, then, we are again talking about 30% taxation. And this is significantly cheaper than a tax of up to 50% at the level of an unlimited taxation of natural persons.

Even if we were to channel the profits of GmbH & Co. KG through a holding company in Germany, the subsequent profit distribution from the holding company would again generate capital gains taxes. Speaking of capital gains taxes, that was the tax that is unknown in Dubai, right? Therefore, there are no further taxes on the withdrawal of the profits from the holding in Dubai.

4th German profits in Dubai tax optimization: prerequisites

Now there is an important point that you have to consider. For example, the UAE has committed itself internationally to implementing certain rules to prevent and combat tax evasion and profit shifting. This relativizes our general statement that profits distributed by corporations in the UAE remain tax-free. More specifically, this is a condition which, in the sense of the measures proposed by the OECD, is intended to prevent the profit shift. For example, the UAE has introduced certain criteria under a regulation that can be called the Substances Directive. A pure letterbox company is therefore not a serious design in Dubai either. But in compliance with the requirements of the catalogue of the Substances Directive, our model, with which we want to optimize German profits in Dubai tax, is still possible and also practically feasible.

5th In Dubai German profits tax optimize – Conclusion

So whether you continue a German GmbH or a GmbH & Co. KG after moving to Dubai, you can optimize the profits from them in a considerable way. Tax savings of up to 20% are possible. Of course, this is mainly due to the fact that in the UAE no taxes are incurred on such transactions. Nevertheless, it must be ensured that the holding LLC established in Dubai for this purpose meets all requirements for the annually submitted substance proof.

If you look at it this way, the demand for corporate substance is a fair solution in order to enable immigrant entrepreneurs from abroad both a tax-free income and to meet international tax standards. Because the UAE is very important its worldwide reputation as a modern, future-oriented state that offers its inhabitants an exclusive life. This also includes a tax law that can be compared with those of other developed countries (for example, that of Switzerland). The fact that in the end no taxes are incurred is almost astonishing from our German point of view, because from our experience it is almost inconceivable that strict tax regulations can be combined with tax exemption; In Germany, we usually only know one side of the coin.