Many wealthy individuals are drawn to Dubai or Abu Dhabi, among other places, to benefit from the attractive tax conditions<\/strong>. But beware: life there is no longer completely tax-free. With the introduction of corporate income tax<\/strong> (CIT) in the UAE in June 2023, rules apply that pose tax risks<\/strong>, particularly for entrepreneurs residing in Dubai and Abu Dhabi, but also for companies abroad.<\/p>\n\n\n\n Many German entrepreneurs are familiar with this situation: anyone who owns a foreign company, anywhere in the world, and manages it from Germany as a managing director risks the foreign (!) company being subject to unlimited tax liability in Germany<\/strong>. This is because Section 1 (1) of the Corporation Tax Act (KStG) states:<\/p>\n\n\n\n \u201cThe following corporations (\u2026) that have their management (\u2026) in Germany (\u2026) are subject to unlimited corporation tax liability.\u201d<\/em><\/p>\n\n\n\n The situation is similar in the UAE. According to Article 11(3)(b) of the Corporate Income Tax Law (Federal Law No. 47\/2022), a foreign company is considered a \u201cresident person\u201d in the UAE if it is \u201ceffectively managed and controlled\u201d in the UAE. This means that if the place of management is in the UAE<\/strong>, the company is subject to full tax liability<\/strong> in the UAE \u2013 on its worldwide income (Article 12 CIT).<\/p>\n\n\n\n The UAE has introduced modern tax law<\/strong> with its CIT legislation. The central point of reference is the \u201cplace of effective management\u201d<\/strong> (POEM), comparable to the German \u201cOrt der Gesch\u00e4ftsf\u00fchrung\u201d (place of management). The decisive factor is where the essential business decisions are made<\/strong> \u2013 not just where the company is formally registered. Anyone who, as the managing director of a foreign GmbH or Limited, regularly makes business decisions in Dubai risks the company being considered a tax resident in the UAE. This could result in double taxation<\/strong> both in the country where the company was founded and in the UAE as the place of management.<\/p>\n\n\n\n Corporate income tax is generally 9 percent on profits over AED 375,000<\/strong>, and as high as 15 percent for large multinational companies<\/strong>. This means that arrangements that were previously common, such as \u201cresidence in Dubai, company abroad,\u201d are no longer automatically tax-neutral or, at least, are short-sighted.<\/p>\n\n\n\nForeign companies taxable in Germany<\/h2>\n\n\n\n
Background tax liability based on place of management<\/h2>\n\n\n\n