October 4, 2026

Setting Up a Company in Dubai While Living in Germany: What Really Happens for Tax Purposes

Setting up a company in Dubai while continuing to live in Germany is legally possible, but it is the most demanding constellation of all. The company then sits between two tax systems, and both of them lay claim to it.

What applies in this constellation

The company formation itself does not require residence in the Emirates. A free zone company can be registered even if you remain registered as a resident in Germany. The question is not whether it works, but what consequences it has.

Level	Germany	UAE
Personal tax liability	continues while you keep your residence	no personal income tax
Company	CFC attribution where applicable	0% or 9% corporate tax
Place of management	decisive	decisive
Double tax treaty	none since the end of 2021	none since the end of 2021

The place of management decides

A company is taxed where it is actually managed, not where it is registered. If you make the decisions from your desk in Germany, you risk the German tax office (Finanzamt) treating the company as resident in Germany. The decisive concept is the place of effective management (Ort der Geschäftsleitung).

Where are contracts negotiated and signed?
From where are employees instructed and prices set?
Where do shareholder meetings take place and how are they minuted?
How many days a year are you actually on site?

These questions determine where the company is taxed. A licence and a flexi desk are not enough if management demonstrably sits elsewhere.

CFC taxation under the German Foreign Tax Act

If a person resident in Germany holds a majority in a low-taxed foreign company that earns passive income, the rules on CFC taxation (Hinzurechnungsbesteuerung) under the German Foreign Tax Act (Außensteuergesetz, AStG) apply. The profits are then attributed to the shareholder and taxed in Germany, regardless of whether they were distributed.

Passive income includes, among other things, interest, licence income and certain services provided to related parties. Active business with genuine substance on the ground is generally not covered. Exactly where the line lies is a case-by-case question and should be reviewed by your German adviser.

No double tax treaty

Since 31 December 2021 there has been no double tax treaty (Doppelbesteuerungsabkommen) between Germany and the UAE. This removes the instrument that would otherwise resolve double taxation. If the same income is taxed in both countries, there is no rule giving either of them priority.

That is why this constellation requires more care than a company formation combined with a complete move abroad. With a genuine relocation, the question does not arise in the first place.

Substance: what authorities and banks mean by it

Substance is the concept on which the entire constellation hinges. It means that the company actually does business where it is registered. For the UAE tax authorities this matters when the 0% rate of a free zone company is claimed; for the German tax office it matters when CFC attribution is at stake.

An office that goes beyond a mere mailing address
Staff on site or services demonstrably performed there
Costs that match the claimed activity: rent, salaries, licence fees
Decisions that are documented as being taken on site
A bank account in the Emirates through which payments actually run

The more of these points are met, the more robust the structure is. Conversely, if you cannot show a single one of them, you have a company that will not withstand an audit, neither in Germany nor in the Emirates.

Building substance costs money and requires presence. This is exactly the point at which it is decided whether a company formation without relocation still makes economic sense, or whether a complete move is ultimately the simpler route.

When the constellation can still work

As a shareholding in a company that is run by partners on the ground
As a minority shareholding without controlling influence
With operating business backed by genuine substance in the Emirates: office, staff, decisions on site
As preparation for a later move, with a clear timeline

What goes wrong in practice

The company exists only on paper, while the business continues to run from Germany as before
Invoices go to the same German customers as before, just with a different letterhead
There are no staff and no decisions on site
The bank refuses the account because the business model shows no connection to the Emirates

The last point hits fastest: even before the tax office asks questions, the structure fails at the account opening stage.

How we assess this constellation

If you stay resident in Germany and expect a Dubai company to lower your tax burden, you will be disappointed in most cases. The savings that are advertised require an actual move abroad, not just a registration.

A company formation without relocation makes sense when there is a genuine business reason behind it: a market in the region, partners on the ground, a base for international clients. Then the structure holds, because it follows a purpose rather than a tax expectation.

Our advice: first clarify with your German tax adviser (Steuerberater) what a move abroad would mean for you. Only once that question is answered does it make sense to talk about the structure in the Emirates. We provide the documents for that conversation and, if you wish, coordinate directly with your adviser.