Progression Clause: What It Means When You Move to Dubai

The progression clause (Progressionsvorbehalt) is the rule that turns tax-free income into a higher tax bill nonetheless. It does not tax the income itself; it only raises the rate applied to everything else. For people emigrating, it is regularly an unpleasant surprise in the year they move away.

How it works

Certain income remains tax-free but is taken into account when determining the tax rate. The tax office forms a notional total, determines the tax rate from it and then applies this rate only to the income that is actually taxable.

The effect is therefore indirect, but it can be considerable, especially in the middle income range, where the tax scale is at its steepest.

Which income is covered

In Germany, § 32b of the Income Tax Act (Einkommensteuergesetz, EStG) governs what is included. Two groups are relevant in practice:

• Wage replacement benefits: unemployment benefit, short-time work allowance, sickness benefit, parental allowance, maternity allowance
• Foreign income that is exempt from German tax under a double tax treaty

The second group is the reason the rule comes up at all when people emigrate.

The decisive point for Dubai

This is where it gets interesting for the Emirates as a location, for a reason most people do not expect.

The progression clause for foreign income requires that this income is exempt under a treaty. There has been no double tax treaty between Germany and the United Arab Emirates since the end of 2021.

So there is nothing that could be exempt. If you remain resident in Germany and receive income from the Emirates, you simply pay full tax on it; the progression clause plays no role because it does not apply at all. The burden is therefore not lower but higher than in a treaty case with exemption.

Where it does apply when you emigrate: the year of the move

And here lies the trap that actually bites.

If you move away during a year, you are subject to unlimited tax liability for part of the year and no longer for the rest. For this case, the law provides that the foreign income earned after the move is included in the progression clause.

In practice, this means: your income from Dubai from the day of the move increases the tax rate on your German income for the months before.

• Only the year of the move is affected, not the following years
• The later in the year you move, the more German income is hit by the higher rate
• The higher your income in the Emirates, the stronger the effect
• The tax return for the year of the move must still be filed in Germany

If you leave in January, you lose little. If you leave in November and receive a high salary in the Emirates from December, you pay a noticeably higher rate on eleven months of German income.

Austria and Switzerland

Austria applied the exemption method until the end of 2022, usually with progression clause. Since 1 January 2023, the credit method has applied in relation to the Emirates. The progression clause has therefore ceased to apply in this constellation; instead, income is taxed in full and whatever was paid in the Emirates is credited. Since nothing is payable there for private individuals, the full Austrian burden remains.

Switzerland generally applies the exemption method in relation to the Emirates, usually subject to progression. Here the rule therefore remains relevant, but only as long as there is still Swiss income to which a higher rate can be applied at all.

A common misunderstanding

The progression clause is neither a penalty for foreign income nor a disguised tax. It is meant to ensure that a person's ability to pay is fully reflected: anyone with high tax-free income is economically more capable than someone without it.

Nor can it be structured away. The only thing that helps is timing.

How we see it

From our client work: the progression clause is the item most often overlooked in the year of the move. Clients expect to be tax-free from the day they move and then receive an assessment for the year of departure that is well above their expectations.

The effect can be planned. If you can choose the date of your move, you should factor the turn of the year into your considerations: moving away in January has a different effect from moving in October. For a well-paid employee the difference can run into four figures, and considerably more for higher incomes.

Our division of roles: the calculation belongs with your tax adviser in your home country. We make sure that licence, visa and Emirates ID are timed so that your intended moving date can actually be kept; the lead times of the authorities in the Emirates help determine when you can realistically deregister.

Clarify before moving away

• In which month is the move realistic, and what does postponing it by a quarter cost?
• How high is the expected income in the Emirates from the day of the move?
• What German income will still arise in the year of the move?
• Have you planned for the tax return for the year of the move?
• Are there wage replacement benefits that also fall under the progression clause in the same year?

As of 28 August 2026. This article does not replace individual tax advice.

How setting up in the Emirates fits into this timeline is explained on our page on tax planning.