Double Taxation Agreement Between UAE & Germany

Overview

TAXES! They are crucial in ensuring smooth business operations, particularly in countries with high taxation policies like Germany. This is where the concept of a “Double Taxation Agreement” (DTA) comes into play. DTAs are designed to prevent individuals living and working abroad from being taxed in both their home country and the country where they work. The DTA applies to all companies that are residents in one or both contracting states. It applies to both existing and future taxes levied on companies’ income. To address this issue, countries have entered into agreements to avoid double taxation. Let’s explore the DTAs between the UAE and Germany in detail.

Double Taxation Agreement Between UAE & Germany

Preview of DTA’s between Germany & UAE

The first DTA of 1995 came into effect on August 10, 1996, which was set for 10 years. Later it was extended for a further 2 years until 2008. In December 2008 a new DTA was never signed and published. The current tax agreement between Germany and the UAE came into effect on July 14, 2011, with a term limited to 10 years. The agreement would have been extended if both countries had agreed on the extension before June 30, 2021. However, Germany decided on June 14, 2021, not to renew the agreement with the UAE. Therefore, the current DTA expired on December 31, 2021.

The current state of UAE residents in Germany

The taxation of all relevant tax assessments that have been issued by December 31, 2021, is taxed according to the current tax agreement, even if the term of the double taxation agreement has already expired. The general principle “All income is taxed in Germany if the taxpayer is resident in Germany” continues to apply.

The point of reference for this principle is the unlimited tax liability (the worldwide income would be included when calculating the amount of tax). A person is subject to unlimited income tax liability when he or she has a domicile in Germany. As for a legal entity, the domicile and management in Germany are decisive. But even if there is no unlimited tax liability. However, it may be possible that there is a limited tax liability considering domestic income.

Simplified Context – DTAs Between UAE & Germany

The double taxation agreement (DTA) between Germany and the UAE sets rules for determining tax residency. According to the agreement, a person is considered a resident of the UAE if they are domiciled in Germany and are also a UAE national. However, since UAE citizenship is required, this applies to only a small group of people. It’s important to understand how the DTA term “resident in a contracting state” relates to the local term “unlimited tax liability.” Essentially, a resident of a contracting state is someone subject to full taxation there because of their home, permanent residence, business location, or other factors. 

For individuals, the following criteria are used to determine residency (in order of priority):  

• Permanent residence (where you live long-term).  
• Center of life interests (where your personal and economic activities are focused).  
• Habitual abode (where you usually stay).  
• Nationality (if none of the above provides a clear answer).  
• Mutual agreement procedure (if countries cannot agree, they resolve it through discussions).  

If one or more of these criteria apply, we consider the person a resident of the contracting state, bringing them under the DTA rules.

Key Takeaways

The “German tax law has unilateral measures to avoid double taxation” means Germany actively enforces its own rules and policies, independent of agreements with other countries, to prevent individuals or businesses from being taxed twice on the same income. For example, if someone earns income abroad and the foreign country has already taxed that income, German tax law might: (i) Exempt the foreign income from German taxation. (ii) Provide a tax credit for the taxes paid abroad, reducing the amount owed in Germany. All these measures are unilateral because they apply even when no double taxation agreement (DTA) exists with the other country. But in the case of the UAE and Germany, both alternatives do not lead to any relief due to the lack of tax collection in the UAE. This means the income earned in the UAE is therefore taxable as domestic income if the legal entity and/or the person fulfill the requirements for unlimited tax liability in Germany.

Since your lifestyle and/or your company are always changing, we recommend you talk to our experts at Arnifi for better understanding.