- Decision guide: Mainland vs. Freezone — critical differences
- Avoidable mistakes: The German problem — CFC taxation
- Exit tax on GmbH shares — concrete recommendations
Dubai attracts with the promise of minimal taxes. Since 2023, there is a corporate tax of 9% on profits above 375,000 AED (~95,000 €). In Freezones, the tax rate can be 0% — but only if you do not serve local UAE customers. The reality: without genuine substance on the ground, a Dubai LLC is a tax risk for Germans, not an advantage.
Mainland vs. Freezone: Critical Differences
Freezone: 0% corporate tax possible, but only for business outside the UAE. No local customers. 100% foreign ownership permitted.
Mainland: 9% corporate tax above 375,000 AED. Local customers possible. Since 2020, no local sponsor required.
Substance = no letterbox company: You need real office space, employees on site and demonstrable business activity. Without substance, neither Dubai nor Germany will recognize the structure.
The German Problem: CFC Taxation
For Germans with residence in Germany, §7 AStG applies — Controlled Foreign Corporation rules. Profits are attributed to the German shareholder and taxed in Germany if the foreign company is subject to low taxation (below 25%), Germans hold more than 50% and the income is passive in nature. Without substance: 50% additional taxation in Germany.
When you apply this knowledge, you gain a concrete advantage over competitors who enter investor conversations without this foundation. Use the insights from this article as the basis for your next step.
Exit Tax on GmbH Shares
Anyone wanting to emigrate to Dubai with an existing GmbH encounters the exit tax (§6 AStG). All hidden reserves are fictionally disclosed and taxed. The correct approach: emigrate first, then found. Anyone who gives up their residence and spends at least 183 days abroad can use the Dubai LLC tax-free — provided the substance is right.
Our Global Freedom Structures consider both German AND local law.
Further reading: Forming a US LLC · US Taxes for Germans
