The text which remains to be ratified by the concerned authorities is currently being closely examined by us in order to determine its consequences, but it seems already clear that it does not bring the same advantages for German tax payers as the old agreement which expired at the end of 2008.

 

The core of the new agreement is a different formula to avoid a potential double taxation. The previous agreement allowed for an exemption from German tax duties, if a person seated in Germany was taxable in the UAE under any of the provisions of the old agreement. Practically that insured that the tax free status under UAE law would not be hampered by German tax duties. The new Agreement however, introduces a formula by which in such case any paid taxes in the UAE are to be set off against the otherwise payable taxes in Germany. Given the current status of UAE income tax not being levied at all, the new approach appears to have no considerable advantage over a situation without a double taxation agreement. 

 

Consequently, when it comes to corporate entities branch offices of German companies active in the UAE will be at a severe disadvantage over independent subsidiary companies.

 

Whilst for corporate entities there may be a remedy in the choice of the corporate setup structure, for German individuals - due to a very extensive interpretation of the term “seat” under German tax laws the new agreement can under certain circumstances result in full exposure to income tax in Germany with their entire UAE salaries, especially when they are here on an interim basis. This will have to be considered by UAE based companies or branch offices who wish to attract German staff to work in the UAE. It is likely to make German workforce in the UAE more expensive and therefore less attractive for the UAE market.

 

For further information please contact: axel.jacob@fichtelegal.com