Comparison of the UAE double taxation agreements with Germany and Austria: Austrians are better off!
When you come to the UAE for work, you have thought about many things: Will my family join me? Can my children go to school there? Will I take my furniture with me? Or, can the insurances I have continue? These are just some of the considerations that you make or already made when you came to the UAE.
However, very few of you have thought about whether you will have to continue paying your taxes in Germany or Austria. But this is essential at least for the Germans among you.
Why do we have double taxation agreements (DTAs)?
In principle, a DTA should avoid double taxation. In other words, you don’t have to pay taxes twice in the country where you work and your home country. It is important that you are also covered by the DTA:
The DBAs apply to “nationals” and “resident” people. This is the same in both DTAs between Austria and the UAE and also Germany and the UAE. Nationals of Germany are all Germans within the meaning of Article 116 (1) of the Grundgesetz (constitution), as well as all legal persons, partnerships and other associations of persons established in accordance with the law applicable in Germany and vice versa for the UAE. Austria formulates its DTA with the UAE in a similar way.
The most important differences in both DTAs are:
- The term “resident” people, which becomes important in the application of the DTAs. Both DTAs subdivide this term for the UAE and Germany/Austria, whereby Austria makes no difference in the requirements. Austria, for example, refers to the domicile and permanent residence of the natural person in the case of tax liability and to the place of management or other characteristics in the case of a legal person.
In contrast, the DTA Germany/UAE for Germany focuses on the unlimited tax liability of natural persons and legal entities. For the UAE, a natural person must not only be resident in the UAE but must also be a citizen of the UAE. The same applies to legal entities, not only because the company must be established in the UAE, but also because it must be 100% owned by a UAE national.
- The methods for avoiding double taxation are fundamentally different (Art 22 of the German and Art 24 of the Austrian DTA):
While only the taxes paid in the UAE are credited against the taxation of income from the UAE for Germans, the tax is waived for Austrians if the right of taxation is vested in the UAE. On the progression proviso itself, see below.
These requirements have considerable consequences for Germans, as you can read below using a few examples.
Effects on individual provisions in the DTA!
Article 6 of the DTA UAE/Germany and Austria
If as an Austrian, you own a flat/studio in the UAE (immovable property) and receive income from it, you can relax, the income will be taxed in the UAE and not in Austria. For the Germans among you this looks quite different. The tax paid in the UAE for income from real estate would be “credited” against the German tax (Art 22 of the DBA). Since no taxes are levied on property income in the UAE, Germans must pay full tax on this income in Germany.
Article 7 of the DBA VAE/Germany and Austria
Even in other types of income, the way in which double taxation is avoided (imputation method or exclusion method) has a negative impact on German residents. This is the case with corporate profits.
In accordance with Article 24 of the DTA, Austria applies the so-called exclusivity method to double taxation. On the basis of this calculation method, taxation in Austria is therefore not applicable if the UAE has the right to tax. However, Austria reserves the right to progression (progression reservation), which means that the tax-free income from the UAE can increase the tax rate applicable to taxable income in Austria through the effect of progression and thus indirectly leads to an increase in the tax liability in Austria despite tax exemption.
What can I do as a German?
Since an effect of the double taxation agreement VAE/Germany does (almost) not occur at all due to the problems of “residency” and “imputation method”, a solution for you is the transfer of residence, i.e. the habitual abode, to other European countries with a corresponding double taxation agreement, like Austria. This allows you to achieve a limited tax liability. Then only German income is subject to tax in Germany, such as income from real estate rentals. All other income, however, will then be taxed according to the DBA with the country of residence.
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