Relocating to Switzerland or the UAE

Overriding taxation: why the Switzerland Double Taxation Agreement does not immediately protect against emigration

The Double Taxation Agreement with Switzerland contains a special provision – the ‘overlapping taxation’ clause in Article 4(4) of the DTA with Switzerland – which thwarts many plans to leave the country. Accordingly, Germany may continue to tax a natural person who gives up their German residence without holding Swiss nationality on their income derived from Germany in accordance with German law, both in the year of departure and for the following five years. Swiss tax is credited against this. German sources of income, such as shareholdings, property or continued business activities, are therefore subject to German taxation for several years, regardless of the individual’s new residence.

Added to this is the dual residency trap: anyone who retains a home in Germany or habitually resides there remains subject to unlimited tax liability. Residency is determined on the basis of the permanent residence and the centre of vital interests in accordance with the tie-breaker rule of the agreement. Half-hearted moves, where the family, the home or day-to-day business operations effectively remain in Germany, regularly fail at this stage and lead to disputes with the tax auditor. A move to Switzerland must therefore be planned as a complete relocation of the centre of life, with documented relinquishment of the German residence.

Moving to Dubai: the no-deal route

In the United Arab Emirates, no income tax is levied on the income of individuals. Since 2023, there has only been a corporation tax on company profits. On the German side, however, there has been no double taxation agreement since 31 December 2021, as Germany deliberately allowed the previous agreement to expire and a new one is not currently under negotiation. Consequently, only German domestic law applies, without the protection of a treaty and without a tie-breaker: anyone who retains a home in Germany is subject to unlimited tax liability here, regardless of how many days they spend in Dubai.

As regards exit tax, the UAE route means the full brunt of the tax: the Wächtler principles are based on the Agreement on the Free Movement of Persons with Switzerland and do not apply to third countries such as the UAE. The tax remains due, although there is the option to pay it in seven annual instalments, provided security is provided. In addition, the extended limited tax liability under Section 2 of the Foreign Tax Act (AStG) may apply. This covers German nationals who have been subject to unlimited tax liability as Germans for at least five of the last ten years, who move to a low-tax jurisdiction and who retain significant economic interests in Germany. They remain subject to German tax on their non-foreign income for ten years, beyond the scope of the standard limited tax liability provisions. Anyone choosing the Dubai route must therefore expect consequences extending beyond the date of departure, including the question of which shareholdings, accounts and activities need to be restructured prior to departure.

Planning before moving away: an overview of the options

All robust planning measures must be put in place prior to departure. At the shareholding level, the scope of application of Section 6 of the German Foreign Tax Act (AStG) can be circumvented, for example by transferring the shareholding into a commercial partnership, thereby establishing a German permanent establishment for the shares, or through restructuring measures that safeguard the right to tax in Germany. Such steps require advance planning and are only effective if they are substantive. At family level, the transfer of shares to relatives remaining in Germany or to a German family foundation can decouple the entrepreneur’s departure from the shareholding. We have explained the gift tax aspects, including the five-year period during which German tax liability continues to apply to German nationals, in our article on gift tax.

Anyone seriously considering the right of return should formally safeguard it. Document deadlines, apply for any extensions in good time and monitor the dividend limits. In every scenario, the following also applies: the valuation of the shares as at the date of departure has the greatest impact on the tax burden. A robust company valuation that can be justified to the tax authorities should therefore be carried out at the start of the planning process, rather than at the end.

Legal status: July 2026.