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What are Exit Taxes & Why to Consider Them Before Moving to Dubai

Exit taxes are a common feature of many countries around the world, and are generally levied on individuals and businesses that are leaving the country permanently. In the context of someone moving to the UAE, it is important to understand what exit taxes are, how they work, and how they may impact your move.


Leaving your home country may lead to exit taxation. However, with the right strategy, you can avoid paying exit taxes.


What are Exit Taxes?


Exit taxes, also known as departure taxes, are taxes that are charged when an individual or business leaves a country. These taxes are often used as a way for governments to recoup some of the tax revenue that they would have collected from the individual or business if they had remained in the country.


Exit taxes can take many different forms depending on the country in question, but some common examples include:


Capital Gains Tax (CGT)

This tax applies to the profit made when an individual sells a capital asset, such as property, shares, or a business. For instance, if you sell your German property before leaving the country and relocating to Dubai, you may be subject to capital gains tax on the profit you make from the sale. CGT rates vary across countries, and some countries may have exemptions for low-income earners, primary residences, or small businesses.


Capital gains taxes also apply to company shares you own. Let's say you opened a company in your home country and grew it to profitability over ten years. Now you realize that you could base yourself in the UAE and shift profits overseas to save corporate and personal income taxes.


The problem arising in this situation is that when you close your existing business in your home country and re-establish it in the UAE, the tax authorities in your home country will likely investigate you for tax evasion.


When you first established the company in your home country, the company's shares were of little value. Today, your company is profitable and generates a lot of business, as a result, your company's shares are worth a lot more.


Your home country's tax authorities will be aware of this increase in share value. In essence, these are unrealized capital gains.


Tax authorities are expecting you to eventually pay capital gains tax on this increase in share value once you sell your business.


If you now decide to close the business (without selling it), and establish a new company in the UAE serving all your old customers, we have a case of tax evasion.


Tax evasion is illegal, and not to be confused with tax avoidance which describes the legal reduction of taxes by taking advantage of tax-optimization strategies.


When your home country's tax authorities find out about your business' relocation, they will estimate the value of your closed-down business, and tax you on the estimated gain you made when building your business.


There are ways to avoid paying "exit" capital gains taxes, and they usually involve keeping your old company in your home country operating, while building a new company in the UAE from scratch. For details on how best to do this, as well as other related legal tax avoidance strategies, view our services here.


Inheritance Tax

This tax is charged on the estate of a deceased individual. Inheritance tax rates and thresholds vary across countries, and some countries have double taxation agreements to prevent tax liabilities in more than one country.


If you have existing stock or property investments located in a country with inheritance taxes, and relocate to the UAE, you will continue to have to pay inheritance taxes in your home country, or the countries in which you own those assets.


To avoid inheritance taxes altogether, you will need to use more advanced tax strategies involving asset-holding companies, trusts and/or foundations.


Some of these strategies are only recognized in selected countries. Other strategies, such as foundations are pricey and rarely worth it.


We are experts at navigating the various inheritance strategies and making sure they hold up in courts, globally.


Income Tax

Some countries may charge a final tax on an individual's income for the year they leave the country. This tax may apply if an individual has earned income in the country but will not be filing a tax return the following year.


Furthermore, if you do remote work for the same employer(s) in your home country, but now reside in the UAE, your home country may continue to tax your income at the same or slightly reduced rate for up to 10 years.


Again, with the right strategies in place, these taxes can be legally avoided. Contact us for a free consultation.


Pension Tax

If you are leaving your home country permanently, you may be required to pay taxes on your pension payments. The tax may apply if you earned the pension in the country you are leaving or if you are a non-resident citizen receiving pension payments from that country.


Again, whether you need to pay a pension tax or not depends on your home country.



Leaving Dubai is Always Tax-Free


The good news is that once you live in Dubai, you don't need to worry about exit taxes should you ever decide to leave the city again. As you are probably aware, Dubai does not have capital gains taxes, income taxes, or a government pension system.


Even with the UAE's new 9% corporate income tax for mainland companies, you won't have to pay exit taxes should you decide to close down your UAE mainland company.


Furthermore, if you have any outstanding debts, taxes, or other financial obligations in Dubai, you may be required to settle them before leaving the country. Failure to do so may result in legal action or difficulty obtaining visas for future visits.



Conclusion


In conclusion, exit taxes are a critical consideration for anyone planning to move to another country. Understanding the different types of exit taxes and how they may apply to you can help you plan your move better and avoid unexpected tax liabilities.


The specific exit taxes that are charged can vary widely depending on the country in question, and it is important to do your research ahead of time to understand what you may be liable for.


It is always a good idea to consult with a tax professional or financial advisor before making any major moves, as they can help you understand your tax liabilities and ensure that you are in compliance with all applicable laws and regulations.

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