Setting up a company abroad while living in Germany in 2026: where the profit is taxed

A company managed from Germany pays German corporate tax, wherever it is registered. How the place of management, the 15% low-tax test and dividends work for a German resident, and how a company abroad fits together with a move.

In detail

Where a foreign company pays tax

A company is fully liable to German corporate tax when its registered office or its place of management is in Germany. The place of management is the centre of top-level management: the place where the director makes the key decisions. So a company registered in Dubai, Cyprus or Estonia whose only director runs it from a home office in Germany is managed from Germany, and its whole profit falls under German corporate tax. A company set up in the United Arab Emirates, including a free zone, also stays a tax resident of the Emirates, so it is then taxed in both countries; there is currently no tax treaty between Germany and the Emirates.

The German corporate tax rate is 15% until 2027, then it falls by 1 point a year to 10% from 2032; the solidarity surcharge and the municipal trade tax come on top. The place of management also counts as a permanent establishment, so the profit earned through it is taxed in Germany.

The rule for controlled foreign companies

When you, alone or together with related persons, hold more than half of the votes, the capital or the profit rights of a foreign company, German law looks at the nature of its income. Passive income taxed abroad at less than 15% is added to your income in Germany every year in proportion to your share, whether or not the company pays a dividend. If you hold the shares privately, this income counts as capital income and is taxed at your personal progressive rate: the flat 25% rate and the partial income method do not apply to it. It counts as business income only when the shares belong to business assets.

Active income stays with the company: agriculture, production, banking and insurance with real operations, and trade and services that the company carries out itself. Trade and services with you or with related persons in Germany count as active only when the company runs them with its own business organisation, without your involvement.

The test applies to the real tax burden. In the United Arab Emirates, for example, corporate tax is 9% on profit above 375,000 dirhams, about $102,100, which is below the 15% threshold, so passive income of a company controlled from Germany is added to the owner's German income.

A company with real substance in the European Union

For a company with its registered office or management in a European Union or European Economic Area country, the rule has a clear exit: income from a substantial economic activity in that country stays there. The company uses its own premises and equipment in that country, and qualified staff do the work independently and on their own responsibility. The country also exchanges tax information with Germany.

So a company in Cyprus, Malta or Estonia with a local office and its own team keeps the income from that work in its country. The substance is planned from the start: an office, employees and a director who takes decisions on the spot.

Dividends from a foreign company

When the company pays you a dividend, Germany taxes it at the flat rate of 25% on capital income plus the solidarity surcharge, and the foreign withholding tax is credited. If you hold at least 25%, or at least 1% and work for the company with real influence on its business, you can apply for the partial income method: 60% of the dividend is taxed at your personal rate, and 60% of related costs are deductible. The application applies for 5 years.

A company abroad together with a move

The simplest structure is one where the company and its director are in the same country. When you move your tax residence there, the management moves with you, and the company's profit is taxed in that country. The steps of leaving are in our checklist for leaving Germany. When you leave Germany, the exit tax applies to shares of 1% or more, and when the management of a company moves out of Germany, its assets are treated as sold under section 12(1) of the Corporate Tax Act; a manager will plan the move in advance.

In the United Arab Emirates a company and a residence visa come together: more on company registration in the United Arab Emirates. Other countries and their regimes are in our guide to where to open a company in 2026 and our overview of taxes by country.

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