More and more entrepreneurs and self-employed people are expanding internationally and setting up companies in different countries in order to benefit from the respective advantages. Especially Dubai has developed into an attractive location for business start-ups in recent years, as the United Arab Emirates (UAE) offers a range of tax advantages and a business-friendly infrastructure.

For many German entrepreneurs who want to establish Free trade zone society or a Mainland company and at the same time have a GmbH in Germany, the question often arises: How do I send an invoice from Dubai to my own GmbH? This article deals with the legal and tax aspects as well as practical tips on how to correctly and legally issue an invoice from Dubai to your GmbH.

1. why write an invoice from Dubai to your own GmbH?

Before we get into the details of why and how an invoice from Dubai is written to your own GmbH, we should clarify the possible reasons why this might make sense at all:

a) Services between affiliated companies

If you have a GmbH in Germany and a Company in Dubai you may be able to exchange services between these two related companies. For example, you could invoice consulting services, IT services or marketing services provided by your Dubai company to your limited liability company.

b) Tax optimization and internationalization

Another reason to issue invoices between the GmbH and the Dubai company could be the Optimization of the tax burden be. As Dubai does not levy income and corporate tax in many cases, it can be advantageous for entrepreneurs to charge services between the two entities. This can also be part of a Internationalization strategy The company can grow by making better use of global business opportunities.

c) Economic reality and proof of substance

It is important that all invoices between the affiliated companies are economically justified are. There must be real economic substance behind the business activities in Dubai. This means that the services exchanged between the Dubai company and the limited liability company are actually provided and not just invoiced for the purpose of tax optimization.

2. legal framework

Before you send an invoice from Dubai to your limited liability company, you should make sure that you understand both the legal framework in the UAE and the tax regulations in Germany know and comply with. Here are the most important points to bear in mind:

a) Double taxation agreements

The UAE and Germany have signed a Double taxation agreement (DTA), which aims to avoid double taxation of income generated in both countries. This means that income earned in Dubai does not have to be taxed again in Germany if the relevant documentation and compliance with the regulations are ensured.

The double taxation agreement is particularly important when it comes to ensuring that the services provided by the Dubai company are not taxed twice and that the profits are correctly located in Dubai.

b) Transfer pricing documentation

If you issue invoices between your Dubai company and your GmbH in Germany, you may also have to pay the Transfer pricing regulations comply with. These rules ensure that transactions between affiliated companies are carried out at arm's length in order to prevent tax avoidance.

The transfer pricing rules require that pricing between the two affiliated companies is carried out as if they were Independent business partners. This means that the services provided must be billed at fair and standard market conditions. This is often referred to as Arm's length principle labeled.

c) Economic substance

An important prerequisite for issuing invoices from Dubai to your own GmbH is that the Economic substance in Dubai can be proven. This means that the company actually carries out business activities in Dubai, such as owning office space, employing staff and providing services from Dubai.

The UAE has introduced strict rules in recent years to ensure that companies benefiting from the country's tax advantages actually carry out business activities locally. This is particularly relevant in order to avoid accusations of Letterbox company to avoid.

3. how to correctly issue an invoice from Dubai

If you want to ensure that your invoice is legally correct and will be recognized both in the UAE and in Germany, you should pay attention to the following points:

a) Significant components of the financial statements

One Correct invoice should contain all the necessary information so that it is valid for both tax and legal purposes. Here are the most important points that must be included on the invoice:

• Name and address of the company in Dubai and the GmbH in Germany.
• Value added tax identification number (VAT ID)if applicable. As there is no VAT in Dubai (except for certain services and products), it is generally not necessary to provide a VAT ID for the Dubai company.
• Invoice numberEach invoice must have a unique and consecutive invoice number.
• Invoice date and Service dateThe date on which the invoice was issued and the date on which the services were provided.
• Service descriptionA detailed description of the services provided and invoiced.
• Invoice amountThe amount charged for the services provided, including the currency (e.g. AED or EUR).
• Bank detailsThe bank details of the company in Dubai to which the payment is to be made.

b) Currency and payments

Invoices from Dubai can be paid either in AED (Dirham) or in EUR (Euro) depending on the agreement between the Dubai company and the LLC. It is advisable to clearly state the currency on the invoice in order to avoid any misunderstandings during payment.

When issuing the invoice and determining the currency, you should also consider the Exchange rate risks especially if the payment is made in a currency other than AED. It may be helpful to specify in the invoice which exchange rate will be used to avoid any future discussions.

c) Value added tax (VAT)

Dubai has had one since 2018 Value added tax (VAT) of 5 % on certain goods and services. However, many services, especially those related to international business and exports, are exempt from VAT. It is important that you know exactly whether the services you are invoicing are subject to VAT or not.

If your services are exempt from VAT, you should clearly state this on the invoice to avoid problems during tax audits in Germany. As a rule, the German GmbH will not have to pay VAT on this invoice as the services were provided from abroad.

d) Documentation of the services provided

It is important that the services provided are well documented in order to Tax deductions in Germany. This means that for each invoice you should include a detailed description of the services provided, the duration and type of service as well as any contracts or agreements.

The Documentation is particularly important in order to provide evidence in case the tax office in Germany audits the business relationship between the Dubai company and the GmbH. Every service provided should be clear and traceable.

4. tax and accounting aspects in Germany

As soon as your limited liability company receives the invoice from Dubai, the question arises as to how it should be treated in the accounts and for tax purposes. Here are some important aspects:

a) Tax deductibility of costs

The cost of services provided by your Dubai company and invoiced to the limited liability company can usually be recognized as Operating expenses can be deducted in Germany. The prerequisite for this is that the services were actually provided and the costs economically justified are.

b) Treatment of payments abroad

Payments to foreign companies are subject to certain tax and legal requirementswhich must be observed. This includes compliance with the transfer pricing regulations and the Double taxation agreementto ensure that the payment is made correctly and legally. It is also advisable to keep an eye on exchange rates and potential currency risks if payments are made in a currency other than euros.

c) Reporting to the tax office

Payments to Affiliated companies abroad may be reportable in Germany. In some cases, it may be necessary to report certain transactions to the tax office