As is known, on February 28, the United States and Israel launched a joint military operation against Iran. In response, Iran carried out air and missile strikes on neighboring countries. Due to the conflict, millions of people have been affected. According to press reports, more than 2,500 individuals have registered for consular protection in the United Arab Emirates (“UAE”) alone; however, based on our estimates, significantly more tourists, transit travelers, and resident entrepreneurs may have been put at risk. The question is therefore no longer whether Dubai is an attractive destination, but rather at what cost one can return home from there.

Below, Dr. Balázs Horváth, board member of SQN Trust Fiduciary Asset Management Ltd. and international tax expert, outlines the situation of entrepreneurs who established companies in Dubai and possibly relocated there, but are now considering returning home due to increasing geopolitical risks.

The United Arab Emirates as a Business Hub

“Over the past decades, the UAE economy has undergone a significant transformation as a result of a deliberate economic policy strategy. As part of this, the country has gradually reduced its dependence on oil and developed a diversified, innovation-driven economic model. One of the key elements of this strategy has been attracting foreign capital and businesses, as a result of which a number of Hungarian-owned enterprises have also been established in the Emirates,” said Majed Abdel-Fattah, an employee of SQN Trust and expert on the Middle East region.

The favorable economic and tax environment — including the fact that until 2023 there was no corporate tax, and there is still no personal income tax — has been a significant attraction for entrepreneurs. In addition, for some, it was also important that many states do not have extradition agreements with Dubai. Among other things, this contributed to Dubai becoming a hub for several major crypto fraud cases and also a destination for individuals with Russian backgrounds.

As a result of these factors, many legitimate Hungarian entrepreneurs decided to relocate their activities to the Emirates, particularly to Dubai. This is supported by the fact that the number of Hungarian businesses operating in Dubai increased by 48% in 2024 alone, prompting the Dubai Chamber of Commerce to establish a Hungarian Business Council to strengthen economic cooperation between the two countries. Today, several hundred Hungarian companies operate in Dubai, although industry estimates suggest that this number may be significantly higher if companies established in so-called free zones are also included. Free zones are areas common in the Arab world where companies can be established more easily and quickly and are subject to more favorable regulations.

As outlined above, Dubai has become a major hub for Hungarian business activity in recent years. However, the real question today is no longer how many moved there, but how many are now returning. Based on our experience, there has been a growing number of inquiries from entrepreneurs considering relocation back to Hungary, who are often unaware of the tax implications of such a decision.

Tax Implications of Relocation: Three Key Questions

To find out the tax implications for moving back home, it would be helpful to consider, at first, some basic principles of international tax laws.

Under international tax law, states are free to tax the income of individuals on the basis of either tax residency or the source principle. Under tax residency, a state treats a person as its resident according to the domestic legislation of that state. Consequently, a state has the right to tax its resident’s income from whatever sources in the world. On the other hand, according to the source principle, a state can tax income that comes from its territory. When examining transactions, first of all, it is important to establish the tax residency of each party and then examine their income.

Thus, two major issues have to be considered:

(i) tax residency and taxation of the company; and

(ii) tax residency and taxation of the owner.

Assuming that the corporation operates in the UAE and maintains its registration there, the corporation’s tax residence is UAE. As far as the provision in Hungarian domestic law that defines the place of effective management as the determining criterion of corporate residency, such criteria are superseded by the provisions of the DTA where the corporation’s tax residency is established on the basis of the place of incorporation—in this case, UAE. Nonetheless, in the case of a corporation’s management being in Hungary and its daily activity taking place there, such situation may generate a permanent establishment in Hungary, resulting in taxing rights exercised by Hungary over income earned from that permanent establishment. It should be mentioned that this does not add to the corporation’s tax liability as the corporate tax rates in both countries amount to 9%.

However, in the case of the owner himself, if a Hungarian citizen returns to live permanently in his native country, then, according to the rules of the treaty, he will become a Hungarian tax resident, because he will have more ties with Hungary, and he will be there for most of the time (though, of course, each case needs to be considered individually). Thus, Hungary will have the right to tax all his world-wide income.

In terms of income, in the event that the company from the UAE pays dividends, interest, or royalties to the Hungarian tax resident owner, then his income will be taxed in Hungary under the provisions of the DTA. In other words, it will be taxed by 15% of the personal income tax and 13% of the social security tax, which cannot exceed the statutory limit.

In conclusion, as can be seen from the information given above, moving from Dubai is a much more complex matter than it would seem at first sight from the point of view of taxes paid. Firstly, one should take into consideration the changes related to a person’s tax residency status and, secondly, how taxes will be levied upon dividends received from Hungarian sources. Consequently, in the end, there is a possibility of losing all advantages related to taxation, which initially caused a person’s relocation to Dubai.

“As was concluded above, it would be wise to plan taxes thoroughly prior to relocation, since the lack of preparation could lead to significant tax disadvantages, and a person might miss out on all the tax benefits that he had initially intended to receive when relocating to Dubai. According to our experience, it makes quite a difference whether one plans everything accordingly or does it carelessly,” Dr. Balázs Horváth said.

Disclaimer: this article is a translation of our original article written in Hungarian, which you can find here