Investing in Dubai and tax residency 2026: Avoid Double Taxation and Assessments

For investors in the UAE with ties to the Czech Republic, 2026 is a year when tax residency must be assessed with precision. The rules of the double taxation treaty remain uncompromising, and the mistaken expectation of zero tax in the Emirates can lead to multi-million additional assessments by the Czech tax authority. This article provides key guidance on how to meet international obligations and avoid critical tax risks.

Understanding tax residency as the basis for taxation

The concept of tax residency is the fundamental gateway determining which jurisdiction has the right to tax an individual’s worldwide income. In most countries, including the Czech Republic and the United Arab Emirates, tax residency does not depend solely on where an individual is physically present or where they hold a residence permit. 

What matters is rather a combination of objective and subjective criteria which, taken together, demonstrate the person’s genuine economic and personal centre of interests.

The distinction between immigration status and tax residency status has major implications for investment planning. Holding a residence visa in a given jurisdiction does not automatically establish tax residency for income tax purposes. Likewise, immigration residence does not automatically terminate tax obligations in the country of citizenship or previous residence unless specific statutory conditions for the cessation of residency are met.

The Czech Republic applies a multi-factor test to determine an individual’s tax residency under the Czech Income Taxes Act. An individual becomes a Czech tax resident if they have a permanent home in the territory of the state with the intention to reside there permanently, or if they usually stay there for at least 183 days in a calendar year. 

A critical element when counting days is that each commenced day spent in the Czech Republic counts towards this limit, including days of arrival and departure. However, the 183-day rule is only one component of a broader assessment, not the sole determinant of residency.

The centre of vital interests test often serves as the decisive factor in determining tax residency, especially where individuals split their time between multiple jurisdictions or maintain permanent homes in both. 

The tax authorities examine where the individual’s personal and economic life is genuinely concentrated, taking into account employment, family and social ties, cultural activities, and the place of business. An individual may therefore spend fewer than 183 days in the Czech Republic and still be considered a Czech tax resident.

Tax residency in the United Arab Emirates and zero personal income tax

The United Arab Emirates has deliberately created a favourable tax environment for individuals and corporations. Although the UAE introduced a corporate tax regime from June 2023, it maintains a 0% personal income tax regime applicable to personal investment and employment income. 

This absence of taxation of personal income is a significant attraction for investors and entrepreneurs. However, the zero-tax status applies specifically to UAE tax residents, and determining such residency is governed by its own legal criteria set out in Cabinet Decision No. 85 of 2022.

An individual becomes a UAE tax resident by meeting one of three alternative conditions, any of which is sufficient to establish residency status. 

The first criterion relates to physical presence and provides that tax residency arises if the individual was present in the United Arab Emirates for 183 days or more during any consecutive twelve-month period. The second criterion applies to UAE nationals or residents who spent 90 days or more in the country, provided they have a permanent home or employment there.

The third criterion focuses on the centre of vital interests and is key for individuals with strong ties to the region. If an individual’s main place of residence and the centre of their financial and personal interests are in the United Arab Emirates, they qualify as a tax resident regardless of the number of days physically spent in the territory. 

The practical application of these rules reveals important nuances, such as the fact that the days do not have to be consecutive.

Taxation of real estate investments as the cornerstone of the strategy

Real estate investments have become a core tool for wealth-building by international investors leveraging the UAE’s tax advantages. For individuals who are UAE tax residents, rental income from properties held in their personal name is fully exempt from taxation in the UAE, regardless of whether the property is residential or commercial. 

This exemption applies to long-term rentals as well as income from leasing arrangements, creating genuinely tax-free returns.

The capital gains regime on the sale of real estate provides an additional investment incentive. The United Arab Emirates does not levy any capital gains tax on individuals selling real estate, allowing investors to retain the full profit from the appreciation of the asset. In addition, the UAE does not impose any inheritance tax, enabling tax-free intergenerational transfers of assets within the jurisdiction.

For Czech tax residents investing in the UAE, however, the situation is more complex, as they are subject to Czech taxation on their worldwide income. While the double tax treaty (DTA) between the Czech Republic and the UAE generally allocates the right to tax real estate income to the country where the property is located, the Czech Republic applies the ordinary foreign tax credit method. 

Because the tax paid in the UAE is zero, there is nothing to credit, and a Czech resident may be required to pay the full Czech tax on this rental income. If investors structure the ownership of real estate through corporations rather than individual ownership, the tax treatment changes substantially. 

A company incorporated in the UAE and holding real estate is generally subject to 9% corporate tax on taxable income exceeding AED 375,000, unless it meets specific exemptions for qualifying persons in free zones. In such cases, ARROWS (office@arws.cz) can assist with setting up an appropriate corporate structure to minimise risks under Czech law and in the Czech Republic.

Worldwide income taxation system in the Czech Republic

Czech tax residents face a fundamentally different tax dynamic, as the Czech Republic applies worldwide income taxation to all its residents regardless of the source of the income. This means that a Czech resident earning investment income, rent, or capital gains anywhere in the world (including in the UAE) must report and tax such income in the Czech Republic.

Personal income tax rates in the Czech Republic follow a progressive structure applied to the aggregate tax base. For 2026, the rates are 15% for the tax base up to 36 times the average monthly wage and 23% for the portion of the tax base exceeding this threshold. These rates apply to all types of income combined, creating an aggregated tax system.

Taxation of capital gains in the Czech Republic is a critical area affecting investment returns. Income from the sale of securities is exempt from tax after three years of holding; however, as of 2025, an exemption cap of CZK 40,000,000 per tax period applies. 

For real estate, a 10-year time test applies (for assets acquired after 1 January 2021); if the property is sold earlier, the gain is fully taxable under Czech law unless the proceeds are used to satisfy the taxpayer’s own housing needs.

Income from renting out real estate in the UAE is included in the partial tax base under Section 9 of the Czech Income Taxes Act. Czech tax residents may claim either actual documented expenses (depreciation, repairs, loan interest) or apply a lump-sum expense deduction of 30% of gross rental income (with a maximum expense cap of CZK 600,000).

Double taxation treaties as a key instrument

The interaction between Czech tax residency and the UAE tax regime is governed by the Double Taxation Agreement (DTA), which entered into force in May 2024. This agreement replaces the previous 1996 treaty and aligns with BEPS (Base Erosion and Profit Shifting) standards. Under the treaty, interest income is taxed exclusively in the state of residence, which for a Czech tax resident means taxation in the Czech Republic.

Dividends may be taxed in the source state; however, in practice the UAE does not levy withholding tax on dividends paid to individuals. A Czech tax resident receiving dividends from a UAE company must include them in their Czech tax base (15% rate). For capital gains from real estate, the treaty allows taxation in the UAE, but it does not prevent the Czech Republic from taxing them as well under Czech legislation.

Investors often mistakenly believe that the UAE’s right to tax means an automatic exemption in the Czech Republic, which is a fundamental misconception. Because the Czech Republic applies the tax credit method and the tax in the UAE is zero, a Czech resident must pay the full Czech tax unless they meet the conditions of the domestic Czech time test for exemption.

Necessary steps to obtain tax residency in the UAE

Simply relocating to the UAE or spending the required number of days there does not automatically establish tax residency status for the purposes of international treaties. The official proof is a Tax Residency Certificate (TRC) issued by the UAE Federal Tax Authority (FTA). For individuals applying based on the 183-day criterion, the documentation typically requires a copy of the passport, Emirates ID, and an entry/exit report.

Previously required bank statements and lease agreements may still be requested depending on the specific criterion, especially to demonstrate the centre of vital interests. The TRC is essential for the Czech tax authorities as evidence that the individual is a UAE resident for treaty purposes. However, holding a TRC alone does not automatically terminate Czech tax residency if the individual maintains a permanent home in the Czech Republic.

Taxation of employment and business income in the UAE

Employment income earned in the UAE by individuals is exempt from personal income tax, and there is no wage withholding tax. Business income, however, falls under the corporate tax regime. Legal entities are subject to 9% tax on net income exceeding AED 375,000.

Individuals carrying on business activities in the UAE are subject to 9% corporate tax if their turnover exceeds AED 1,000,000 in a calendar year. Personal investment income and employment income are not included in this turnover. This means an individual may own and rent out multiple properties without triggering corporate tax, provided it is treated as a personal investment activity.

Obligations of Czech residents and taxation of worldwide income

The overlap of investment activities in the UAE with Czech tax residency creates a complex reality in which exemption from Czech tax does not apply merely because the foreign jurisdiction does not collect tax. Czech residents must report UAE rental income in their Czech tax return and tax it at 15% or 23%. Capital gains from UAE real estate are taxable in the Czech Republic if sold within 10 years of acquisition.

This situation creates an asymmetry where a Czech resident bears the full tax burden on UAE income, effectively negating the benefit of zero tax in the Emirates. The only way to fully benefit from the tax advantages is a successful change of tax residency and severing ties with the Czech Republic.

Termination of Czech tax residency and relocation to the UAE

Relocating from the Czech Republic to the UAE involves significant legal complexity. For an individual to cease being a Czech tax resident, they typically must demonstrate that they no longer have a permanent home available in the Czech Republic and that their centre of vital interests has moved to the UAE. The Czech Republic currently does not apply a general exit tax for individuals moving abroad in a private capacity.

Exit tax applies to businesses and transfers of business assets, where unrealised gains are taxed. Private individuals transferring personal investment portfolios are generally not subject to this tax; however, they must be careful not to inadvertently create a permanent establishment if they continue to manage Czech activities from abroad.

Indirect taxes and other operating costs of investments

While direct taxes are low, investors must account for indirect taxation, in particular VAT, whose standard rate is 5%. The first supply of residential property within 3 years of completion is VAT-exempt with the right to deduct input VAT, while subsequent supplies are exempt without the right to deduct.

Transfer fees at the Dubai Land Department (DLD) are typically 4% of the property value and are paid upon transfer. Municipal fees are often calculated as 5% of the annual rental value and are paid by the tenant through utility bills.

Residence visas and their relationship to tax status

There is a clear distinction between immigration residence (visa/Emirates ID) and tax residence. The Golden Visa is a ten-year residence visa available to investors who purchase property worth at least AED 2,000,000. Holding a Golden Visa allows you to live in the UAE, but it does not in itself make you a tax resident unless you meet the physical presence test or other conditions.

The role of professional structuring of international investments

Investors cannot simply buy real estate in the UAE as Czech tax residents and assume that zero taxation will apply to them. Individual ownership is best suited for UAE residents, whereas for Czech residents it results in full taxation of rental income in the Czech Republic.

Ownership through a free-zone corporation may be subject to 9% corporate tax and subsequently 15% dividend tax in the Czech Republic. Depending on the specific setup, this may lead to effective double taxation. The optimal structure depends on the specific circumstances and the investment horizon.

Regulatory compliance and documentation requirements

In the UAE, individuals with business turnover above AED 1 million must register for corporate tax, while passive real estate investors generally do not have this obligation. Czech residents must file their Czech tax return by the deadlines in April, May, or July depending on the filing method.

The Czech Republic and the UAE exchange information on financial accounts (CRS/DAC7), so the Czech authorities have visibility into bank accounts in the UAE. Failure to report this income constitutes tax evasion under Czech law and may result in additional tax assessments and penalties.

Risk analysis and common mistakes in tax residency

• The 183-day myth: The belief that spending 183 days in the UAE automatically terminates Czech tax residency is incorrect if you maintain a permanent home or family in the Czech Republic.
• Missing documentation: Without a Tax Residency Certificate (TRC), the Czech authorities may refuse treaty benefits under the double taxation treaty.
• Short-term rentals: Operating Airbnb in Dubai without the proper licence may be illegal and may trigger an obligation to register for corporate tax.

Conclusion and navigating complex international taxation

The promise of untaxed investment returns in the United Arab Emirates is real, but conditional. For a Czech tax resident, the UAE functions only as the source country, and the tax advantage is often offset by Czech taxation, except for long-term capital gains held for more than 10 years. For an investor who genuinely relocates and becomes a UAE tax resident, the 0% regime is fully available.

The updated Double Taxation Treaty (2024) provides legal certainty, but it uses the tax credit method, which provides no relief if the source tax is zero. Professional legal structuring is essential to decide whether to invest as a Czech resident or to undergo the formal process of changing tax residency.

FAQ – Most common legal questions on investments and taxes

1. If I spend 183 days in the UAE in a calendar year as a Czech citizen, am I automatically exempt from tax on worldwide income?

No. Spending 183 days in the UAE does not automatically cancel Czech tax residency. If you still have a permanent home in the Czech Republic or maintain family and economic ties there (centre of vital interests), you remain a Czech resident under the treaty tie-breaker rules, with an obligation to tax worldwide income in the Czech Republic.

2. Can I own real estate in the UAE as a Czech tax resident and pay no income tax on rental income?

Generally no. Although the UAE applies a 0% tax, you must report this income in the Czech Republic. Since the tax in the UAE is zero, you cannot claim a foreign tax credit and you will pay full Czech income tax (15% or 23%) on the profit.

3. If I sell real estate in the UAE, do I pay capital gains tax anywhere?

In the UAE, the tax is 0%. In the Czech Republic, it depends on the holding period. If you are a Czech tax resident and sell the property within 10 years of acquisition (for assets purchased after 1 January 2021), you owe Czech tax on the gain. If you hold it for more than 10 years, the gain is exempt from Czech tax.

4. What documents do I need to maintain to prove tax residency in the UAE?

You need a Tax Residency Certificate from the FTA. To obtain it, keep your passport, Emirates ID, residence visa, entry/exit statements proving days spent (for the 183-day test), and proof of permanent accommodation (lease agreement/title deed) and source of income.

5. Can I set up a company in the UAE to avoid paying Czech taxes as a Czech citizen?

Not easily. If you live in the Czech Republic and manage the UAE company from there, the company may be considered to have its place of effective management in the Czech Republic, making it a Czech tax resident subject to Czech corporate income tax. In addition, Czech controlled foreign company (CFC) rules may apply, taxing the company’s passive income in your hands.

6. What happens if I do not report rental income from the UAE to the Czech tax authorities?

This constitutes tax evasion under Czech law. The Czech Republic and the UAE exchange banking and financial information. If discovered, you may face retroactive tax assessments, late-payment interest, and penalties. In serious cases, criminal prosecution is also possible.

Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS, a Prague-based law firm, directly (office@arws.cz). We accept no liability for any damages or complications arising from the independent use of the information in this article without our prior individual legal consultation and professional assessment. Each case requires a tailored solution, so please do not hesitate to contact us.

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