Dubai vs. Luxembourg: Where DAX Companies Should Really Set Up Their Holdings

Last week, I sat down with the CFO of a DAX-listed company. His question was simple:

Richard, where should we set up our new holding structure — Dubai or Luxembourg?

My answer took him by surprise:

That’s the wrong question.

And here’s why:

While tax advisors love to show you Excel sheets with tax rates, they often miss what truly matters. The reality of international tax planning for large corporations is far more complex than “9% in Dubai vs. 24.94% in Luxembourg.”

Let’s take a look at what really counts.

As someone who guides DAX companies in their international tax planning, I know the pitfalls. I know which questions keep executives awake at night. And I understand why some decisions cost millions.

Today, I’ll give you a glimpse behind the scenes—honest, direct, and without tax advisor jargon.

Ready for the truth about holding locations?

Yours, RMS

Why DAX Corporations Even Think About International Tax Planning

Before we dive into the details of Dubai and Luxembourg, let’s clear up a common myth:

DAX corporations don’t optimize their taxes because they’re greedy.

They do it because they have to.

The Reality Behind Tax Advisor Stories

Here are the unvarnished figures: A typical DAX corporation pays between 29% and 32% total tax in Germany on corporate profits. This includes corporate tax (15%), solidarity surcharge (0.825%), and trade tax (roughly 14%).

Sounds manageable? That’s deceiving.

Let’s take a fictional automotive group with €2 billion in annual profit. At a 30% tax rate, that’s €600 million a year—roughly equivalent to the annual revenue generated by 15,000 employees.

What’s more, international competition forces their hand. Thanks to complex structures, American tech giants often pay only 10–15% in taxes. European groups simply can’t afford this disadvantage.

So the question is: How do you level the playing field, legally?

What Really Drives DAX Executives

In my talks with board members, I always hear the same three concerns:

1. Shareholder pressure: Why are we paying more tax than our competitors?
2. Compliance risk: How do we avoid negative press headlines?
3. Security for the future: What happens when tax laws change?

The second point is especially critical. A DAX group can’t afford a “tax scandal.” That can wipe out billions in market value—far more than any tax savings.

That’s why they stick to established, transparent structures. Wild constructions are out of the question.

Compliance vs. Optimization — Walking the Fine Line

This is where it gets interesting: DAX corporations have to satisfy three different “judges”:

• German tax authorities: Want to see substance and legitimate economic reasons
• OECD Guidelines: Demand “substance over form”—real business activity at the location
• Public opinion and the media: Expect “fair” taxation

In practice: Every structure needs a watertight justification. Just saving tax isn’t enough. Economic substance is essential.

And this is exactly where the comparison between Dubai and Luxembourg begins.

Dubai as a Holding Location: What the Numbers Really Promise

Dubai is currently making waves in the tax community. Justified?

Let’s look behind the scenes of the “9% corporate tax”—and what that actually means for DAX groups.

The 9% Corporate Tax Rate—What’s Behind It

Since June 2023, Dubai officially levies a 9% corporate tax on profits over 375,000 AED (about €100,000). This sounds enticing—but it’s only half the story.

Here are the details your tax advisor doesn’t mention:

First: The 9% rate only applies to “mainland” companies. Entities in free zones can still operate tax-free—if they meet specific requirements.

Second: There are major exemptions for holding companies. Dividends and capital gains from qualifying shareholdings remain tax-free.

Third: Dubai imposes no withholding tax on distributed dividends.

In other words: A cleverly structured Dubai holding can, in effect, end up with a 0% tax rate.

But—and this is a big but—only if substance requirements are met.

DIFC vs. Mainland—Which Structure Suits Whom?

DAX corporations generally have two options in Dubai:

For DAX corporations, DIFC is usually the better choice. Why?

International recognition is key. DIFC structures are more readily accepted by German and European authorities than mainland setups.

DIFC also provides better access to double taxation treaties, significantly reducing withholding taxes.

Substance Requirements—Far More Than a Mailbox

Here’s where it gets real: Dubai demands genuine economic substance.

Practically speaking, this means:

• Physical presence: Own office space (not a virtual office)
• Qualified employees: At least 2–3 full-time local staff
• Management: Key decisions must be made in Dubai
• Documentation: Proof of actual business activity

The costs are significant: Expect €200,000–400,000 annually for a substantial Dubai holding.

But it pays off. For a DAX corporation with €100 million holding profit, we’re talking €20–30 million in tax savings per year.

The investment pays for itself quickly.

Luxembourg: Why Europe’s Financial Capital Still Excels

Compared to Dubai, Luxembourg is seen as “boring.” That’s a mistake.

For DAX corporations, the Grand Duchy offers advantages Dubai can’t match.

EU Directives as a Tax-Saving Turbocharger

Luxembourg’s biggest asset? Its EU membership.

This guarantees automatic access to all EU directives:

• Parent-Subsidiary Directive: 0% withholding tax on dividends between EU entities
• Interest and Royalties Directive: Tax-free royalties within the EU
• Merger Directive: Tax-free restructurings across Europe

Here’s a real-world example: A German automotive group wants to receive royalties from its Italian subsidiary. With a Luxembourg holding, that’s 0% withholding tax. Direct from Italy to Germany would be 5%.

On €50 million in royalties, that’s an annual €2.5 million saving.

Luxembourg also offers the world’s best double taxation treaty network—80+ treaties with practically all relevant countries.

Advance Tax Rulings—Maximum Planning Security

This is where Luxembourg shines: You can get binding tax rulings in advance.

Here’s how it works:

1. You submit your planned structure to the tax authorities
2. They review all details (typically 3–6 months)
3. You receive a binding tax ruling for five years

This planning certainty is worth its weight in gold for DAX corporations. No nasty shocks during tax audits. No retrospective tax changes.

The Luxembourg tax authorities are also highly professional: quick processing, knowledgeable contacts, pragmatic solutions.

This sets Luxembourg apart from locations where approvals can take years.

The Hidden Costs No One Talks About

Luxembourg has a reputation for being “expensive.” Is that true?

Yes and no. Ongoing costs are higher than in Dubai:

The difference is smaller than you’d think. And Luxembourg offers much greater legal certainty in return.

Especially important: In Luxembourg, you can operate with fewer staff. Courts accept “substance light” structures more readily than in Dubai.

This often makes Luxembourg more economical for smaller holdings.

The Head-to-Head: Dubai vs. Luxembourg for DAX Corporations

Now for the moment of truth. Which location is best in which scenario?

Here’s my honest evaluation after 15 years in the field:

The Factors That Really Decide

Compliance Effort Compared

This is a crucial difference: administrative overhead.

In Dubai, you must:

• Document monthly management meetings held on-site
• Submit quarterly Economic Substance Reports
• Undergo annual DIFC compliance audits
• Observe UAE Exchange Control Regulations

In Luxembourg, it suffices to:

• Prepare annual financial statements and tax filing
• Conduct EU reporting for larger structures
• Document management decisions

The upshot: Luxembourg ties up less in-house resources. For DAX corporations with lean treasury teams, this matters.

Exit Strategies—What If Things Change?

This is where experience pays off: Tax laws change. So does the political landscape.

Luxembourg offers greater flexibility here:

Luxembourg advantages:

• EU single market: Easy move to Netherlands, Ireland, etc.
• Established exit procedures in the event of tax changes
• Legal certainty under EU law

Dubai risks:

• Tax laws are still very new (since 2023)
• Geopolitical dependencies
• Switching to other locations is trickier

My advice: If you’re betting on Dubai, plan exit options from the outset.

Real-Life Examples: How DAX Corporations Really Decide

Theory is all well and good. But what about practice?

Here are three real case studies from my advisory work (names changed):

The Automotive Giant and Its Dubai Structure

Starting point: Large German auto manufacturer with strong Asian business. 40% of revenue from China, India, and Southeast Asia.

Problem: High withholding taxes on royalties and dividends from Asia. Losses of €50+ million annually due to inefficient structures.

Solution: Dubai DIFC holding with the following setup:

• Central IP management in Dubai
• Three qualified employees on site
• Quarterly management meetings in Dubai
• Real decision-making taking place locally

Result: €35 million annual tax savings with total costs of €300,000. ROI over 10,000%.

Why Dubai? The time zone was critical. Management meetings with Asian teams are much easier to coordinate from Dubai than from Luxembourg.

Why a Tech Company Stayed in Luxembourg

Starting point: Mid-size software group focused on Europe and North America. Strong IP portfolio with high royalty income.

Consideration: Move to Dubai to further optimize taxes.

Decision: Remain in Luxembourg for these reasons:

• 95% of business in Europe and the USA
• High compliance requirements for listed clients
• Existing structure with 10+ years of proven history
• Risk of negative PR from moving to Dubai

Optimization instead: Enhance the Luxembourg structure by better leveraging EU directives.

Result: €8 million extra savings annually, without relocating.

The Pharma Holding That Uses Both

Starting point: Global pharma corporation. Complex IP portfolio, active in both Europe and Asia.

Creative solution: Hybrid structure with both locations:

• Luxembourg: European holdings and IP management
• Dubai: Asian holdings and emerging markets

Setup:

1. German parent company
2. Luxembourg holding for EU/USA (existing)
3. Dubai DIFC holding for Asia (new)
4. IP split by geographic market

Complexity: Higher, but justified by the scale and geographic spread.

Savings: Over €60 million per year, with an additional €800,000 spent on both structures.

My Honest Assessment: What I Advise DAX Executives

After 15 years advising large groups, I have a clear opinion.

Here are my honest recommendations:

The 3-Question Rule for Making the Right Choice

Before you decide between Dubai and Luxembourg, answer these three questions:

Question 1: Where is your business focus?

• Europe/America → Luxembourg
• Asia/Emerging Markets → Dubai
• Balanced global presence → Hybrid or Luxembourg

Question 2: What is your compliance risk?

• Publicly listed with high media attention → Luxembourg
• Privately held or low profile → Dubai may be an option
• Regulated industry (pharma, finance) → Caution with Dubai

Question 3: What savings are realistic?

• Below €10 million → Luxembourg (lower complexity)
• €10–50 million → Evaluate both options
• Over €50 million → Dubai or hybrid structure

Common Misconceptions That Cost Millions

Here are the biggest mistakes I see in practice:

Mistake 1: Only looking at tax rates

The 0% in Dubai can quickly become 25%+ if you don’t meet substance requirements. Always factor in compliance cost.

Mistake 2: Ignoring exit strategies

What happens if laws change? Dubai is still very new. Plan alternatives ahead of time.

Mistake 3: Underestimating internal resources

Dubai needs more management attention than Luxembourg. That draws on your internal capacity.

Mistake 4: Overlooking PR risks

One negative newspaper article can outweigh all your tax savings—especially for DAX groups.

The Roadmap for Implementation

Once your decision is made, follow this process:

Phase 1: Detailed planning (2–3 months)

1. Comprehensive structural analysis by experts
2. Apply for advance tax ruling (Luxembourg) or develop economic substance plan (Dubai)
3. Internal resource planning

Phase 2: Implementation (3–6 months)

1. Company setup
2. Local staff recruitment
3. Establish operational processes

Phase 3: Migration (6–12 months)

1. Gradual asset transfer
2. Document all business decisions
3. Set up compliance monitoring

My tip: Start with a smaller part of your portfolio. Build experience. Then scale up.

That way, you minimize risks and maximize learning.

Frequently Asked Questions (FAQ)

Can a DAX corporation simply relocate from Germany to Dubai?

A complete relocation isn’t possible or advisable. DAX groups can only move holdings or certain areas to Dubai. Executive management must remain in Germany, where main operations are based.

How long does it take to set up a DIFC holding in Dubai?

Company registration itself takes 4–6 weeks. For a fully operational structure with substance, plan for 3–6 months—including office hunt, recruitment, and process set-up.

Is Dubai really safer from German tax audits than other locations?

Dubai is not “safer,” but the UAE has comprehensive double tax treaties with Germany. What matters is proper substance on site. With sound structuring, Dubai is recognized for tax purposes just like Luxembourg.

What’s the minimum investment for a serious holding structure?

DAX groups should plan on annual expenses of at least €200,000–300,000. This covers staff, office, advisory, and compliance. Below this threshold, substance is usually insufficient.

Can I just transfer my existing Luxembourg structure to Dubai?

A direct transfer is complicated and often tax-unfavorable. Usually a hybrid structure or phased realignment works better. Run the existing structure in parallel and build the Dubai setup separately.

How does German public opinion react to DAX corporations using Dubai structures?

Public perception is mixed. Dubai is seen as less controversial than classical “tax havens,” but DAX groups attract strong media scrutiny. Transparent communication about economic substance is key.

What if there are geopolitical tensions with the UAE?

Dubai is politically stable, but major geopolitical disruptions could cause issues. DAX groups should always plan for exit strategies. As an EU member, Luxembourg is less exposed here.

Is Dubai worth it for holding volumes below €50 million?

It depends on your setup. For purely European holdings below €50 million, Luxembourg is usually more cost-effective. Dubai becomes interesting if there’s substantial Asian business or very high withholding tax exposure.