Marcus Meyer-Stern - International Tax

Andorra vs. Monaco vs. Dubai: Microstate Strategies for German Entrepreneurs – Tax Advantages Beyond the EU

Before I dive with you into the details of these three fascinating microstate options, let me tell you a story:

Last week I sat across from Thomas, 42 years old, a successful e-commerce entrepreneur from Munich. His tax burden? Over €180,000 a year. His question to me: Richard, where will I pay the least taxes?

And here it is:

I hear this question every day. But its much too simplistic.

Why? Because the lowest tax rate is useless if the structure doesn’t fit your life. A 0% tax is pointless if you have to completely overhaul your entire business for it.

Originally, Thomas wanted to move to Cyprus. Sounds appealing – EU member, 12.5% corporate tax. But then it turned out: His most important clients are in Germany and the USA. Plus, he hates temperatures over 25°C (77°F).

So we took a different route.

Today I’ll show you three microstate strategies that are especially interesting for German entrepreneurs. Not as a theoretical exercise, but as real-world alternatives with concrete numbers.

Ready? Then let’s find your optimum strategy together.

Why Microstate Strategies are Relevant Again for German Entrepreneurs in 2025

Times are changing rapidly. What was once complex and limited to millionaires is now possible for every digital entrepreneur.

But why now, of all times?

The Tax Reality for German Entrepreneurs

Let’s be honest: Germany is no tax paradise for entrepreneurs. As a sole proprietor or partnership, you’re quickly looking at a total tax burden of 45-48%. In other words: Almost half your profits disappear to the tax office.

Even with a GmbH, it’s not much better:

Plus: If you distribute profits, you pay an additional 26.375% capital gains withholding tax. And in many municipalities, the trade tax is rising steadily.

Thomas, from my earlier example, paid an effective 47% total tax burden with his Munich-based GmbH. On €380,000 in annual profit, that meant €178,600 in taxes.

That doesnt have to be the case.

Microstates as a Legal Alternative to the German Tax Burden

This is where microstates come into play. These countries understand that low taxes attract international talent and capital. They offer attractive tax rates along with high legal security.

The advantages speak for themselves:

  1. Drastically lower tax rates (sometimes below 10%)
  2. Modern infrastructure for digital entrepreneurs
  3. Legal certainty via established systems
  4. International recognition through OECD-compliance
  5. High quality of life in compact territories

But beware: Not every microstate is a good fit for every entrepreneur. That’s why we’ll take a close look at the three most interesting options.

Andorra: The Underrated EU-Adjacent Tax Haven for German Entrepreneurs

Most people know Andorra only as a duty-free haven between France and Spain. Yet, in recent years, the principality has developed into a serious business location.

Why is Andorra especially appealing for German entrepreneurs? Its geographical proximity to Europe, combined with attractive tax conditions.

Andorra’s Tax System in Detail: What German Entrepreneurs Must Know

Andorra completely overhauled its tax system in 2012. The result? A system that meets international standards but remains attractive.

The most important tax rates at a glance:

Type of Tax Tax Rate Special Features
Corporate Tax 10% Reduced to 2% for certain holding structures
Income Tax 0-10% Progressive, allowance up to €24,000
Dividend Tax 0% For residents, with ownership over 5%
Capital Gains Tax 0% After 3 years of holding

The special thing about Andorra’s system: It combines low tax rates with EU compliance. Since 2016, Andorra automatically exchanges tax data with EU countries. This means everything operates transparently and legally.

For Thomas, this would have meant: Instead of €178,600, only €38,000 in taxes with the same business activity. That’s a savings of €140,600 every year.

Residency in Andorra: Requirements and Process

But how do you actually become an Andorran resident? The process is structured but doable:

Requirements for passive residency:

For active residency (business activity):

The process typically takes 4-6 months, incurring costs of around €15,000-25,000 for lawyers, translations, and fees.

Andorra vs. Germany: Concrete Tax Comparison with Numbers

Let’s take a concrete example: You’re a solo entrepreneur with €200,000 annual profit from online services.

Germany (sole proprietorship):

Andorra (Sociedat Limitada):

Annual savings: €77,600

But Andorra does have its downsides. The cost of living is high—comparable to Switzerland—and the country is small, which may feel confining to some.

Monaco: Luxury Lifestyle and Tax Optimization for High Earners

Monaco—the epitome of luxury and exclusivity. But is the principality more than just casinos and yachts?

Absolutely. Monaco offers one of Europe’s most attractive tax systems. But at a price that not everyone can afford.

Monaco’s Tax System: Why Zero Income Tax Isn’t the Whole Story

Monaco’s tax regime is unique in Europe:

Type of Tax Rate for Residents Notes
Income Tax 0% Does not apply to French citizens
Corporate Tax 33.33% Reduced to 25% if less than 25% of turnover is with France
Dividend Tax 0% For Monegasque residents
Capital Gains Tax 0% On private investments
Inheritance Tax 0% Between spouses and direct descendants

The highlight: As a private person, you pay virtually no taxes in Monaco. But there’s an important catch for business taxation.

Monegasque companies pay the full French corporate tax rate of 33.33% if more than 25% of their sales are with France. This makes Monaco unattractive for many operational businesses.

That’s why most Monaco residents use the principality as their residence while running their businesses in other jurisdictions.

Monaco Residency: Costs, Requirements, and Realities

Becoming a Monaco resident is theoretically easy—but extremely expensive in practice:

Official requirements:

Unofficial but realistic requirements:

This is where it gets expensive: a 1-bedroom apartment starts from €1 million, rents begin at €3,000 per month. On top, the highest cost of living in Europe.

For a married couple, you should budget at least €200,000-300,000 per year for cost of living.

Who Monaco Really Makes Sense For: An Honest Assessment

Monaco is only suitable for a very specific audience:

Monaco is ideal for:

Monaco is unsuitable for:

A concrete example: Maria, a tech entrepreneur from Hamburg, sold her startup for €15 million. She invests her capital in real estate and stocks. In Germany, she would pay 26.375% tax on her capital gains—in Monaco, 0%.

With €600,000 in annual capital gains, she saves €158,250 in tax per year. Even after subtracting Monaco’s high cost of living, the advantage remains clear.

Dubai: The Modern Tax Alternative in the Middle East

Over the past two decades, Dubai has transformed from a desert city into a global business hub. For German entrepreneurs, the emirate offers a unique mix of tax benefits, modern infrastructure, and cultural openness.

But beware: since 2023, some things have changed. Let me explain the current situation.

UAE Corporate Tax 2023: What’s Changed for German Entrepreneurs

The big change came in June 2023: the UAE introduced corporate tax. The end of the tax haven? Not quite.

The new tax rates:

Profit Range Tax Rate Effective Burden
0 – 375,000 AED (approx. €100,000) 0% 0%
Over 375,000 AED 9% 9% on the amount above

Specifically: On €200,000 annual profit, you’d pay about €9,000 in corporate tax—far less than Germany’s 30-33%.

There is still no income tax for individuals. Profit distributions and salaries remain tax-free.

Additionally, you won’t face:

Dubai Freezone vs. Mainland: Tax Differences Explained

In Dubai, you have two options for company registration. Your choice affects both your tax situation and business possibilities:

Freezone Company:

Mainland Company:

For most German online entrepreneurs, the Freezone option is more attractive. You keep the 0% taxation and can still operate globally.

Visa Options and Residency Programs in Dubai

Dubai makes it easy for German entrepreneurs to get residency:

Golden Visa (10 years):

Investor Visa (2-3 years, renewable):

Employment Visa:

Living costs are more moderate than Monaco, but higher than Germany. For a family, a comfortable lifestyle costs around €80,000-120,000 per year.

Andorra vs. Monaco vs. Dubai: The Honest Tax Comparison for German Entrepreneurs

Now it gets concrete. Which option really fits you? Let’s compare the three microstates directly.

Tax Burden in Direct Comparison: Real Numbers

Let’s look at different entrepreneur types and calculate their actual tax liability:

Scenario 1: Online Consultant, €150,000 annual profit

Jurisdiction Corporate Tax Dividend Tax Total Burden Net Available
Germany €45,000 (30%) €27,700 (26.4%) €72,700 (48.5%) €77,300
Andorra €15,000 (10%) €0 €15,000 (10%) €135,000
Monaco €50,000 (33%)* €0 €50,000 (33%) €100,000
Dubai (Freezone) €0 €0 €0 €150,000

*Monaco: Corporate tax for operational business in Europe

Scenario 2: E-commerce entrepreneur, €500,000 annual profit

Jurisdiction Corporate Tax Dividend Tax Total Burden Net Available
Germany €150,000 (30%) €92,400 (26.4%) €242,400 (48.5%) €257,600
Andorra €50,000 (10%) €0 €50,000 (10%) €450,000
Monaco €166,500 (33%)* €0 €166,500 (33%) €333,500
Dubai (Mainland) €36,750 (9%) €0 €36,750 (7.4%) €463,250

Dubai: 9% from €100,000, exemption taken into account

Cost of Living and Hidden Expenses

Taxes are just part of the equation. The cost of living varies dramatically:

Annual living costs (family with 2 children):

Type of Cost Andorra Monaco Dubai
Apartment (150m²) €36,000 €120,000 €48,000
International School €20,000 €35,000 €25,000
Health Insurance €8,000 €12,000 €6,000
Other Living Expenses €36,000 €80,000 €40,000
Total €100,000 €247,000 €119,000

Additional factors to consider:

Business Suitability: Where Can You Really Work?

Suitability for your business varies significantly:

Andorra:

Monaco:

Dubai:

Legal Pitfalls: What German Entrepreneurs Must Know About Microstate Strategies

Now to the most important part. Because low taxes are no help if you run into trouble with the German tax authorities.

Let me explain the biggest stumbling blocks:

CFC Taxation: The Biggest Pitfall Explained

CFC (Controlled Foreign Corporation) taxation (§§ 7-14 AStG) is Germanys answer to offshore tax optimization. The principle: Passive income from foreign companies is attributed to the German shareholder as if they had earned it directly.

When does CFC taxation apply?

  1. You hold more than 1% in a foreign company
  2. The company earns passive income (interest, dividends, licenses)
  3. The foreign tax burden is below 25%
  4. The income originates in Germany or is “artificially” shifted

Practical example: You set up an Andorran company and, as a German resident, lend it €500,000 at 5% interest. The €25,000 interest income is subject to CFC taxation—you pay German taxes as if you had received the interest personally.

How to avoid CFC taxation?

Double Tax Agreements (DTAs) and Their Practical Effects

Double tax agreements (DTAs) determine which country may tax which type of income. For German entrepreneurs, especially relevant:

Germany-Andorra DTA:

Germany-Monaco DTA:

Germany-UAE DTA:

Exit Tax: When Does It Get Expensive?

If you relocate your residence, you may be subject to exit tax (§ 6 AStG). This applies if:

The result: Hidden reserves are exposed and taxed, as if you had sold all your shares at fair market value.

Example: Thomas owns 100% of his GmbH, now worth €2 million. Book value: €25,000. Upon moving to Andorra, he would pay approx. €520,000 in tax on €1,975,000 in hidden reserves.

Possible solutions:

Practical Implementation: Step-By-Step to Your Optimal Microstate Strategy

Theory is all well and good. But how do you actually implement your microstate strategy? Here’s my tried-and-tested 3-phase approach:

Phase 1: Analyze Your Current Situation

Before you do anything, you must understand your starting point. Answer these questions honestly:

Tax analysis:

Business analysis:

Personal factors:

My tip: Keep a 3-month tax diary. Record every tax payment and ask yourself: Does this really have to be?

Phase 2: Choose and Prepare Your Jurisdiction

Based on your analysis, choose the appropriate jurisdiction. Here is my decision matrix:

Choose Andorra if:

Choose Monaco if:

Choose Dubai if:

Preparatory steps (6-12 months pre-move):

  1. Legal review: Have an expert check your structure
  2. Test visit: Spend 2-4 weeks in your target country
  3. Build your network: Connect with lawyers and advisors on-site
  4. Clarify funding: Secure the required funds
  5. Involve your family: Thoroughly discuss the plan

Phase 3: Relocation and Implementation of the Structure

Implementation requires precise planning and timing. Here’s the typical sequence:

Months 1-2:

Months 3-4:

Months 5-6:

Critical success factors:

Typical costs for implementation:

Cost Item Andorra Monaco Dubai
Consulting fees €15,000 €25,000 €12,000
Company formation €5,000 €8,000 €3,000
Residency process €8,000 €15,000 €5,000
Relocation costs €10,000 €20,000 €15,000
Total €38,000 €68,000 €35,000

My Personal Conclusion

After more than 15 years of experience with international tax structures, I can tell you: There is no one-size-fits-all solution.

But there is a right solution for everyone.

All three microstate strategies work—but only if they fit your life and your business. They also all require long-term planning and the willingness to leave your comfort zone.

My recommendation? Start with an honest self-analysis. Then take a close look at all three options. And if you find it’s getting too complex:

That’s exactly what I’m here for.

As your tax mentor, I’ll guide you through the entire process—from the initial analysis to successful implementation. Because in the end, it’s not just about saving tax. It’s about living a life of freedom and self-determination.

Ready for the next step?

Yours, RMS

Frequently Asked Questions (FAQ)

Can I run my business in both Germany and a microstate at the same time as a German entrepreneur?

Basically yes, but it gets complicated. You need to clearly separate which activities take place where. CFC taxation and permanent establishment regulations can erase your tax advantages. Clean separation of business operations is essential.

How long do I have to live abroad to benefit from the tax advantages?

It depends on the relevant double tax agreement. Generally, the 183-day rule applies: you must spend more than 183 days a year in your new country of residence. You should also shift your main center of life there—family, home, social contacts.

What happens to my German GmbH if I move abroad?

Your German GmbH remains fully tax liable in Germany, even if you personally leave. On exit tax, hidden reserves may be exposed. Often it makes more sense to gradually transfer business activity to a new foreign company or wind up the German GmbH.

How high are actual living costs in Monaco compared to Germany?

Monaco is about 3-4 times more expensive than major German cities. A two-bedroom apartment costs at least €5,000 in rent, a meal out can quickly reach €100+ per person. For a comfortable lifestyle, a family should budget at least €15,000-20,000 per month.

Can I keep my German health insurance if I move to Dubai?

No, with a permanent move abroad, your German health insurance coverage ends. You’ll need an international or local health insurance plan. In Dubai, very good private health insurance is available from about €2,000-3,000 per year for comprehensive coverage.

Is a microstate strategy worthwhile for smaller businesses under €100,000 profit?

That depends on your personal priorities. The absolute tax savings are lower for modest profits, but the percentage is just as high. You need to weigh the implementation costs (€30,000-70,000) and effort against the tax benefits. Often, it only pays off from €150,000+ annual profit.

What if the tax laws change in my new country of residence?

Tax laws can change—this is a risk with any international structure. The important thing is to stay flexible and regularly review your structure. Diversification helps: many entrepreneurs build options in several countries so they can move if necessary.

Can I easily work with German clients from Dubai?

Yes, Dubai is excellent for international business activities. The time difference of +3 hours is manageable. Many German entrepreneurs work with Europe in the morning Dubai time and with Asia in the afternoon. The infrastructure is top-notch—better internet than in many German cities.

How does schooling for German children work in these microstates?

All three destinations have international schools with German-speaking options. Andorra has a German school, Monaco’s Lycée Albert 1er offers German classes, and Dubai boasts several German and international schools. Tuition runs between €15,000-35,000 per year per child.

What is the minimum required stay in each country?

Andorra: 90 days for passive residency, 183+ days for tax advantages. Monaco: 183+ days for tax residency. Dubai: You must enter at least every 180 days for visa retention, but for tax benefits you should spend 183+ days and make Dubai your main home.

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