If you have to go – Hungarian entrepreneurs moving home from Dubai through the eyes of a tax advisor

The international tax expert highlighted in several points the situation of entrepreneurs who have founded a company in Dubai, or perhaps even moved there, but are considering repatriation due to the increasing geopolitical risks.

The United Arab Emirates as a business hub

“In recent decades, the UAE’s economy has undergone a significant transformation, which is the result of a conscious economic policy strategy. As part of this, the country has gradually reduced its dependence on oil and developed a diversified, innovative economic model. One of the key elements of the strategy was the attraction of foreign capital and businesses, as a result of which a number of Hungarian-owned businesses have been established in the Emirates,” said Majed Abdel-Fattah, an expert on the Middle East region at SQN Trust.

The favorable economic and tax environment – ​​including the fact that there was no corporate tax until 2023 and no personal income tax to this day – has been a significant attraction for entrepreneurs. As a result of these factors, many legitimate Hungarian entrepreneurs have also decided to relocate their activities to the Emirates, including Dubai. This is supported by the fact that the number of Hungarian companies operating in Dubai (also) increased by 48% in one year in 2024, so the Dubai Chamber of Commerce established the Hungarian Business Council in order to strengthen economic cooperation between the two countries. There are now several hundred Hungarian companies operating in Dubai, but according to industry estimates, this number could be several times higher if we include companies established in the so-called “free zones” (zones common in the Arab world where it is easier and faster to establish companies and which are subject to more favorable laws).

As we have shown above, Dubai has noticeably grown into a Hungarian business center in recent years, however, due to the recent war events, today the question is not only how many people have left, but also what would happen if they suddenly had to settle back home. Tax advisors expect that if the conflict escalates further, more and more inquiries may be received from entrepreneurs who are considering repatriation but are unaware of the tax consequences.

Tax framework for repatriation: two key issues

In order to determine the tax consequences of an entrepreneur repatriating, it is first necessary to briefly review the basic functioning of international taxation.

In the system of international taxation, states can basically enforce their tax claim with respect to a given income along two connecting principles. One such connecting principle is residency, based on which, according to the domestic law of the given state, a person earning income is considered a resident. The state of residence is generally entitled to tax the entire, so-called worldwide, income of a resident person, regardless of the geographical source of the income. The other determining connecting principle is the source principle, under which the given state is entitled to tax as a source country based on the place of origin of the income. In this case, the right to tax extends only to the income generated in the given state and does not affect the total income of the income earner. Based on all this, the first step in the tax assessment of international transactions is to determine the tax residency of the parties involved, followed by an examination of the legal title and source of each income. Therefore, when examining this issue, two key factors need to be examined: the residency of the company and the taxation of its income, and the residency of the owner and the taxation of its income.