Dubai Real Estate 2026: DIFC Will & German Inheritance Tax

Why Dubai real estate is booming for German investors in 2026

Dubai real estate for German investors are residential, commercial and investment properties in the seven emirates of the UAE, which are acquired under UAE property law but bequeathed under German unlimited Erbschaftsteuer liability. Three factors have driven demand since 2020: stable gross rental yields between 6 and 8 per cent in the premium segment, complete income-tax freedom for private individuals in the UAE, and the Golden Visa for real-estate buyers from 2 million AED (around 500,000 euros).

The downside only shows up at the death event (Erbfall). Anyone who remains registered in Germany and only maintains a second residence in Dubai is still considered an inland resident for tax purposes within the meaning of § 2 Abs. 1 Nr. 1 ErbStG. The entire worldwide assets are therefore subject to German Erbschaftsteuer, including the Dubai property.

That is also the reason why the tax-avoidance narrative around Dubai often leads into a trap. Rental income is income-tax-free in the UAE, that is correct. In the event of death, however, the German Erbschaftsteuer reaches the full market value, and without the reliefs that apply to German or EU properties.

The two legal traps: Sharia inheritance law and German tax

Anyone bequeathing a Dubai property runs into two legal systems that do not talk to each other.

The first system is the UAE's own estate administration. Until 2020, Sharia rules were often applied to UAE assets, even where the testator was non-Muslim. The reforms of 2020 (Federal Decree-Law No. 29) and the Federal Personal Status Law for Non-Muslims of 2022 have theoretically changed this: non-Muslim foreigners can have their home country's law applied. In practice this depends on a valid Testament being presented to the local court that recognises it.

The second system is German unlimited Erbschaftsteuer liability. As long as the testator or acquirer has residence or habitual abode in Germany, § 2 Abs. 1 Nr. 1 ErbStG reaches the worldwide assets. A double-taxation treaty would limit this effect. With the UAE no such treaty for Erbschaftsteuer exists.

Here lies the actual trap: because the UAE levies no inheritance tax, no foreign tax can be credited under § 21 ErbStG. Real double taxation is ruled out because the UAE levy no Erbschaftsteuer. The result: the German tax bites in full without the reliefs that apply to EU properties.

Understanding Sharia quotas

The classic Sharia inheritance quotas differ significantly from the German Pflichtteil system. Sons inherit double the share of daughters. The spouse inherits 1/4 or 1/8 depending on the constellation. Parents, grandparents and siblings have fixed shares. Free disposition over the assets exists only over up to one third of the estate, and only in favour of persons outside the statutory circle of heirs.

For non-Muslim families the result is rarely what the testator had in mind. This is exactly where the DIFC Will system comes in.

DIFC Will: the non-Islamic Testament for UAE assets

The Dubai International Financial Centre (DIFC) is a free zone with its own legal system on a Common Law basis. Since 2015 the DIFC Courts Wills Service Centre has operated a registry for Testaments of non-Muslim foreigners. These are drawn up in English, signed before a registered lawyer and deposited in the DIFC Wills Registry.

A registered DIFC Will has two decisive effects. It determines that the law of the home jurisdiction (such as German inheritance law) is to be applied to the UAE assets. And it creates an immediate probate process before the DIFC Courts, which dramatically speeds up the transfer of the property to the heirs.

Costs in 2026 are in the following range:

The lawyer's fees for drawing it up come separately, usually between 2,500 and 6,000 AED depending on complexity.

ADGM Wills as an alternative

In Abu Dhabi the Abu Dhabi Global Market (ADGM) operates a parallel system with its own Wills Registry. The choice between DIFC and ADGM depends on where the assets are located and which courts should have jurisdiction. For real estate in Dubai (Marina, Palm, JBR, Downtown, Business Bay), DIFC is usually chosen; for assets in Abu Dhabi, ADGM correspondingly.

German Erbschaftsteuer without a tax treaty: what really falls due

Here it gets numbers-relevant. Under § 12 ErbStG together with § 9 BewG, the Dubai property is valued at gemeiner Wert (fair market value), that is the market value at the date of death. A favourable treatment via the Sachwert (asset-value) or Ertragswert (income-capitalisation) method as for German properties does not exist for third-country properties.

The valuation reliefs in force in Germany only help to a limited extent:

In my advisory practice the same reaction often appears: clients (Mandanten) assume that their Dubai property is favoured in the German Erbfall too because of the tax freedom there. The opposite is the case. A rented residential property in Frankfurt gets the 10 % valuation discount, an owner-occupied Familienheim is fully exempt on transfer to the spouse. None of this applies to the Dubai Marina.

Practice example: 1.2 million euro penthouse Dubai Marina

A client (Mandant), 58 years old, married, two adult children, residence in Frankfurt am Main. In his portfolio: a rented penthouse in Dubai Marina with market value of 1,200,000 euros. In the death event (Erbfall) the property goes half to the wife and one quarter each to the two children.

German valuation: the penthouse market value is 1,200,000 euros. A valuation discount under § 13d ErbStG does not apply due to lack of EU/EEA location. In German inheritance-tax law, the property is therefore valued at 1,200,000 euros. Distributed to the heirs, the wife receives 600,000 euros, each child 300,000 euros.

In this isolated example, the Dubai property costs 11,000 euros of German Erbschaftsteuer. Realistically the burden is higher because the penthouse is usually not the only asset. As soon as German real-estate, portfolio or business assets are added, the Freibetraege are quickly exhausted and the tax rate rises progressively under § 19 ErbStG up to 30 per cent in tax class I.

Deeper background on valuation and exemptions can be found in the guide on Erbschaftsteuer on real estate and homes. The personal Freibetraege are listed in detail in the Freibetrag table for the Erbschaftsteuer 2026.

§ 21 ErbStG: what you can credit

Under § 21 ErbStG, crediting foreign Erbschaftsteuer against German tax is possible. The prerequisite is that inheritance tax was actually paid abroad and the foreign assets are recorded for tax purposes in Germany. The credit is limited to the part of the German Erbschaftsteuer that relates to the foreign assets (per-country limitation).

The UAE has no Erbschaftsteuer. § 21 ErbStG therefore runs empty for the Dubai property. There is nothing to credit.

This finding leads some clients (Mandanten) to consider whether the situation can be improved by relocating their residence to the UAE. Theoretically yes; in practice this depends on the Wegzugsbesteuerung (exit taxation under § 6 AStG when relocating abroad with substantial shareholdings), the continuing connecting points in Germany (in particular the extended unlimited tax liability of German nationals under § 2 Abs. 1 Nr. 1 Satz 2 lit. b ErbStG for five years after departure, and additionally § 4 AStG on departure to a low-tax country) and compliance with the unlimited tax liability of the acquirers.

In my advisory practice I often dissuade clients from relocating their residence to Dubai for the Erbschaftsteuer alone. The tax benefit is overestimated, the effort for a clean relocation is considerable, and a return to Germany for family reasons is, in experience, the rule rather than the exception.

Strategy 2026: the right sequence

The clean solution for German Dubai investors consists of three coordinated steps.

First: a German Testament or Erbvertrag (contract of inheritance) with a choice of law under Art. 22 of the EU Succession Regulation. That makes it clear that German inheritance law is to apply to the entire estate. The choice of law binds EU member states; against third countries such as the UAE the binding effect is weaker, while it remains the foundation for everything else.

Second: registration of a DIFC Will (or ADGM Will) for the assets located in the UAE. This Testament confirms the application of German inheritance law to the UAE assets from the perspective of the local courts. It speeds up the transfer in the event of death and prevents Sharia quotas.

Third: structural optimisation on the German tax side. Here the individual case matters. Lifetime transfer with reservation of use, distribution of ownership shares between the spouses to use both Freibetrag chains every ten years, or bundling in a holding structure. A Familienpool GmbH & Co. KG structure can also make sense for foreign real-estate assets if the family of clients (Mandanten) holds several objects.

What I use in advisory practice as a rule of thumb: first clarify the inheritance law (German Testament plus DIFC Will), then plan the tax. Anyone who starts with the tax strategy regularly overlooks that the planned transfer to the next generation in Dubai fails at the local probate procedure.

Berliner Testament and Dubai property

A classic Berliner Testament (joint spousal will under § 2269 BGB) functions only to a limited extent with regard to the Dubai property. The mutual designation of the spouses as sole heirs with the children as final heirs is standardised under German inheritance law. For the UAE assets, however, the Berliner Testament only takes effect when it is recognised in the DIFC or, in the death event, before the local courts. In practice it is mirrored in the DIFC Will.

Important: the Berliner Testament is often tax-disadvantageous (double taxation within the family). With larger Dubai assets, the separation solution is often recommended, in which the children inherit directly part of the estate on the first death event.

Frequently asked questions

What does a DIFC Will cost in 2026?

A Single Will at the DIFC Wills Service Centre costs 5,500 AED (around 1,380 euros), Mirror Wills for couples 9,000 AED (around 2,260 euros). Lawyer's fees for drawing it up add 2,500 to 6,000 AED, so total costs are between 8,000 and 15,000 AED (around 2,000 to 3,800 euros) depending on complexity.

Do I need a DIFC Will if I have a German Testament?

Yes, in almost all cases. The German Testament regulates inheritance law from the German perspective. UAE courts are not, however, bound by the EU Succession Regulation. A registered DIFC Will ensures that the transfer of the Dubai property happens without delay and without Sharia quotas.

Does German Erbschaftsteuer apply to my Dubai property?

Yes, if you or your heirs have residence or habitual abode in Germany (§ 2 Abs. 1 Nr. 1 ErbStG). The property is valued at market value. Valuation reliefs such as the 10 % discount under § 13d ErbStG do not apply to third-country properties.

Can I credit foreign Erbschaftsteuer against the German tax?

Theoretically yes via § 21 ErbStG. Because the UAE levy no Erbschaftsteuer, the credit runs empty in practice. Double taxation does not arise in the absence of UAE Erbschaftsteuer; instead the German tax fully bites without relief.

Does a move to Dubai help against the German Erbschaftsteuer?

Only to a limited extent. § 2 Abs. 1 Nr. 1 Satz 2 lit. b ErbStG catches German nationals within five years after departure in the extended unlimited German inheritance-tax liability. On departure to a low-tax country, § 4 AStG (extended limited tax liability for 10 years on domestic assets) additionally comes into play. On departure with relevant shareholdings, § 6 AStG triggers the Wegzugsbesteuerung in addition. A clean residence relocation requires careful planning over several years.

What happens if I have no DIFC Will?

In the event of death, the UAE assets are dealt with before the local courts. Theoretically, non-Muslim foreigners can claim their home country's law since the 2020 reform. In practice the procedure is significantly delayed without a registered Testament, often by 12 to 18 months. The risk of Sharia quotas being applied exists particularly with older files or unclear documentation of residence.

Does the EU Succession Regulation apply to my Dubai property?

Within the EU the EU Succession Regulation determines the applicable inheritance law. Against third countries such as the UAE it has no direct effect. UAE courts decide under their own legal system over the assets located there. For exactly this reason the DIFC Will is needed as a second leg alongside the German Testament. The guide on international inheritance law and the EU Succession Regulation deals with this in deeper detail.

Initial consultation on Dubai succession planning

If you hold a Dubai property or are planning the purchase, a clean succession structure before the death event is worthwhile. As a rule, in 90 minutes of initial consultation we clarify the cornerstones: a German Testament with choice of law, DIFC Will setup, valuation of the property and tax preparation through gifts with reservation of use.

Book an initial consultation at florian-enders.de or write directly to enders@tes-partner.de. Helpful materials: the purchase contract of the Dubai property, the current tenancy (if rented), an overview of the German assets and any existing Testaments or Erbvertraege.