Spanish treasury and company in Dubai: what happens if you continue living in Spain

Having a company in Dubai and continuing to live in Spain is perfectly legal. What is not automatically correct is to assume that this company has no relationship with the Spanish Treasury. The AEAT has well-developed mechanisms to detect structures without real economic substance, and in recent years it has applied them more frequently and more effectively.

This article is not trying to scare you. Try to understand exactly what the Treasury looks at, what documentation you need to have prepared and how to correctly structure a company in Dubai if your residence is still Spanish.

The concept that changes everything: effective management

The most important criterion in international business taxation is the effective direction (place of effective management). It is the place from where the company's strategic decisions are actually made.

The rule is simple: a company is taxed in the country where its effective address is, regardless of where it is registered.

If you have a company registered in Dubai but the CEO lives in Madrid, the board meetings are held in Spain, the contracts are signed in Spain and the accounting is carried out by an advisor in Barcelona... The Spanish Treasury can argue that the effective management is in Spain and subject it to Spanish Corporate Tax (25%).

This is not an opinion. It is article 8 of the Spanish Corporate Tax Law:

What the AEAT verifies: the specific indications

Indications that weigh against the real substance in Dubai

• Contracts with Spanish clients signed with the Emirati company without evidence of management since Dubai.
• Absence of employees or operational representation at Dubai.
• Spanish email address as primary contact.
• Founder who stays more than 183 days in Spain and less than 90 in the UAE.
• Emirati bank account with operations exclusively in euros and regular transfers to a personal account in Spain.
• Absence of contracts that justify the activity in Dubai.

Clues that reinforce the real substance in Dubai

• Physical office in Dubai (even if it is a flex office in the Free Zone).
• Documented presence of the founder in Dubai (entry/exit records, housing invoices).
• Council meetings at Dubai with minutes signed there.
• Contracts with clients of various nationalities managed from Dubai.
• Employees with an Emirati visa linked to the company.
• Emirati bank account with real operational activity.
• Emirates founder's active ID.

The Model 720: the obligation that most people forget

If you are a tax resident in Spain and have shares in a foreign company whose value exceeds €50,000, you are obliged to declare it on Form 720 before March 31 of the following year.

The current fines after the CJEU ruling (C-788/19, 2022) are €20 for each data or set of data not presented, with a minimum of €300 and a maximum of €20,000, according to the Tax Agency. If the presentation is made after the deadline without prior request, the fine is reduced by half.

What is declared in Form 720:

• Foreign bank accounts with a balance greater than €50,000 as of December 31.
• Shares in foreign companies with a value greater than €50,000.
• Properties abroad with an acquisition value greater than €50,000.

If you have a company in Dubai and bank accounts there, you have to declare it.

Model 721: the new cryptoasset model

Since 2023, Model 721 has existed, which requires the declaration of cryptoassets held in foreign suppliers that exceed €50,000. If your Emirati company operates with crypto assets or if you have holdings in exchanges outside of Spain, this model applies. Term: from January 1 to March 31 of the following year.

The Spain-UAE double taxation agreement

The Agreement to Avoid Double Taxation between Spain and the United Arab Emirates came into force on May 2, 2007 (BOE of April 23, 2007).

• Article 7 — Business benefits: The profits of a company from one State will only be taxed in that State, unless the company carries out activities in the other State through a permanent establishment.
• Article 4 — Residence: If a person is a resident of both States, he or she will be considered a resident of the State where he or she has his or her permanent home. If you have permanent housing in both, the center of vital interests is taken.
• Article 23 — Elimination of double taxation: Spain applies the exemption method for income already taxed in the UAE, progressively.

In practice: if you have a company in Dubai with real substance there, the agreement protects those profits from being taxed in Spain. The key is to demonstrate that the company has a real economic presence in the UAE.

How to structure it correctly

The structure that works for a Spanish businessman with a company in Dubai and partially living in Spain has these elements:

1. Company in Free Zone with real activity

The company must have documented activity in Dubai: international services, consulting to non-Spanish clients, investment management. The activity must be consistent with the license. In In our article on how to open a company in Dubai you have the complete incorporation steps.

2. Physical presence documented in Dubai

Contracts signed there, meetings with Emirati partners and correspondence with international clients managed from there.

3. Active Emirati bank account

With real operations: customer collections, payments to suppliers, operating expenses. Not only transfers between own accounts.

4. Accounting under the Emirati framework

Since June 2023, all companies in the UAE are required to maintain accounting in accordance with IFRS and file Corporate Tax return. It is also an advantage: you have formal tax documentation for any verification.

5. Correct declaration in Spain

Form 720 when applicable and income tax return with the income that corresponds to tax in Spain according to the agreement.

Dubai vs other jurisdictions: which has less risk of conflict with the Treasury?

Historically, the AEAT has investigated transfers to Andorra more intensively than to Dubai. Dubai has greater geographical distance, greater international business presence and a double taxation agreement structure that, well applied, provides more legal certainty. If you are evaluating both, read our complete comparison between Dubai and Andorra.

The mistake that worries me the most

The scenario that I see most frequently: Spanish businessman who establishes a company in Dubai, does not change anything in his life or in his real operations, does not declare Form 720, and two or three years later receives a verification from the AEAT.

At that point, the problems are several at the same time: tax debt (the Spanish IS that should have been paid), sanctions for the Form 720 not submitted and a possible sanctioning file for serious infringement.

None of these problems exist if the structure is laid out correctly from the beginning. The cost of doing it right is a fraction of the cost of fixing it later.

Frequently asked questions

Can I have a company in Dubai without changing my tax residence?

Yes. But that company must have real substance in the UAE and you must correctly declare in Spain the income that the agreement assigns to Spanish taxation.

Can the Treasury investigate my Emirati company?

Yes. Through the CRS (OECD Common Reporting Standard), the AEAT can request information on accounts in the UAE. Emirati banks report accounts of residents in countries with automatic exchange agreement.

If I change my tax residence to Dubai, do I no longer have obligations in Spain?

You continue to pay taxes in Spain on income from Spanish sources (rentals of real estate in Spain, dividends from Spanish companies). And during the four years following the change, the AEAT can question whether the change was effective.

What happens to the dividends that I receive from the Emirati company if I remain in Spain?

They are taxed in Spain as income from movable capital (19-28% depending on the bracket). The agreement may apply tax exemption or credit, but the obligation to declare exists.

Do you have a company in Dubai and want to check if your structure is correct? Contact us and Saúl Hidalgo will analyze your case confidentially.

Sources: Corporate Tax Law 27/2014 (Spain) · Spain-UAE Double Taxation Agreement (BOE no. 97, April 23, 2007) · Personal Income Tax Law 35/2006 · Tax Regulations Law 7/2012 · Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law) · AEAT Control Plan Tax 2026 · CJEU Ruling C-788/19 (Model 720).