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03 December 2023

The 'big escape' to the UAE

By Ryan Harrison



As Europe is gripped by a “tax haven” crackdown, the UAE has emerged as one of the top destinations for wealthy executives to flee to and avoid hefty levies on their income. The expected influx could further bolster the Emirate’s already accelerating economy and inject fresh international talent to invigorate the crucial growth areas of banking, financial services and real estate.


In the United Kingdom, non-domiciles (non-doms), those who reside in the country but shelter their overseas income and assets from UK tax, have just over a month to decide whether to relocate or pay  £30,000 (Dh216,000) to retain special tax privileges, when the new tax year begins. There is an estimated 200,000 non-doms in the UK, though Treasury figures count 115,000. The levy applies to individuals who have been in the country for seven years, a net that catches 20,000 people.


The government expects about 4,000 to pay up, 14,000 to opt for being taxed on a normal basis and 3,000 or so to jump ship.


Around the rest of Europe, there have been moves to shore up regulations amid a growing government backlash against financial centres with bank secrecy rules that foster tax evasion.


Germany’s finance minister, Peter Steinbruck, said he planned to “tighten the screws” on Europe’s tax havens. Evaders taking advantage of Liechtenstein’s strict bank secrecy faced investigation by national tax inspectors after Berlin said it would share information on accounts held in the tax haven.


Finland, Sweden and Norway are understood to have expressed an interest in the data. And meanwhile, Dutch officials have been in contact with Germany to ascertain whether any Dutch taxpayers are among the list of Liechtenstein bank clients.


The hunt has reached as far as the United States, Australia, Canada and Italy, with investigators searching for taxpayers hiding their money in the Alpine principality.


But the UAE joins Switzerland, Monaco and Spain as a top departure destination for individuals looking to escape the turmoil and benefit from less punitive tax rules.


It is these economies that are hoping to profit from an expected exodus from Europe, and specifically from the UK Treasury’s expected 3,000 disgruntled non-doms. According to Magdy El Zein, Managing Director for Boyden Middle East, a global executive consultancy firm in Dubai, European individuals and businesses would feel a major financial uplift and would help buoy the growing economy.


“Making the move to Dubai will give you two tax advantages, one on the income tax side and the other on the corporate tax side. If you were a businessman sitting in the UK, then you would have a double tax benefit, if you moved individually and as a business to somewhere like Dubai. This would boost the bottom line of the company


“And if it does happen that Dubai becomes an attraction to this non-dom community, then we would see an increase in economic activity here as a result. At the same time there would be more competition for jobs and property, and for recruiting talent. A recent survey in the UK found that more than a third of non-dom financial analysts, said they would leave the country if the new tax changes came into force as planned. Of the non-dom members polled, the UK society for Chartered Financial Analysts, found that 37 per cent would leave within a year or before they had been resident in the UK for seven years.


The survey also showed that 82 per cent thought the proposed changes would hurt London’s reputation as a financial centre.


Under current tax laws, foreign citizens resident in the UK can register for “non-domiciled” status, meaning they pay no tax on earnings made outside the country.


El Zein is convinced that any exodus from the UK would provide  a vital pool of additional talent. “In terms of financial services, Dubai would become more recognised globally by executives looking for employment here rather than London. And there would be more recognition of Dubai as a financial hub as a result of any moves across. We’ve already had a huge uplift with the DIFC already, and this community coming here will further the development of the banking sector.”


The UAE’s title as one of the top destinations for UK non-doms was reaffirmed this week with the visit of property magnate Ivana Trump, who was in town promoting the multi-billion dollar Le Diamond twin towers project to be built in the emirate. “Dubai is like Geneva because it’s a tax haven and it’s a secure place. For countries around the Middle East that are in trouble, people come here to secure their residences,” she said.


“For me, I enjoy the architecture. It’s such a thrill that you can do almost anything. In Europe or America, you have to go through all the bureaucracy, which takes so long. Here you can throw up a building in 18 months. I love that you can fulfil your visions,” Trump added.


The UAE’s booming real estate sector, which is backed by an estimated 50 per cent of the GCC’s $1 trillion (Dh3.67trn) construction industry, is a fertile landing pad for property executives relocating from Europe, according to Trevor Abrahmson, of Glentree International estate agents in London.


“Several top City executives are going to Geneva, Dubai and Monaco. They are very rich people who have homes around the world, but a family of four would have to earn £200,000 before tax to pay the new non-dom levy, so it is a significant amount, even to them. They are going to sell their houses in Mayfair or Kensington and Chelsea, dumping them on the market at an already difficult time. Then they will take their business overseas. Competing cities such as New York, Geneva, Monaco, Dubai and Frankfurt, would welcome these wealthy non-dom businessmen with open arms.”


Realty agents have also reported massive falls in the corporate rental market, as senior executives face pressure to leave London and flee tax bills, which have been estimated to rise by hundreds of thousands of pounds. Experts have warned that foreign workers resident in the city, who have grown-up children, could face bills of at least £120,000 for a family of four.


Any migration to the Emirates would boost the real estate sector and inject the much-needed talent, according to El Zein. “There would be more requirement for property, both residential and commercial, and a higher level talent to work for those companies that have moved here.”


He said one consideration to take into account for non-doms considering a move was the impact the UK Government’s levy on their income.


“If you’re earning a substantial amount of millions and the UK Government wants you to pay £30,000, would you really make a move because of that? The levy is relative to the income being generated by being in the UK,” he said.


A recent letter to the UK Chancellor published in the Financial Times from a group of non-doms reveals the seriousness of the opportunity for the UAE.


The letter reads: “Dear Chancellor, on behalf of the non-doms, we would like to thank you for allowing us to participate in the recent discussion over our future. Since we are an anonymous group that operates invisibly, we are flattered to have been consulted – even though we realise you have no intention of listening to our suggestions. We were happy to have spent some time in the UK, but will now move on. Dubai, Geneva, Athens, Singapore, Hong Kong and other cities have been in touch,” it adds.



Non-dom chairman


Ron Sandler, appointed by the UK Treasury to be executive chairman of Northern Rock, is a non-dom. He has lived in the UK since the 1980s, but he was brought up in Zimbabwe and has a German passport. And his chief financial officer, Ann Godbehere, is a resident for tax purposes in Switzerland and is also likely to adopt non-dom status. Sandler is being paid £90,000 a month at Northern Rock, and Godbehere’s salary will be £75,000. They will pay tax on their remuneration.



Double taxation


US citizens face a particular problem with the £30,000 levy. American citizens must file a US tax return regardless of where they live, and the American tax authorities are refusing to allow the £30,000 levy to count against US tax liabilities. That leaves some American non-doms in the UK facing the prospect of double taxation. The government is understood to have gathered a party of experts to examine the changes after HMRC issued a “clarification” to tax advisors watering down the initial proposals. According to the Treasury’s own figures, at least 3,000 of the 120,000 non-doms registered in the United Kingdom are expected to leave when the changes come into force in April.