Dubai: Special Report
The outbreak of war in the Middle East, with attacks on the Iranian regime by the USA and Israel, has had a knock-on effect throughout the region, notably on Dubai. The Emirati city has featured in Expat Focus reports on a number of occasions, as its tax breaks, salaries, and luxury lifestyle have made it an appealing destination for Western and other expats in recent years. The city also has a large service expat community from areas such as the Philippines.
While newspaper reports have focused heavily on the wealthy and on influencers, selling Dubai’s high-end character as a tax haven, the expat community in the city is much wider. But will Dubai survive this conflict as an ‘expat utopia’, now that – at the time of writing – the war is ongoing, many expats have fled, and disturbing information about the repressiveness of the UAE is starting to emerge?
An estimated 300,000 Brits have been trapped in the UAE as a result of Iran’s missile attacks and the difficulty of getting flights out: this is estimated to be the world’s worst travel crisis since the pandemic. Many are tourists, but many are locals, some of whom have been in the region for a long time.
Instagram images still sell the narrative of Dubai as a safe place to live, but the UAE’s punishments for failing to toe the party line on social media are both personally and fiscally steep, including possible deportation, loss of house, and fines which can run into the hundreds of thousands of pounds. Professional influencers need a licence, which can cost up to £4K.
What does all this mean for Dubai’s future as a wealthy tax haven? Dubai is certainly rich: a GDP of $16 billion in 2000 was estimated last year to be around $96 billion. Dr Zoe Hurley, Associate Professor of Media at the American University of Sharjah and author of Social Media: Influencing in the City of Likes: Dubai and the Postdigital Condition, explained recently to the Guardian that:
“Dubai and the UAE in general have very strategically used the idea of creators and influencers to promote the country, not just to the west but to the global south. They strategically deploy digital assets to hold up a mirror to the world and provide a place of affordable destination as an alternative to the American dream.”
That image is now under serious threat, as wealthy residents realise that the UAE is no longer insulated from regional tensions. Some regard this as an opportunity: expats have been giving their opinions to the press on the property market and noting that a drop in prices could benefit less wealthy, but still committed, investors.
Financial experts are also considering whether capital moved to the UAE during the pandemic and the war in Ukraine might undergo a further shift elsewhere. There have been several articles in the global press over the course of the last fortnight touting various options, such as Singapore and Malta, as ‘the new Dubai’. It is perhaps too early to write off the ‘old’ Dubai, however. Much will obviously depend on the course of the war.
In the short term, Dubai’s future is shaken and somewhat stirred, but its longer-term future is probably more stable. Bloomberg says that the city’s long-term prosperity is based not so much on the length of the conflict with Iran, but on how long expats choose to stay. Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, told Bloomberg that:
“So long as this conflict is contained to a few weeks and any further attacks are limited, many will probably remain comfortable living in the UAE and will see this as a mere blip. For the current population residing in the UAE, I’d imagine the vast majority would stay.”
Louis Harding, CEO of Betterhomes, told the press that the current conflict is likely to herald a period of ‘careful decision making’. Financial consultants agree that the mobility and agility of personnel which have made Dubai a powerhouse in recent years are likely to prove a factor in the future: those who have joined the exodus may well return.
In the meantime, those who have come back to the UK face potentially major consequences when it comes to tax. The Standard, on Friday 13th March, was reporting on expats ‘troubled’ by potentially large capital gains tax bills after their unexpected departure from Dubai. Accountants Price Bailey told the Standard that expats could fall foul of Britain’s five-year temporary non-residency rule. UHY Hacker Young added:
“While HMRC has updated its guidance to acknowledge that the outbreak of war can qualify as an ‘exceptional circumstance’ for residency purposes, the rules remain highly restrictive and are strictly limited in scope.”
Spain: Family Pension Option
Spanish financial authorities are bringing in a revised scheme to benefit the “pensión en favor de familiares” — the pension paid to financially dependent family members if you die while you are in employment. Under this legislation, which is not new but is being given more prominence, workers over 45 are being encouraged to make voluntary contributions into the system to increase this pension pot. Relatives who could be eligible to benefit are:
• Children or grandchildren without sufficient income
• Adult children with disabilities
• Dependent parents or close relatives living with you
Financial experts suggest consulting Spanish Social Security for more detailed information relating to the amount of these top-ups, which are specifically designed for this particular pension payout.
Is the US Government Listening?
When it comes to taxes for expat US citizens, the answer to this question would appear to be a resounding ‘no’, according to the latest MyExpatTaxes survey of Americans abroad. US expats told the service that they felt ‘overlooked and under-represented’, and over 95% felt that the US government did not understand the challenges of living abroad.
Expat Focus has recently spoken to a number of US expats, including one ‘accidental’ American who has been living in the UK since the age of three months but who is still registered with the IRS and must undertake compliance or renounce citizenship. Over 89% of respondents told the survey that they found it very hard to understand the US filing system for overseas citizens.