UAE ‘Leniency’ Towards Tax Exiles
We reported last month on the ongoing situation in Dubai, with many expats forced to leave the UAE suddenly as a result of the outbreak of war in the Middle East. This has obviously caused all manner of problems for returning expats, not least the tax implications. Many people have been attracted to Dubai for its zero income tax policy — but what happens when you return to a country like Britain, given that you need to be resident in places like Dubai for a certain number of ‘tax days’, organised into two tracks, in order to qualify for zero tax?
The test for UAE residency begins on 1 January each year, so if an expat has left Dubai as a result of the crisis and cannot return — BA has cancelled all flights until June — do they risk losing their tax-exempt status based on their residency?
The Financial Times reported last month that financial advisers in the region are commenting privately that the UAE is likely to show leniency to expats who are out of the country for more than the prescribed amount of time, in order to incentivise their return. BDO’s Elsa Littlewood told the FT:
“Dubai has already seen its safety and security selling point damaged by recent events. It is really important for its economy and image to retain these expats.”
The UAE’s Federal Tax Authority is apparently not keen to issue blanket exemptions, but is said to prefer case-by-case analysis. This is some comfort for anyone who left and is not able to get back into the city-state, but unfortunately they may find that, if they qualify as British residents, the UK’s HMRC may not be so lenient. There have been suggestions, though, that the British tax system may yet prove more forgiving than expected.
Class 3 Pension Contribution Overhaul
Expat Focus readers will be aware from previous newsletters that voluntary pension contributions for expats, made to build up sufficient contributions to qualify for a state pension, have been overhauled by Rachel Reeves’ administration. From 6 April, expats will need to pay Class 3 contributions rather than Class 2, spending £950 per year rather than the lower Class 2 rate of £180.
There is some good news for the self-employed, who are allowed to continue paying at Class 2 rates.
Technical Advice Director at Titan Wealth International, Andreas Hollas, told the Daily Mail that this situation was bound to occur at some point, but added that a worst-case scenario could see expats paying out around £25,000 in order to secure their pensions. He explained:
“A benefit this generous was always unlikely to last indefinitely. It’s often been met with disbelief: a benefit that felt almost too good to be true. At a cost lower than a couple attending an average Dubai brunch, it has effectively been ‘free money’ in long-term planning terms.”
However, he added that in many cases, the worst-case scenario will not apply, because many expats have already been making contributions into the pension top-up scheme, sometimes for many years.
Mortgage Update: Spain
Mortgage news from Spain suggests that the market is becoming more risk-averse as the global economy reacts to the Middle Eastern situation, while also correcting after several years of competitive products. Lenders are moving to impose a strict 35% debt-to-income cap. This could affect expats in Spain, as borrowers will require a mandatory minimum net monthly income of €2,500, along with a capped 60-70% loan-to-value (LTV) ratio and larger deposits.
Financial experts advise putting together a strong financial profile if you are thinking of applying for a mortgage, with limited debt and a stable income. If you are applying to a Spanish bank, you will need a Spanish bank account, as lenders are reluctant to lend without one. It is also recommended that you go through a broker, which can result in a wider range of better options.
Thailand: Warning of Scams
The Bangkok Community Help Foundation, which assists embassies with repatriation, told the local press this month that it is seeing a rise in Western expats being rendered homeless after falling victim to scams. In many cases, their bank accounts have been blocked. Friso Poldervaart, BCHF’s founder, says:
“We see an alarming increase in foreign nationals needing help. Many are becoming destitute, without funds and unable to return home.”
Thus far, the BCHF has helped around 40 expats to return home. It warns that numbers may rise as financial scams in the region become more sophisticated.
Brits Abroad: Digital Nomad Numbers Published
LiveCareer.uk has published a recent survey revealing that around 165,000 British nationals have adopted the digital nomad lifestyle, drawn to a number of countries by ease of working and a different way of life. Spain, with its high-speed internet and Digital Nomad Visa, tops the list, along with its non-resident income tax rates. It is followed by Portugal, which offers a similar D8 visa, with both countries requiring proof of income. In addition, Lisbon has a large British expat community, making networking straightforward.
Similarly, Croatia’s internet provision and visa arrangements are appealing, along with its substantially lower cost of living than the UK. In Estonia, digital infrastructure is now top-class, with reduced income tax rates for digital workers and e-residency support that can allow you to set up a company in minutes. Tallinn’s tech scene also offers significant networking opportunities.
Finland: TikTok Opens Major Data Centre
TikTok’s Chinese owners are opening a €1 billion data centre in Lahti, Finland, in an effort to store European user data in Europe. Stable regulation, a cold climate, and cheaper low-carbon electricity are all appealing to companies looking to build new data centres, and ByteDance, TikTok’s owner, says it wants to consolidate European security across the region. Not everyone is happy about this: some Finnish politicians have expressed concerns about Chinese involvement.