Dubai IFC: an exodus to (financial) heaven?
Focusing on new developments in place concerning digital assets, not forgetting new emerging sanctions and trends, Citywealth interviewed experts from Dubai, Jersey and London to understand what is currently attracting UHNWIs to Dubai and how the phenomenon is evolving comparing present with past figures.
As an IFC, Dubai looks at attracting the big clients around the world. Long-term Golden Visas have served the purpose, attracting wealthy foreign investors who want to live, work, study and invest in the UAE, but risks and difficulties always hide around the corner.
Focusing on new developments in place concerning digital assets, not forgetting new emerging sanctions and trends, Citywealth interviewed experts from Dubai, Jersey and London who boast extensive expertise and knowledge on this IFC to understand what is currently attracting UHNWIs to Dubai and how the phenomenon is evolving comparing present with past figures.
Dubai: a safe haven for its stability, security (and much more)
Dubai attracts ultra-high-net-worth individuals from all around the globe thanks to multiple factors. Its stability and educational facilities are only some of the main aspects that encourage millionaires and their families to move to Dubai, as explained by Mo Baluchi, Senior Manager at Standard Bank, based in Jersey: “Dubai (and the wider UAE) is considered to be a safe haven in a volatile region and continually attracts UHNWIs and families, as well as expatriates seeking a new and exciting lifestyle. According to The Economist, the UAE is forecast to add 4,000 new millionaire residents in 2022, more than any other country. The overall stability of jurisdiction with its ultra-low crime rate, central location and extensive airport links for business and leisure travel, world class educational and other facilities cater to all tastes and client segments.” Regarding the Golden Visa, Mo adds that “this highly publicised initiative, which enables foreign talent to live, work and study in the UAE, while enjoying exclusive benefits, appears to be working well and has created the conditions for a usually transient population to feel more at home there than ever before.”
Financial reasons are only the tip of the iceberg, as analysed by Tim Searle, Chairman at Globaleye, based in Dubai: “This IFC, and the UAE in general, remains an attractive destination for high-net-worth families from all corners of the planet. This is due to a number of factors and not just financial/fiscal. Families can enjoy a high standard of living, fantastic education, high degree of security, property and company ownership, ease of travel and possibly some of the best restaurants, entertainment and hotels in one city. Speaking purely from the financial aspect, then it is obvious that the UAE fiscal policy continues to attract many investors. It is true that there are indirect taxes but no direct tax in the form of income tax which is highly attractive for many entrepreneurs and businesses. The UAE’s strategic position allows it to draw investors not only from Europe but the Subcontinent and Southeast Asia as well. As a result, the wealth in the UAE from foreign investors has dramatically increased and is forecast to continue. The DIFC, from its early beginnings in 2004, has strived to bridge the gap between Europe and Asia and has successfully cemented itself as an IFC that can innovate and embrace the latest trends particularly around fintech. Traditional offshore centres have been slow to react to the dynamics of the UAE IFC’s and as such the flow of money outside of the UAE has diminished and, in some cases, reversed.”
Sunita Singh-Dalal, Partner at Hourani & Partners in Dubai, confirms that “the infrastructure, ease of doing business, connectivity, global business network, world class education and healthcare systems, stable political system, low crime rates and entrepreneurial environment are but a few reasons why Dubai continues to attract UHNWIs seeking a better quality of life.” And about the Golden Visa, Sunita highlights its popularity: “The Golden Visa was introduced by the UAE Government as a positive measure to encourage long term residency. The Golden Visa has proven tremendously popular not only in terms of attracting a higher calibre of expatriate residents, but also in terms of professionals and UHNWIs seeking to establish a permanent home in the Emirate of Dubai.”
Shekhar Bharania, Director at Philip Jones Legal in London comments: “Dubai’s smartly adapted tax laws have made it a prominent financial hub for UHNWIs. Directors of companies with sizeable, taxable profits in their own country, are better off offsetting tax in their own jurisdiction by investing profits in a subsidiary in Dubai. If we compare Dubai to the British Virgin Islands (BVI), which have been historically used for tax reasons by UHNWIs, we observe that the amended BVI Business Companies Act will introduce a new annual financial return filing and a publicly available list of director names. Dubai, on the other hand, does not impose such tax registration or reporting obligations on UHNWIs.”
War in Ukraine and Western sanctions: how it is affecting UHNWIs
Dubai has been welcoming more and more HNW and UHNW individuals over the years, but 2022 broke records. As Sunita points out: “As per Henley’s Global Citizens Report, the UAE has the highest net influx of HNWIs globally in 2022 with an inflow of 4,000. This is a dramatic increase of 208% versus 2019’s net inflow of 1,300.”
The question is, are more investors moving to Dubai at present since Europe has imposed heavy sanctions due to the war in Ukraine? Tim clarifies that “the migration of HNWIs commenced before events in Ukraine and was accelerated, if anything, by how well the UAE government managed the Covid19 crisis. The number of deaths, the rollout of vaccines and the testing facilities were exemplary and attracted worldwide attention. This triggered a real estate boom since families moved here during the pandemic not only for a better way of life, but also to manage their international business affairs more effectively and efficiently. The UAE has primarily remained neutral regarding events in Eastern Europe, but the overall sentiment is sanguine not discounting the fact that an increase in oil price has contributed significantly to the UAE’s coffers.”
Sunita mentions that “award-winning journalist Misha Glenny says that affluent Russians seeking to escape the impact of the devastating Western sanctions on their country have started to move to the UAE and Israel in large numbers”. She also adds that “Russia has suffered the biggest emigration of millionaires since January 2022, with forecast net outflows of 15,000 by the end of 2022 — a massive 15% of its HNWI population and 9,500 more than in 2019, pre-pandemic. Russia’s invasion is in turn driving a steep spike in outgoing UHNWIs from Ukraine, which is predicted to suffer its highest net loss in the country’s history — 2,800 millionaires (42% of its HNWI population) and a net loss of 2,400 more than 2019. No country-specific figures are available for 2020 and 2021 owing to Covid-related lockdowns and travel restrictions.”
Dubai and digital assets
Dubai boasts an eclectic digital asset community which is fastly growing, especially after China’s cryptocurrency ban. Tim states that “there is a large community of entrepreneurs in the digital asset space which goes hand in hand with some of the points raised before. China banned the mining of coins which attracted investors to the UAE. There is a vibrant digital asset community with many seminars and conferences coupled to the government deploying a virtual asset regulatory authority.”
Sunita Singh-Dalal, together with Jennifer Abou Fadel, Associate at Hourani & Partners, comment that “the UAE’s share in the global crypto market has increased of 500% between July 2020 and June 2021 and is now over USD 25 billion in transaction value, as stated in ‘Crypto exchange Kraken is set to launch in UAE as regional competition heats up’ by Dan Murphy and Emma Graham (26 April 2022).”
They also provide a detailed analysis of the new developments in place in regard to digital assets. “The UAE is perhaps one of the biggest jurisdictions in the world for virtual assets: the SCA issued a regulation on crypto assets on 1 November 2020. SCA’s Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation (CAAR), regulates the offering, issuing, listing, and trading of crypto assets in onshore UAE including initial coin offering (ICO), exchanges, marketplaces, crowdfunding platforms, custodian services, and related financial services based upon or leveraging crypto assets;
law No. (4) of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai, referred to as the Virtual Assets Law, establishes the Dubai Virtual Assets Regulatory Authority (VARA) affiliated with the Dubai World Trade Centre Authority (DWTCA), as the primary virtual assets regulator in Dubai. VARA aims to promote Dubai’s position as a regional and international destination in the virtual assets sector. It will provide a full range of services in coordination with CBUAE and SCA and is mandated with organising and setting the rules and controls for conducting activities related to virtual assets. This includes cryptocurrencies, tokens, non-fungible tokens, and any other virtual asset determined by VARA. The latter seeks to facilitate collaborative engagement between global Virtual Asset Service Providers (VASPs), industry thought leaders, and international regulatory authorities.
Regulatory oversight is substantially increasing across all jurisdictions and requirements to be compliant are high. The underlying blockchain technology is clearly seeing much interest with variety of players such as the DTCC operating a private blockchain business and private markets heavily investing in this technology such as Peregrine Digital and Securrency in ADGM. The Dubai Multi Commodities Centre (DMCC) opened a new Crypto Centre to companies developing various crypto and blockchain technologies. The DMCC houses companies offering, issuing, listing, and trading crypto assets, as well as those developing blockchain trading platforms, fully supported by the national government.
On 18 July 2022, as reported in the Arabian Business, Rakbank has announced a partnership with Kraken that will allow UAE residents to fund crypto accounts through local transfers from any bank in the country. Such integration with mainstream financial services offered by local banks will drive user adoption and market growth. The UAE is considered one of the most progressive use cases for crypto. Mass use cases for crypto in the UAE are airlines and real estate firms, some of which are now accepting payments in crypto.
VASPs are becoming more and more regulated: VARA has given approval in March this year to Binance, the world’s largest cryptocurrency exchange, and FTX, which will set up a regional headquarters in Dubai, in a statement released on 15 March 2022. Substantial institutional engagement with regulators is progressing such as with the Travel Rule.
By consequence, much institutional interest in virtual assets is now seen, almost 45% of hedge funds are now investing in this area, while the NFT marketplace, which at one point in time was bigger than the traditional art market, is now plumbing new depths (Source: pwc).”
Moving to Dubai: the need to plan in advance
After moving to Dubai, UHNWIs may encounter difficulties. Developing a strategy which could efficiently include all cross-border and multijurisdictional assets can be as challenging as properly dealing with pre-arrival planning.
Sunita firmly believes that “prior to any relocation, it is always advisable to undertake a detailed review of the tax, legal and regulatory landscape, so as to understand and appreciate the parameters of a new jurisdiction. This not only enables the individuals to be better prepared and ensure that all pre-exit formalities have been compiled with, but also allows them to start afresh in a new jurisdiction and maximise the benefits that jurisdiction has to offer.
Professional pre arrival planning should never be underestimated. Being well prepared facilitates a smooth transition, e.g. establishing local bank accounts, conducting the requisite due diligence or even initiating the incorporation process for business entities, identifying professional advisers and experts to consult and/or employ when starting up a new business etc.”
“The challenge for some people is that the ready access to unbiased and collaborative advisory can be difficult to locate,” says Tim. He adds that “typically, banks, trustees, lawyers and fiduciary operate in silos and fail to create a cohesive strategy taking into consideration all cross-border and multijurisdictional assets that the HNWI will have acquired. Most HNWIs are very good at making and spending their money and rely, unwittingly, on an array of advisory to monitor their affairs for today and future generations. The challenge for advisory to deliver this effectively with a constantly changing and aggressive tax landscape, global events, inflationary pressures, cross-border issues and succession challenges means that all these parties aforementioned need to work more closely to deliver a cohesive solution to the HNWI.”
Mo Baluchi talks about the importance to speak with a relocation expert, especially if whole families are involved: “90% of the UAE population (c.9m+) has expatriated. That said, it is still a tightly controlled jurisdiction and there are cultural differences and nuances which need to be respected. For an UHNWI, assimilating into a new life in the UAE is usually a relatively straightforward process however circumstances can arise where their partner and family (who may never have travelled to the Middle East) can feel that the culture is somewhat alien and this can cause initial teething problems which are normally resolved through time. An advisable course of action is to utilise the services of a relocation expert who is experienced in dealing with moving UHNW clients to the UAE and who will have the necessary connections and on-the-ground enablers to ensure a smooth transfer.”
New trends in Dubai? Our experts think that…
… throughout the pandemic and to date, we have witnessed an influx of families who are seeking better lifestyle and business alternatives. This ranges from individual professionals and entrepreneurs, to significant family-owned businesses restructuring themselves regionally, businesses setting up regional headquarters and global families establishing Family Offices so as to capitalise on current opportunities in the region.
Given the ongoing geopolitical instability and global economic downturn, the UAE remains a significant hotbed of opportunity from a variety of perspectives as mentioned above.
There has been a clear exodus of wealthy families from India who have sought to relocate to the UAE and take advantage of all that it has to offer them. The recent liberalised Indian ODI regulations will act as yet another catalyst, as wealthy Indian families seek a better quality of life and better global business opportunities, without having to relinquish their Indian Citizenship; the UAE provides an easily accessible, hybrid solution for UHNWIs to achieve both objectives.
… the Covid19 pandemic and its repercussions had a significant effect on the psyche of the UAE, however some effects appear to have been positive, bringing an increasing trend of more inclusivity and adaptation. This is demonstrated via the afore mentioned Golden Visa initiative as well as the popular decision by the UAE Government to move the working week from Sunday-Thursday to Monday-Friday. On-going strategic trends, such as the diversification of the economy to drive economic growth via tourism, continues on a upward trajectory. The highly publicised Moon Dubai, a USD$5bn mixed use development and resort which will stand at 735 feet tall and the new Lana, Dorchester Collection, due for completion in 2023, are good examples of this.
… other than my hairstyle, it is evident that Dubai and the UAE in general is buzzing and the events of the last few years which have troubled so many other nations have allowed this country to springboard into a new era. Having been in the UAE for nearly 30 years, I think the events of the next 10 years will dwarf those characterising the last one and you will continue to hear this country at the forefront of innovation and advancement with regards to addressing the needs of HNW families and their future generations.
… UHNWIs have more options in Dubai in light of the change in the governmental economy policies, from oil and gas industry to other industries such as retail, hospitality, constructions, e-commerce, manufacturing, and media, therefore they will not stop being attracted by this IFC.