Winter 2018

EXPATRIATES: In for the long haul

Dubai_marina_urban_skylineNew residency rules offer expats in the United Arab Emirates a chance to retire there – but as Indrajit Basu reports, there are strings attached. With its cosmopolitan cities and high earning potential, the United Arab Emirates (UAE) can offer expatriates a rich and rewarding life, but even veteran expats know that one day it will be time to leave. Its residency rules discourage foreigners from settling down, forcing them to move when they retire. That, however, is about to change. In a radical move in September, the UAE announced that it will allow foreigners over the age of 55 to obtain extended residency visas so that they can continue to stay after they retire from work. This can be renewed after five years. This measure is due to come into force in early 2019. To qualify, a retiree must either own property worth at least 2 million dirhams ($545,000), or a nest egg of 1 million dirhams, or a monthly income of at least 20,000 dirhams. It is the latest in a string of initiatives the government has recently announced to give expats a bigger stake in the economy and entice them to make long-term financial investments in the Gulf nation. In May, the UAE announced that it was planning to allow foreign investors 100% ownership of companies, coupled with 10-year residency permits for them and their families, as well as for students and professionals with advanced skills. In June, it brought the annual hiring fee private-sector companies pay to employ foreigners down to 60 dirhams – from a deposit of 3,000 dirhams – for each worker. This is expected to free up close to 12 billion dirhams for private business. Then in November, the UAE cabinet offered five-year residency to owners of UAE real estate worth at least 5 million dirhams ($1.4 million), provided the ownership is not funded by loans. Foreigners with investments in the UAE of at least 10 million dirhams have also been offered renewable 10-year visas if non-real estate assets account for at least 60% of the total. “The landmark visa announcements are the clearest indication yet of the UAE government’s commitment to delivering an economic future that relies on human capital, rather than oil,” says Faisal Durrani, head of research at Cluttons, a London-based investment adviser. With its glitzy infrastructure and top-paying jobs, the UAE has been drawing foreigners to its shores for decades, and they now make up more than 80% of its population. But while expats have been an integral part of its economy, they are only welcome if they can work until the age of 60 – with an option to work until 65 with special government approval. “The UAE wants expats to settle here and stay longer so that they can invest. This helps the UAE further strengthen its economy and particularly stabilise demand in the real estate market, which has been volatile lately”, says Steve Cronin, founder of Dead Simple Saving, a Dubai-based investment portal primarily for expats. By offering long residency, experts add, the UAE is hoping to boost consumption from within, which in turn will not only invigorate economic growth, but also curb the flight of expats following the region’s economic slowdown in the post-low-oil-price era. Crucially, long-term visas would help in stemming part of the estimated $45 billion – or about 10% of its GDP – remittances invested abroad every year by expats. If a fraction of that is retained in the UAE, it would lead to huge growth. Tilting the balance?
While it is true that the reforms are revolutionary, could they be transformational for expats planning to retire in the UAE? Few seem to think so. “The new rules should encourage inward investment and should give both individuals and companies added confidence in the UAE, [but] I don’t see that it will be a game-changer”, says Dubai-based Keren Bobker, an independent financial adviser and senior partner at Holborn Assets. Cronin, meanwhile, notes that although expats are willing to retire in the UAE for the time being, the new visas do not offer the same benefits of a national, and post-retirement life is not going to be the same as that of an employed expat. “The UAE offers tax-free living, which is a huge advantage for saving faster. But after you have retired and stopped earning, the UAE is not a cheap place to live. There are far cheaper places, like Thailand, eastern Europe and even some parts of UK, to retire to than the Gulf countries,” he says. Expats say living costs have soared over the past five years, with inflation driven primarily by rising housing cost, utilities, transportation, food and groceries, and school fees and child care. In August, Swiss bank UBS ranked Dubai as the priciest nation in the Gulf Cooperation Council. “If an expat does not have sufficient savings to cover the high cost of living, I would not advise retirement in UAE,” says Cronin. “I would also dissuade expats who would just scrape through the financial criteria, because they could soon find themselves dipping into their cash reserves,” he adds. This is why the general sense is that the options for full ownership of onshore companies, longer-term visas for specific occupations, and the potential to retire in the UAE should have a more significant impact from the perspective of corporate investment and the property market, than for individual expats. “The new rules allowing expats access to a five-year visa will be extremely beneficial for those who have established businesses and own property in the UAE, as they now do not have to investigate exiting their business or selling UAE property holdings at retirement,” says Dubai-based Stuart Ritchie, director at AES International, a global wealth advisory firm for expats. A boost for wealth advisers
The financial criteria specified for eligibility provides an interesting twist. “Ultimately, the retiree visa will be beneficial for suitably qualified and regulated firms and advisers, as retirees will seek independent advice on the most efficient ways to structure their wealth to continue to meet the qualifying criteria throughout their retirement,” says Ritchie. Regardless, independent financial advisers are still suggesting their expat clients show prudence. As Ritchie explains: “Although it is likely that [expat] investors will give greater consideration [now] to UAE-based investments, the tried-and-tested ABC rule is still prudent: ‘If you come from country A, reside in country B, you should bank in country C,’ as most retirees will still have multi-currency liabilities outside of the UAE and income from foreign pension sources, despite now being able to stay in the UAE during retirement.” Local markets are also still volatile, economies still driven primarily by oil and inheritance laws and procedures are not always straightforward. Those who must stay in the UAE, says Cronin, should invest at least partially offshore to ensure their cash savings and investments are sufficiently diversified and resilient to geopolitical risk, local market challenges and regulatory changes. After all, despite being classified as an emerging market since 2014, expats must remember that many, including global investment houses, “still consider the UAE a frontier market in investment terms,” points out Bobker of Holborn Assets. Moreover, at the end of five years, an expat will have to seek renewal – but the country has yet to guarantee that new visas will be available. “So although [the new visa rules are] improvements on the current system for older residents, these are not permanent visas, so they do not allow for permanent retirement in the UAE,” Bobker adds. “Any sensible investor should follow diversification in a portfolio covering a number of global markets.” The good news is that the UAE is determined to boost its competitiveness as a global destination in terms of entrepreneurship and innovative industries and “has no finish line”. “Even with the various new rules, changes don’t happen overnight, but the steady amendments to the benefit of residents and investors will have an effect over time,” adds Bobker. Experts say the reforms are an enlightened attempt to put the UAE on an even footing with global destinations, while helping to foster a greater sense of belonging among expats. ©2018 funds global mena

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