It’s time for expats to have investment, savings plan

They must organise finances to maximise benefits of UAE tax-free income

By Muzaffar Rizvi - Business News Editor

Published: Thu 11 Dec 2014, 12:05 AM

Last updated: Fri 3 Apr 2015, 7:25 PM

Expatriates working in Dubai and Abu Dhabi should think about a robust financial plan as well as consider a balanced and diversified investment portfolio as they may face hidden costs and high prices that could offset the benefits of working in a tax-free environment in the UAE, according to an expert.

Marcus Gent, managing director, Middle East and rest of the world at Friends Provident International, underlined the importance of financial planning for expatriates to reap the benefits of working in a tax-free environment in the UAE. He said the cost of a quality education and property buying in the emirate can mitigate to a large extent through careful financial planning and disciplined savings.

“The costs of education and accommodation are key considerations for anyone moving to the UAE with their children. I would encourage anyone making the move to the UAE to take professional financial advice and construct a savings and investment portfolio to offset the costs of education, and the other ‘hidden costs’ of living and working here,” Gent told Khaleej Times during an interview.

Friends Provident International, part of the Friends Life Group, is authorised by the UAE Insurance Authority to conduct life insurance and savings business in the emirate. It has more than 35 years of international experience and offices in the UAE, Hong Kong, Singapore and the Isle of Man, and more than 400 staff worldwide. It provides competitive life assurance, pensions and investment products for Asia, Middle East, Europe, UK and other selected markets.

Affordable living

Gent, who recently moved to the UAE from the United Kingdom, said the cost of living in Abu Dhabi and Dubai is still very affordable for expatriates amid considering the benefits of tax-free income in the UAE. “Apart from the costs of education and accommodation, the cost of living in Abu Dhabi and Dubai compare very favourably with other major cities.”

Referring to the Provident’s white paper launched recently, he said the cost of living in Abu Dhabi and Dubai is around 40 per cent less than Sydney while the gap is less pronounced, but still significant for London and New York [25 per cent to 30 per cent].

“This does not include the cost of accommodation and property purchase or rental – which are the two things that expatriates living and working in the UAE find the most challenging. The lack of mid-range accommodation means that most expatriates are forced to pay more than they normally would for accommodation and this eats into the savings they make in tax.”

Elaborating, he said thatan expatriate earning $100,000 in the UAE realises the full amount without any tax deduction. Elsewhere the same salary would result in a take-home pay of just $66,000 in the US, and just over $70,000 in the UK, India and Australia. Higher earners typically face a bigger tax deduction. Overall, a single person earning a gross salary of $100,000 in New York can enjoy the same standard of living (and spending) on less than half that amount in UAE.

He said the white paper’s estimates are based on the Economist Intelligence Unit’s basket of goods and services – which compares 50,000 prices across 160 products and services in 130 countries.

UAE a great place

“I can thoroughly recommend the UAE as a great place to live and work, but anyone planning to make the move, or already working in the country, needs to look beyond the tax-free income, assess the overall costs and plan accordingly,” Gent said.

“One of the biggest draws of the UAE is the tax-free environment of course, but it is important for people to think about how they use the savings they are making by not having to pay tax. There are lots of opportunities to spend money in the UAE and people should make the most of the time they have here.However, the temptation for some can prove too much to handle and they end up in debt.I’m not saying that people shouldn’t have a great time, but they should never lose sight that their families’ stability in the future will depend on the choices they make now,” he said.

“I would encourage everyone to engage with a professional financial adviser and have a complete financial health check, to make sure they are making the most of the money at their disposal, and planning their financial future in a robust and structured way. “I recommend that everyone should build a balanced and diversified portfolio of investments – both in terms of asset class and geographically – to make sure they maximise the opportunities they have to build a significant nest egg while working in the UAE.

Rising rents, inflation

Asked tax-free income will help retainexpatsfrom Asia in the region despite high rent and inflation, he said it’s not just Asian expatriates who are affected by the high costs of living here, everyone is!

“But we know from the white paper and other research we have carried out that many Asian workers remit large percentages of their disposable income to their home country to support their families, or invest for their future.The impact of inflation will, therefore have a significant impact on this demographic and the percentage of salary they are able to send home could reduce.

“Of course rising rents and inflation could mean that many people have to re-consider their tenure in the country altogether.However, this will still largely depend on how the opportunities in their home countries compare with the benefits they are able to secure here,” he explained.

Savings, pension schemes

To a question about importance of saving plans or pension schemes to help encourageexpatsto live in the UAE, Gent said: “You’re asking this question of an Actuary, so you won’t be surprised to hear me say they are absolutely vital! I know there have been attempts in the past to introduce a pension scheme for expatriates in the UAE, but this hasn’t achieved the necessary traction so far.

“Therefore, as I have said earlier, people need to take personal responsibility for their finances and build a robust financial plan of what they want to achieve, and a balanced and diversified investment portfolio.”

He said each person is different in terms of what they have accumulated already -- or what they want to achieve -- so “I would encourage everyone to take professional advice to maximise the opportunities that earning a tax-free income offers”.

Gent said a lot of Europeans, Australians and Americans arriving in the UAE will have left company pension schemes where they haven’t had to think about saving –their contributions would have been automatically deducted from their salary before they received their pay cheque. In the UAE, they have to take personal responsibility for their financial future and make their own provision for a comfortable retirement.

“The longer people delay making that provision for their long-term future, the more it will cost them in the long run.I always think of the analogy that saving for retirement is like a plane taking off and having to fly over a mountain.The sooner the plane begins a smooth ascent while the mountain is some way off, the less fuel it is likely to need to get over the mountain.If you leave it late you will use considerably more fuel, and if you don’t have enough on board you risk crashing into the mountain!”

“The UAE Insurance Authority has published a list of regulated financial advisers on their website, and so I would encourage anyone in need of appropriate advice to contact one of these advisers, who will be able to recommend a range of suitable savings and investment plans from an appropriately regulated life insurance company,” Gent concluded.

—muzaffarrizvi@khaleejtimes.com