What I Learned from Traveling to Dubai and the UAE
Hope everyone is having a wonderful start to the holiday season. More than anything, Thanksgiving is the time of year I look forward to the most since I love cooking the feast and of course, eating delicious roasted turkey with the family.
I’ve been absent from this blog for the past month as I was on a very long trip to the UAE and Armenia. If you ask anyone who knows me well, they would say that the number one thing I love more than anything is to travel the world, as it is one of my biggest passions and I spend a considerable amount of time flying around to learn more about people, cultures, and business environments (sorry I can’t help it, learning more about business somehow relaxes me). Since we do tax planning here at Advise RE, I’m sure you’re wondering what this post has to do with saving you tax dollars. Quite a bit, as you shall see.
Overview of the UAE
From a free market perspective, UAE holds one of the most promising business environments in the world. Since the country is primarily geared towards the promotion of immigration to its country, the country’s leaders have designed a robust, streamlined system to bring in the best of the best from around the world to setup shop in the country.
You can see this almost immediately once you arrive at the airport, with facial recognition software processing a huge portion of the inbound travelers through immigration. The entirety of Dubai is almost virtually cashless and all payments can be processed via Apple/Android pay. Cabs and Ubers are plentiful, car rental is relatively inexpensive as compared to the US, and the streets and freeways are clean and almost have no potholes or even imperfections on the pavement. That being said, driving in Dubai is one of the most maddening experiences. Inexplicably, for all of the planning around the rest of the economy, it seems as though the use of civil engineers was not considered when planning the city. Missing a turn in the city can easily cost you an extra 20-30 minutes of driving time during traffic and can be heartbreaking when you see your destination so close in sight, yet so far, as the wrong fork you took results in you having to backtrack to some other part of the city. Really bizarre, but after a few weeks I learned to make less mistakes on the road and could reasonably navigate the city.
As it relates to government services, UAE took the approach of designing an app for basically everything. Your link to the government services is done through UAE Pass, you can settle traffic fines (which you will get from the numerous road cameras, randomly, just accept it) through a police app, and all government services are very automated through various web portals.
Since we are expanding our business in the future to include more integration with the UAE, we established a subsidiary corporation in the country remotely, and I was able to able to obtain an Emirates ID (equivalent to a US visa) within 9 days of my arrival to the country. I challenge you to find another country on earth where you can get so much done in so little time! What this means is that compared to other countries, getting established in UAE is a relative breeze.
Real estate is reasonably affordable, at least compared to major cities like Los Angeles or New York. Since there is ample room to build and the government is very pro-development, high rise condominiums and residential neighborhoods seem to spring up on a daily basis. This actually causes an interesting effect on older properties which we’re not accustomed to here: new construction tends to suppress or reduce the value of older residential stock, particularly in areas that aren’t as well established as Downtown or the Marina in Dubai. It’s actually proof positive that lots of new development makes overall housing more affordable!
Why Establish a Business Outside of the US?
For a number of reasons, establishing your business outside of the US can be beneficial to you from an economic perspective. First, you can tap into new customer/client bases where your goods/services may not have the same level of competition as you would here. Second, you can dramatically reduce your tax bill through proper structuring which I describe here, of which the funds not paid towards your tax bill can be used to invest in things like real estate. Finally, it always is a good idea to diversify where your assets are physically located to mitigate risk.
On the UAE side, income tax for individuals is 0% (yep) and corporations are generally 0% up to around $300,000 USD (don’t hold me to this number), at which point it ramps up to 9%. This helps make life somewhat simple in terms of planning for the use of foreign tax credits. That leaves US taxes, which I discuss in this article, at a low rate of around 10.5%. As mentioned in the article, the facts and circumstances need to be aligned to ensure you can access the tax rates at the Global Intangible Low Taxed Income rates under 951A, but with careful planning it’s very achievable.
I should also mention that I probably saw more Lamborghinis than I did Toyota Priuses in Dubai. There really is a lot of money flowing through the city as people from all over the world flocked to it to grow their businesses. Being in a country with easy access to the rest of the world via plane and a streamlined regulatory environment mean that the opportunities are numerous to achieve a good business networking and client base.
Lastly, I should mention that in an ever changing world where things seem to be a bit unstable, having assets in different countries spreads your risk and gives you greater flexibility in the long term. I’ve always been a proponent of diverse investment and income streams, so where the assets reside is also an important consideration as well. From a US perspective, having assets parked overseas will increase your reporting requirements to our government, but very worth it for that extra piece of mind.
Summary
I should have mentioned that in no way, shape or form, do I work for the government of the UAE, so the intention of this article isn’t to promote the country. Rather, this is to give you a perspective that there are many more countries outside of the US that present great opportunities to expand your business and improve your overall tax outcome. We are firm believers that the two best areas of the US tax code that help taxpayers save money are through real estate and international tax strategies. If you find yourself interested in exploring more about using the UAE, or any other country, as a strategy for your business or personal life, then reach out to me here.
Happy Holidays to everyone!
