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Pensions for Expats in the United Arab Emirates

Submitted: December 2013

Unless you’re an Emirati citizen, there is no socialised pension system in the UAE. As there is no income tax, there are no tax-efficient private superannuation schemes either.

Needless to say, you’re better off saving for pensions privately to avoid unnecessary pension fund administration fees and taxation at pay-out level if you eventually intend to leave the UAE. If you don’t feel confident enough to invest for yourself, feel free to resort to a traditional investment fund rather than a superannuation fund.

It should be noted, however, that UAE labour law requires employers to provide End Of Service Benefits (EOSB). This may or may not encourage them to offer private pension schemes instead of a lump sum payment, for example to make their long-term liabilities more predictable.

Apart from these matters, the key pension issues for expats in the UAE relate to their existing arrangements back home. Retaining your foreign pension arrangements may be the most practical option if you don’t intend to stay in the UAE, but it’s best to avoid on-going contributions to an overseas pension scheme while you are in the UAE.

International superannuation planning

Countries with an income tax system have generally enacted pension scheme regulations, whereby superannuation schemes are tax-efficient products. Thus, they are heavily regulated in order to avoid undue tax base erosion.

Typically, capital growth within the pension pot is tax-free or low-taxed, and:

  • contributions are tax-deductible whereas payouts (or part thereof) are taxable, or
  • contributions must be made out of your after-tax income, but payouts are not taxable in the country where the contributions were made (but they could be taxed by another country if you retire in that other country)

The former may (or may not) provide for international tax planning opportunities, particularly if the UAE has a tax treaty with the country in question, as tax treaties generally attribute the exclusive right to tax pension pay-outs to the country of residence. On the other hand, the latter provides for strong double taxation risks if you are internationally mobile.

The UAE can play an important part in international tax planning as there is no income tax in the UAE. As a result, you can consider deferring the taxable event until after you become UAE resident, even though your income was economically made before turning UAE resident. Regarding pensions, it is theoretically possible to claim tax relief in a country you previously worked in (through tax-deductible contributions made to a qualifying pension fund whilst you worked there), and then move to the UAE to claim your pension benefits there.

Be aware, though, that this international tax planning scheme does not work unless it is tolerated by the country you come from, which should absolutely not be taken for granted. Nevertheless, cross-border superannuation planning is always on a case-by-case basis. It is strongly recommended to seek professional advice regarding this matter.

 

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