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Expat Briefing Editorial Team, 13 January, 2014
While the city's image sustained something of a bruising in the global financial crisis as the property bubble popped, Dubai's confidence is now most definitely on the up with the economy in rebound mode and investors falling over themselves to snap up new real estate developments. With taxation still virtually non-existent for expats and locals alike, Dubai remains a strong attraction for foreign workers, and this week's briefing gives the low-down on the "City of Gold."
Where And What Is Dubai?
The city, one of the seven Emirates making up the United Arab Emirates, is a shimmering collection of skyscrapers and spectacular architectural structures rising out of the desert sands at the eastern end of the Persian Gulf, including the 828-metre Burj Khalifa tower, the tallest in the world.
The city has grown rapidly in recent years from a sleepy fishing port to a wealthy and decidedly cosmopolitan and modern location. Dubai's population has increased tenfold since the 1960s to approximately 2.1 million, and now hundreds of hotels accommodate the expat workers and tourists who help run the economy - tourist arrivals reached 5.5 million in the first half of 2013, 11 percent more than during the same period in 2012. Local emiratis make up a mere one-fifth of the population with Indians, Pakistanis, Iranians and Southeast Asians and latterly westerners choosing to make Dubai their home. The population remains predominately Muslim, and Arabic is of course the official language but English is widely spoken as are Urdu, Malayalam and from the Philippines, Tagalog. However, in contrast to growing hostility towards western values elsewhere in the Middle East, ethnic and religious tensions are rare and Dubai has gained a reputation as something of a safe haven where westerners can go about their business without fear of attack, and crime in general is very low.
Dubai's desert climate ensures plenty of year-round sunshine, with temperatures regularly exceeding 40C in the summer, and 30C in the winter making the city and its locale a very popular choice as a second or holiday home location for Europeans and Americans, especially since ownership rules have been relaxed to allow foreigners to buy property in Dubai.
The city's rapid growth as a financial and commercial powerhouse has also spawned the rapid development of impressive leisure facilities such as golf courses and hotels (including the world's first seven star rated hotel, the Burj Al Arab). When combined with its coastal location and attractive beaches, Dubai has become one of the world's premier tourist destinations. As a result, the city is served by good transport links, both by air - Dubai International is an important regional hub, and the emirate will soon be served by the huge six-runway Al Maktoum Airport - and by sea.
The Economy and Work Opportunities
Employment opportunities for foreigners in Dubai are legion. Indeed, the city wouldn't have achieved its spectacular growth without the help of foreign expertise. While the oil industry has been a traditional source work for foreign employees and contractors all over the Middle East, including the UAE, the expansion of the city of Dubai created the need for huge numbers of construction workers and civil engineers. Finance is also a significant component of Dubai's economy, with the city now considered a vital cog in the world financial machine between the European and Asian time zones; the Dubai International Financial Centre, one of Dubai's 20 or so free zones, was launched in 2006 and is now home to over 1,000 companies, including 19 of the world's top 25 banks, 11 of the top 20 money managers, eight of the top 10 insurance companies, and six of the top 10 legal firms.
With what must have seemed like limitless oil reserves, Dubai's ruling family consciously set out to create a modern, diversified economy. Jebel Ali, home of a huge man-made port, has the largest free-trade zone in Arabia, housing an ever growing list of international corporations which use the zone for both manufacturing and as a redistribution point. In 2012, the Jebel Ali Free Zone accounted for around 20 percent of Dubai's economy and almost 13 percent of its labor force, employing 170,000 workers and housing 6,700 companies.
Following the success of the Jebel Ali free zone, the government has developed Dubai Internet City (DIC), which has a highly developed technical infrastructure. The DIC occupies 3,200 hectares in the South of Dubai, near the Jebel Ali Free Zone. It offers state of the art facilities and sites for manufacturing, offices, housing, and academic, research, distributions and logistics institutions.
In 2013, the Dubai Multi Commodities Center (DMCC) overtook the Jebel Ali Free Zone to become the largest and fastest growing free trade zone in the UAE. An average of 200 companies join each month, with 94 percent staying. The center now has more than 7,330 active registered companies.
In many ways, the DMCC's expansion plans reflect Dubai's highly ambitious outlook. These include a new business park and proposals for the world's largest commercial tower designed to attract large multinational corporations seeking to expand into new markets.
Taxation - Or Lack Of It!
In Dubai, no personal income tax is deducted from wages and salaries paid to employees or on other income earned. There is also an absence of other taxes found in many other countries, such as capital gains tax, social security contributions, withholding tax and sales/value-added tax. Most companies also do not pay tax on their income (freedom from corporate tax and many other regulations is guaranteed for 50 years for free zone companies), with local banks and oil companies being the exception to the rule.
It may not have been the original intention of Dubai's rulers to create a major international real estate centre; but it happened to them nonetheless, originally because of the need to provide accommodation for the swelling numbers of expatriate workers sucked in by the infrastructure construction programs. Eventually the real estate sector took on a life of its own, and the financial problems which beset the Emirate can be traced to this cause. The rulers created Dubai World as a quasi-state financing agency for real estate development, and when the Emirate was infected by the world-wide property collapse in 2008, it was Dubai World that was found to be over-extended. After property values fell by 50 percent in just 12 months, the chickens finally came home to roost in November 2009 when Dubai World announced a debt moratorium for at least six months. In total, property values declined by about 60 percent between 2008 and 2010.
With new developments adding to the supply of real estate all the time, few people were optimistic that the property market in Dubai would return to its glory years, and values remained relatively depressed until around 2012. However, confidence appears to have returned to the sector in spades, and some analysts are predicting double-digit growth for the UAE property markets as a whole. Indeed, in November 2013, the International Monetary Fund was warning of a new property bubble in Dubai as house prices have soared over 20 percent in the past year. Demand for apartments in new developments is reported to be running very high, as demonstrated by the hundreds of people who queued in the heat for two days before an Emaar property launch in February 2013. It has also been reported that there has been a notable increase in property 'flipping' whereby investors buy properties off-plan and sell them on at a profit before the first brick is even laid. It seems that landlords are also taking advantage of the situation, with some property owners said to have hiked their rents for vacant apartments by as much as 40 percent in the past year. It is a concern that the authorities appear to be taking quite seriously, and in September 2013 the government announced it would double the registration fee for real estate transactions to four percent in a bid to rein in speculation. The central bank of the UAE has also imposed limits on mortgage loans, although the bank does not believe that a house price bubble is forming. It remains to be seen however, if Dubai property investors' exuberance is of the irrational type.
So what can you expect to get for your money in Dubai property-wise? Well, as in most markets, there is a great deal of variation depending on property type and, more importantly, location. In January 2014, the cheapest studio flat in Nakheels' International City, seen as one of Dubai's less desirable developments, is AED810 (GBP134) per square foot, for a selling price of about AED320,000. In the more prestigious Downtown Dubai you will be lucky to find an apartment for sale at below AED1,500 per square foot, and the cheapest studio apartments in this area sell for well in excess of AED800,000. Studio apartments on the artificial Palm Jumeirah island are currently selling for over AED1.3m.
Buying Property In Dubai
Buying property in Dubai is a relatively straightforward business, and there are many estate agencies and consultancy services catering for international buyers such as expats, those in search of a second home and investors hoping to earn rental income and/or capital appreciation. Financing a property purchase in Dubai will vary depending on which developer one buys from, one's own budget and financing options available at the time. A typical financing structure from a Dubai-based developer might involve: a 10 percent deposit payable on signing; a further 10 percent after 30 days; five payments on each stage of construction; and a 20 percent final payment upon completion. Alternatively, if a more flexible payment term is needed, then it is possible to obtain a longer term mortgage. Some developers and agents will also have struck deals with locally-based banks to offer more favourable terms. In general, access to mortgage financing is more restricted than previously, as is the case just about everywhere.
For a fixed-rate loan, repayment periods typically vary from five to fifteen years in length, and rates usually rise as the term progresses. Floating rate mortgages are typically available on loans of between fifteen and twenty-five years. If employed, mortgage payments are made via a salary transfer while self-employed buyers meet payments by writing a post-dated cheque or by a standing order. Overseas residents have traditionally paid a slightly higher interest rate than residents.
It has been a long time in coming, but towards end of 2013 the Dubai government finally announced that it would begin rolling out a new system of health insurance from 2014.
Under the new Health Insurance Law, employers will be responsible for providing health insurance for all employees, including expat workers. The Government will be responsible for providing coverage for Emirati nationals.
The introduction of compulsory medical insurance will be phased in over two-and-a-half years. Although the law is effective as of January 1, 2014, employers with more than 1,000 employees are not required to comply until October 2014, while employers with 100-999 employees must comply by the end of 2015. By the end of June 2016 all employers must be in compliance with the new law, including free zone companies. It will be the responsibility of the sponsor to ensure that family members, dependants and domestic workers are covered.
Health insurance cards will be valid for one year and will have to be renewed annually. It will be the employer's responsibility to ensure that insurance schemes are valid and up to date. Having valid health insurance will become a requirement for residency visas.
Violations of the law will risk a minimum fine of AED500 and a maximum fine of AED150,000, while those with repeat offences could be hit with fines of up to AED500,000.
According to international consultancy firm Mercer, the average cost of the Basic Health Insurance Benefit for workers earning less than AED4,000 per month is expected to be AED500-700 per year. The overall impact of the law is estimated at 1.5 percent of payroll on average.
Immigration And Visa Rules
Citizens of GCC countries (Gulf Cooperation Council: Saudi Arabia, Kuwait, Bahrain, Qatar and the Sultanate of Oman) do not need visas to enter the UAE. Everybody else needs a visa. However free visas, valid for 30 days are granted on arrival for:
It should be noted that this list may vary slightly from time to time and it is therefore best to check with your local UAE embassy or the airline that you are using to fly to the UAE before travelling. If you do not fall into one of the above categories, you will require a visa and a sponsor for your visit. The sponsor normally applies for the visa on your behalf.
Changes were made to Dubai's immigration rules in 2008, and there are now more than a dozen types of visas available depending on the purposes of the visit. Most visit visas for non-GCC residents are valid for either 30 days or 90-days and cost from AUD100 (including tourist visas and permits to attend exhibitions and conferences lasting 30 days) to AED2,000 for the multiple entry visa, valid for six months with each stay extending for a maximum of 14 days. A Mission Visa is issued to businessmen and highly qualified professionals, entitling them to stay for 16 days from the date of arrival. The long-term visit visa entitles you to stay in the UAE for 90 days and costs AED1,200. All visas require clear passport copies of the sponsor and the sponsored person. For visit visas, valid sponsors include hotels and tourist companies, and relative and friends already resident in the UAE.
If you have entered Dubai on a visit visa and you wish to work then you should get a probationary work permit, valid for up to 3 months, from the Ministry of Labour. If you don't get this permit and are caught working while on a visit visa, then you risk being jailed or fined and deported.
If you apply for a residence visa, you will have to take a blood test. Those testing positive for HIV or hepatitis are detained and then deported. There is no appeal process.
UAE employers may ask foreign employees to deposit their passports with the company as part of the terms and conditions of employment. While this is not an unusual practice, it is illegal under UAE labour law.
You should cancel your work visa before leaving the country permanently. If you don't do this, you risk being reported as an absconder and could be arrested if you return to the UAE, even if you are in transit to another country. Failure to repay debts or resolve any outstanding cases against you may also result in your arrest on return to the UAE.
For further information on Dubai's visit, residence and work visa rules, please visit the General Directorate of Residency and Foreign Affairs-Dubai.
Additional information of interest to expats and foreign investors in Dubai can be found on our partner websites lowtax.net and tax-news.com, including the Lowtax Dubai Knowledge Base and the Tax-News jurisdiction page for Dubai.