At first, social media influencers were showing off loud parties on yachts to their followers who were stuck at home due to the pandemic. Then, Russian money started coming in, as they looked for places to store their wealth without being affected by sanctions due to the Ukraine invasion. Now, it seems like wealthy Western hedge fund managers are moving to Dubai, as the city and its neighbor Abu Dhabi are attracting rich and powerful people with the promise of no taxes, less strict rules, and a time zone that’s convenient for working with Asia.
Even though hedge funds haven’t been doing as well recently, there’s a good chance that the Gulf region will become a popular place for rich and skilled people, especially as the world becomes more influenced by politics and wars. This could cause problems for Western tax agencies, especially at a time when budgets are tight.
Dubai’s last attempt to become a global financial center ended in a debt-filled real estate bubble. But now, the UAE has world-class attractions and is seen as a new hotspot for hedge funds, especially as old financial centers can no longer offer as much privacy or access to certain bank accounts. Many hedge funds are thinking about getting a license in Dubai, which doesn’t have personal income tax and is seen as a friend to both Western and Eastern countries.
Moving jobs from Brexit used to mean a win for the EU, but now it could also mean a win for the UAE. The EU might become frustrated if this trend continues and could cause tax bases to shrink. There’s also the issue of potential sanctions and the risk of money laundering. Trade between the UAE and Russia has increased, with oil and precious metals coming into the UAE and microchips and drones going to Russia.
But the UAE is not just a simple tax haven. It’s trying to balance things out by implementing a corporation tax for the first time to diversify its income sources away from oil. It has also responded to Western sanctions by closing Russian banks. The UAE benefits from its unique position between East and West and is willing to use its wealth to achieve its goals. Its position has given it leverage, with countries like Germany and the US needing its help.
As a result, it might be harder to get countries to agree on personal taxes, and the US might be the only country strong enough to tax its citizens no matter where they live. To discourage people from moving their money, there might be a rise in exit taxes. This would be a simple solution, and according to Pascal Saint-Amans, former tax chief at the OECD, it could help fight inequality by taxing rich people more fairly.