THE ECONOMIST: Where expat escapees from Dubai end up as Middle Eastern war tarnishes tax haven

Life in Dubai used to be about as blissful as white-collar expatriate existence gets. The private schools are good, beaches pretty, flight connections plentiful and booze legal (so long as you are not Emirati or Muslim).

Expats face no income tax, so no pesky inspections of their finances; no ostracism, so Chinese crypto millionaires and Russian oligarchs can mingle with Western bankers, Arab property moguls and Israeli entrepreneurs; and no rain, so the only thing they need to worry about is the SPF factor of their sunscreen.

All that remains true nearly three months after America and Israel attacked Iran across the Gulf. But those advantages must now be weighed against the risk of Iranian missiles and drones raining down on hotels, condos or, as appears to have been the case on May 18th, the sole Emirati nuclear power plant.

Although most of these strikes have been intercepted before they could do real damage to Dubai and other parts of the United Arab Emirates (UAE), many footloose foreign residents have scattered rather than wait for more projectiles to evade the country’s defences.

A few nabbed seats on the last flights out to America or Europe. Others drove hours to Muscat, in neighbouring Oman, in search of alternative escape routes.

Many hoped to return once the hostilities ceased. As these drag on, however, plenty are casting around for a new, more peaceable bolt-hole. Where are they headed? And will they ever return?

The UAE does not disclose detailed statistics on foreign residents but estimates suggest that before the war perhaps three to four million of the country’s 12 million people were well-heeled outsiders and their families. More than 240,000 of them were millionaires.

Dubai received the lion’s share of these arrivals. It is now likely to account for an outsize proportion of the departures. Dominic Volek of Henley & Partners, which advises the footloose affluent, reports that enquiries about other jurisdictions from UAE-based residents have risen by more than 40 per cent in recent weeks.

More than 35 countries are now competing for the rich and enterprising, says Jean-François Harvey of Harvey Law Group, a global firm of immigration lawyers.

Longstanding destinations like New Zealand (“at the end of the world, mostly self-sufficient and outside a nuclear blast radius”, in the words of one consultant) and Malta are getting competition from places like the Maldives, which is launching a permanent-residency-by investment scheme this year, and Argentina, which is soon expected to offer deep-pocketed investors citizenship.

On April 24, Turkey proposed a 20-year exemption on foreign income and capital gains for some foreigners; Mr Harvey says that since the war began about a dozen clients have acquired Turkish citizenship by buying a house there.

One particularly popular spot, according to many advisers, is Milan. “There is an increase in the movement of people out of Dubai,” confirms Roberto Bonomi, a tax lawyer in Milan at Withers, a British law firm catering to the wealthy.

Diletta Giorgolo of Sotheby’s International Realty, a posh estate agent, says that interest in Italy from the Gulf has shot up in recent months, compared with a year earlier.

What were initially mostly requests related to temporary rentals are increasingly connected “not only to short-term considerations, but also to longer-term lifestyle and investment planning”, she explains.

In contrast to sleepy rival destinations, Italy’s capital of both fashion and finance has the bling and the business networks for those who still want to enlarge their fortunes rather than merely spend them.

In recent years American hedge funds such as Millennium Management have set up shop in the city to let their wealthy traders and portfolio managers take advantage of Italian tax incentives for high-earners, who pay a relatively modest annual €300,000 ($488,000) lump sum on their entire foreign income.

Parents can now pick between American, British, Canadian, French and German international schools. The weather is tolerable, too.

EU citizens can move to Milan at their leisure, which is why the city is particularly popular with Dubai’s European transplants, says Mr Bonomi.

For non-Europeans the most common way to secure residency in Italy is to put €250,000 ($407,435 AUD) into an Italian startup or €500,000 ($814,870 AUD) into a more established Italian company. Alternatively, you can donate €1m ($1.6m AUD) to an Italian charity or park €2m ($3.2m AUD) in Italian government bonds.

An appealing alternative, especially for Asians, is Singapore. The city-state has lost out to Dubai in recent years among heavy-hitters from India and mainland China, drawn by the emirate’s unabashed glitz, permissive rules and business opportunities in the property sector.

Singapore’s stricter social mores and the government’s obsession with a squeaky-clean image made it seem stuffy by comparison.

Singapore’s buttoned-up image, combined with efficient government, a predictable legal system and established wealth-management infrastructure, now looks like a strength.

Big Singaporean banks, such as OCBC, are reporting an uptick in net wealth inflows from Dubai. Singapore’s gold imports from the UAE have quadrupled since January as the rich shuffle their bullion stockpiles.

Ryan Lin of Bayfront Law, a firm in Singapore, says new client inquiries have shot up by a third in the past two months. His existing clientele, primarily made up of new-money mainland Chinese, are increasingly interested in leaving the Middle East. Rich Indians, 3500 of whom leave the country each year with $US1m ($1.4m) or more in the bank, are giving Singapore another look. Mukesh Ambani, India’s richest man, opened a family office there in 2022.

Places like Milan and Singapore, for all their virtues, are not perfect substitutes for Dubai. Russian plutocrats are frowned on in Italy (or the rest of Europe) while Vladimir Putin wages war on Ukraine.

Other wealthy foreigners may fear that next year’s elections could usher in a government that abolishes the flat-tax regime. Even the current, rich-friendly one felt obliged to raise the tax on foreign income from an initial €200,000 this year ($325m).

Singapore, for its part, levies a proper income tax of 24 per cent and charges foreigners an eye-watering surcharge on property sales. It has also tightened its rules in the wake of a $US3 billion money-laundering scandal in 2023, and might be nervous about letting in a rush of dodgy money from Dubai without careful vetting.

A law passed in 2024 lets the police prowl through tax and customs data. In recent years 80 per cent of licence applications by crypto firms in Singapore were shot down or withdrawn, according to the Financial Action Task Force, an anti-money-laundering watchdog.

“Some investors liked the Emirates because they didn’t ask too many questions,” says a private banker in Singapore. Moving their wealth to the Asian metropolis might feel like a “proctology exam”.

“I think crypto wealth will stay in the Middle East,” reckons Mr Lin. So will some others. Foreign wealth managers, themselves a loaded bunch, need to be close to their clients, says one who expects his firm’s pinstriped legions to return to Dubai before long. Many foreign firms that allowed similarly well-off employees to work from home in the first months of the war — even if, in the words of one bank boss, for some home meant Milan or London — expect them to get back to the office in Dubai.

“Time is a great healer,” sums up another wealth manager. Perhaps. But the longer the wound of war remains open, the likelier expats are to be scarred by the experience. In the meantime, many will prefer to convalesce someplace less hot.