The lure of earning tax-free cash pulls thousands of expats to the glass and steel high-rise city of Dubai that rises out of the Arabian desert as a glinting beacon in the sunlight. Life is good in Dubai, but financial advice in Dubai is a must.
Money may not solve all the world’s problems, buy love or help with happiness, but money can make the days pass easier. But it’s no good piling up the cash if you don’t have a plan.
Your working life doesn’t last forever, and at some time, you will want to retire to spend your time pursuing personal goals or simply just relaxing.
Dubai Financial Advice
Taking good financial advice in Dubai is one way to boost your choices to save, invest and eventually spend your money. It’s all about choice and money can help expand your options. That’s why you need to know how financial advice works in Dubai.
Where there’s money, you will also find scams and crooks ready to prey on unwary victims.
A good financial adviser will guide you through the dangers to a golden future.
How Dubai Financial Firms Are Regulated
So, as an expat, probably your first step is to locate a good financial adviser, especially if you are new to Dubai and the way the local financial services sector works.
Avoid the shady know-it-all lurking in social clubs, bars and anywhere else expats congregate to relax.
What you need to know is how to identify the right person for the job.
Besides checking if advice givers are licensed and authorised, make sure they are qualified to give you the guidance you are looking for.
For example, a mortgage broker cannot give sophisticated investment advice, while a bank adviser cannot talk about products offered by other financial organisations.
Trust and your financial adviser
The other important factor is that you can work long-term with your financial adviser.
The relationship may last for many years, like a trusted friendship or even a marriage. If you do not get along with your adviser, the relationship is likely to fracture sooner and put you back by having to search for someone else to work with.
Financial services in Dubai has three layers of regulation:
- The Dubai Financial Services Authority (DFSA), which has an independent adjudication service to handle complaints but no compensation scheme within the Dubai International Finance Centre
- The United Arab Emirates Insurance Authority, which covers Abu Dhabi and the other emirates as well as Dubai. The body has no disputes procedure or compensation scheme
- The Emirates Securities and Commodities Authority (SCA), which again covers all the emirates and Dubai, but has no independent disputes process or compensation scheme
The DFSA tends to focus on financial advisers and their firms, while the insurance regulator governs insurance brokers and providers and the SCA takes care of investments.
Why expats need a financial plan
Planning your finances is like planning a journey.
You will have a destination in mind and some idea of how to get there, but you need a timetable or map to help with the finer details.
These days, a sat nav takes care of micromanaging the journey, helping you to avoid hold-ups and keeping you on the move to your destination.
But you have the final say. You don’t have to follow the plotted route and can stop or make diversions on the way.
Financial advice is the same. Your financial adviser is your sat nav. He or she will have the knowledge and experience to guide you to your financial goals, but you are in control of the brakes and steering, so you make the decisions.
What financial planning means
Making the right decisions about money is hard in an ever-changing world where so many factors beyond your control can make a big difference to if you are rich or poor.
Financial planning looks at what if scenarios and tries to rate the effect they will have on your savings and investments.
The best financial plans dig deep into your spending habits to free up money for savings, life insurance and what happens to your estate when you die.
Many expats look at financial planning as saving for retirement, but a good adviser can help with so much more.
Financial planning’s not just for the wealthy
Everyone can benefit from financial planning.
It’s a myth that discussing what you do with your money is just for the rich because they can afford to pay for the advice.
Finance impacts many areas of your life, and a good financial adviser should save you more than the advice costs, whatever your means.
What will financial planning help you with?
First, managing money is a personal discipline, just like finding the time to exercise or deciding to go on a diet.
You need to actively monitor your spending, budget and look to the future with savings and investments.
Don’t forget looking at one aspect of your finances could have unintended consequences somewhere else, which is why financial planning takes a holistic approach rather than concentrating on a single factor.
Hard to answer financial questions
The sort of questions financial planning can help you with are wide-ranging:
- Should you save with a bank or a savings plan?
- How much do you need to set aside for a pension and how should the money be invested?
- How much can you afford for a mortgage to buy your own home?
- How do cross-border taxes affect you as an expat?
- Should you save money offshore?
- How do you pay the bills if you are too ill to work?
- Do you need to put aside money for your children’s education?
- Does your family need private medical care?
- Are your loved ones protected financially when you die?
Many of these questions are difficult to answer unless you are a financial expert with access to gigabytes of data about interest rates, returns on investments or detailed knowledge of international tax rules.
Financial advisers have this data and more at their fingertips, plus the benefit of back-office experts to answer the legal and tax questions that will inevitably crop up from time to time.
The questions is not can you afford financial advice as an expat, but can you afford not to take financial advice?
What does a financial adviser do?
A financial adviser guides you through the different life stages by devising and recommending strategies.
Over your working lifetime, you will have ups and downs.
These include events like marriage, having children, changing jobs, accidents or illness. Each presents a financial challenge and an adviser is there to cast an unemotional eye over what’s happening and to suggest what you can do for the best.
A good adviser will present options, discuss the pros and cons of each choice, but leave you to make the financial decisions.
To do this, your financial adviser must have the relevant qualification to give appropriate advice. The qualifications from a recognised independent organisation. The main bodies are:
- Chartered Insurance Institute
- Personal Finance Society
- The London Institute of Banking and Finance
- Chartered Institute of Bankers in Scotland
- CFA Society of the UK
- Chartered Institute for Securities & Investment
- Institute of Financial Planning
- Pensions Management Institute
- Scottish Qualification Authority
For offshore pensions, such as QROPS (Qualifying Recognised Overseas Pension Schemes) or QNUPS (Qualifying Non-UK Pension Scheme), and estate planning, the adviser should have more advanced qualifications and may belong to an organisation like STEP – The Society of Trust and Estate Practitioners or SOLLA – Society of Later Life Advisers.
Only deal with a professional
You should only deal with an adviser who belongs to a professional body – and don’t take their word for it because some advisers may not be who they purport to be.
It’s not unknown for scammers to pose as qualified professionals, grab a fee and disappear.
Advisers belonging to a body are likely to have professional indemnity insurance that could pay compensation if you lose your money due to poor advice. The body will also have an independent adjudicator for dealing with complaints.
Check membership by searching either the regulator or body granting the qualification – don’t take the adviser’s word at face value.
You will need the adviser’s trading name and business address to carry out the check.
This issue tends to arise with solo advisers or small companies.
The problem will not arise of your deal with larger, well-known financial firms.
Not all advisers are the same!
Financial advisers can offer different levels of help to clients depending on their qualifications and who they work for.
Independent financial advisers – commonly called IFAs – should offer whole-of-the-market options because they are not restricted to discuss any specific provider’s products.
IFAs should put together a bespoke financial strategy to your needs based on a fact find, which is a detailed questionnaire about you current and future financial goals. The fact find should also address your attitude to risk so the IFA can determine the most appropriate savings and investments for you.
The fact find benchmarks your current financial status and gives the information the adviser needs to recommend products and services that match your needs.
Independent v tied
But some IFAs work for networks which are the engine rooms of their business. The network will provide administrative support and sometimes access to a narrow range of products rather than the broader whole of the market approach of a true independent.
These advisers are sometimes called ‘multi-tied’.
The third type of adviser is ‘tied’. Tied advisers can typically only recommend products provided by their employers and are not allowed to discuss or refer you elsewhere.
The risk with multi-tied and tied advisers is you could miss out on better deals offered by other providers which could cost you a great deal of money over time.
This is an important point to bear in mind in Dubai, as advisers in the United Arab Emirates don’t have to have any formal qualification.
How much does financial advice cost?
That depends on you and the advice you are looking for.
Everything comes at a price. In some cases, the adviser will charge a fee, while most will bundle commission with the products and services they recommend, which often means you never know how much you are paying for the advice you receive.
In Dubai, most financial advice is commission-driven and often what you pay is rarely disclosed.
Commission is not all bad, though. As an expat, you would not work for free and you should not expect your financial adviser to do so either.
There’s no free lunch in Dubai financial services, although your first meeting with an adviser generally comes without any charge.
You should discuss your ongoing advice needs, which includes trying to negotiate a fee to keep costs down.
Don’t pay twice for the same advice – either pay a fee with the commission waived or disclosed, or accept you pay commission as part of the price of any recommended products or services.
Questions to ask your financial adviser
Feel free to discuss your financial adviser’s qualifications and experience.
You need to know if they have other customers like you and how you can continue your advice relationship if you move to another city or even to another country.
Search for reviews of them and the firms they work for, but take comments with a pinch of salt.
Testimonials are bound to talk them up, otherwise there’s not much point in publishing them, while some people are likely to complain. Just think how often you are moved to write a review online, which is probably rarely, if at all, even if you have had a terrific or phenomenally bad experience.
It’s much better to carry out your own due diligence, which should cover their:
- Qualifications and experience working with expats in Dubai
- Independent or tied status for recommending products and services
- Status with the Dubai Financial Services Authority (DFSA)
- Fee and commission structure
- Arrangements for continuing advice should you move or leave Dubai
- Professional support for handling tax and estate planning between your home country and Dubai
Tick these boxes as well
Other boxes to tick should include;
- How quick an adviser responds to your calls or emails, because if they cannot offer good customer service when a new client gets in touch, they are unlikely to do so once you are on their books.
- An adviser who charges a fee rather than a commission-taker is likely to be cheaper as you are in control of how much you pay and the cash is not siphoned out of your premiums, reducing the value of your savings or investments.
- Most regulated firms and advisers will have offices in the Dubai Internal Finance Centre, a financial hub for the Middle east, Africa and much of Asia.
How to find the right financial adviser for you
Word-of-mouth is a good place to start if you have expat friends in Dubai who have already sourced financial advice.
You can also look at some tried and tested routes, such as an internet search, trade directories or the local press.
Some large advice companies have a global office network and can look after all your financial needs, regardless of where you are living or working.
Choosing the right professional who you can trust with your pension, family finances and savings is like recruiting a specialist to fill a financial role in a business – but few of us think that way.
Hiring such a workplace financial expert would involve a lengthy and detailed process of applications, interviews and reference checking before reaching a final decision.
So why not impose the same process on the person you are entrusting with your family finances?
Take your time recruiting the person who will play this important role, and don’t be rushed into making a decision.
Advice with benefits
Financial firms that can offer some added extras can save expats money with exclusive deals.
Many of the larger financial firms in Dubai have links with banks, money transfer specialists and providers offering preferential rates for services normally beyond what you would expect from an advice-only firm.
These are useful and cost-effective because your money management is under one roof and you are benefiting from economies of scale you could not hope to achieve as an individual.
What New Expats Should Do About Tax
The first step is confirming your tax residence.
All your tax issues will flow from determining where you are resident for tax.
Each country has a checklist for working out if you are tax resident, so it’s not a decision you can make for yourself but dictated by circumstances.
The two main factors are where you have your main home and how long you spend living there.
Many expats find that they may have lived outside their home country for many years, but rules determine they are still unexpectedly tax resident.
Don’t forget ‘expat’ is not a legal term.
Are you really an expat?
You can call yourself an expat if you have a main home in one country and move to Dubai on a contract for a year or two, but that does not make you tax resident in the United Arab Emirates.
If you still retain tax residence in another country, you will pay tax on your earnings there.
Some countries, like the USA and South Africa from 2020, expect expats to pay tax on their worldwide income regardless of where they live.
That’s why failing to understand expat tax is costly for anyone moving to a new country who ignores how the rules affect their finances.
Expats need to plan for the financial affairs in the country that they are leaving as well as in their new home.
Six tax tips for expats
Although expats should take personal advice in both countries, there are some general rules of thumb they should bear in mind.
- It’s no use waiting for the tax authorities to catch up with you – expats should start tax planning at home and abroad months before the departure date
- Tax normally follows residence, so don’t forget to make sure where you are likely to be tax resident so you follow the correct rules
- Expats shouldn’t try to navigate tax rules on their own but should seek professional advice
- Expats want to move their money freely, but some countries impose rules and exit taxes about taking foreign currency beyond the borders
- Zero tax and a cheap cost of living may make moving to Dubai attractive, but many expat destinations will want to see money in the bank and expensive private healthcare are covered on entry to avoid any drain on social service budgets
- Avoid any surprises in your pay packet by asking employers how tax affects take-home pay. Tax equalisation deals should mean expats should pay no more tax than they would at home.
Not all moves abroad run smoothly. Many expats cut short foreign assignments because of family issues (54%), poor health (42%) or culture shock (28%), according to data from the Legatum Institute Foundation. These reasons can wreck tax and financial planning, so expats should ensure they know how tax will hit their finances if they return home early.
The importance of tax residence
Tax residence is really important , because all your financial advice and recommendations are based on where and how much tax you pay.
If you get tax residence wrong, your finances can quickly unravel as you could face unexpected tax bills that will devastate your savings and investments.
FATCA and CRS
Factor in the Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA) and you will be found out if you try to avoid paying tax on the money you earn in Dubai.
The UAE and Dubai have signed up to CRS and FATCA, which means any bank or investment accounts expats hold in the UAE are reported to their home tax authority and compared to their tax filings.
FATCA only applies to US expats, but CRS is a network of more than 100 tax authorities swapping financial information.
Managing Your Money
The wisdom of looking after your pennies means the pounds will look after themselves still holds true, even in Dubai dirhams.
Keeping an eye on your spending pays off because you can identify wasted money and make small adjustments relatively quickly.
Some expats have a phone app, cash books or a spread sheet to do the job for them.
The problem for many expats is they may earn more and pay no tax in Dubai, but they also spend more on housing, a car and day-to-day living because they have more free cash.
The sensible expats live within their means and divert more to savings and investments.
The first step in effective money management is setting up a budget to track spending.
Balancing Risk And Opportunity
Risk and opportunity are two of the buzz words in financial services.
Your financial future is based on the risks you are prepared to take with your money and the opportunities to make money that present themselves over time.
- Risk is any factor that can cost you money – this can range from wildcat decisions made by politicians, to natural disasters or personal issues, such as divorce.
- Opportunities are factors that can make you money – from the cryptocurrency bubble to staking cash against equities, currencies or commodities.
Many investors make money by playing the margins in volatile markets, like the yo-yoing price of cryptocurrency Bitcoin.
Counting your profits and losses
How much profit or loss you make is determined by your attitude to risk when an opportunity arises.
The big profits go to those ready to take the most risks, but often these same people stack up the largest losses.
Your financial adviser should balance these two extremes for you by carefully questioning you about how much risk you are ready to bear.
Risk also impacts other areas of your finances besides investment.
Think about banking. If you are on assignment in a politically or economically unstable country that threatens to nationalise banking and your savings, perhaps you should keep your money elsewhere.
Expats are often told to follow the ABC rule – if you come from A, live in B, then bank and invest in C.
Protecting your family
If you have a partner and children, you no doubt want to look to their futures if you cannot work due to sickness, disability or even death.
Protection in the form of life insurance and income protection cover come into play to provide for your loved ones when you can’t.
Private medical insurance is a priority, especially if you are on assignment in a country with a limited health service.
A useful insurance add-on is critical illness cover that pays out when you are diagnosed with one of a list of specific conditions.
Savings and investments
Once you have secured the basics, you can look towards savings and investments.
The difference between them is savings are considered a short-term place to keep your money which is easily accessible if you need an urgent cash boost.
There’s no magic yardstick for how much you should have saved, but most financial advisers would suggest a fund of enough cash to cover the bills for three months should suffice.
Investments are longer-term savings that earn better rates because they are locked away for longer.
Investments would include savings plans designed to last five years or more, pensions and other investments.
If you are a British expat, or someone from another country who has money in a UK pension but now lives elsewhere, an IFA can help you with the Qualifying Recognised Overseas Pension Scheme (QROPS).
These are special offshore pensions designed for expats supervised by HM Revenue & Customs in the UK.
For expats still UK tax resident, a self-invested personal pension (SIPP) is also worth considering.
Planning for the worst
Sooner or later will all die, and the only hope is that you should have a long and peaceful life before the inevitable happens.
Financial advice about what happens to your unspent savings and investment when you pass on comes under the general term of estate planning.
The basics of estate planning start with making a will in each country where you have assets – such as property or cash.
Hopefully, your financial adviser will help you build a valuable portfolio of assets.
Benchmarking your current finances
You can’t plan where to go with your finances unless you already know where you are.
That’s called benchmarking and is plotted by your financial adviser with a fact find.
The fact find analyses your financial status by going through your income, spending, savings and investments step-by-step.
Your fact find will also include other factors, such as private health and life cover.
The idea is to identify any areas where your finances fall short and improvements might be made and to deliver a net worth statement. That’s a balance sheet of what you own less any liabilities, such as a mortgage or loans that you owe.
The final figure is your net worth.
Net worth and your investments
Your net worth can also determine the products and services your financial adviser can offer.
Expats with a salary of more than £100,000 (US$130,000) a year are considered high net worth individuals (HNWI) by financial companies.
Financial advisers will often have a special range of products for these sophisticated investors, who are treated as if they have more financial knowledge than lower earners.
The more disposable cash an expat has, the higher up the wealth scale they rise – to the peak as an Ultra-High Net Worth Individual (UHNWI), who has £23 million ($30 million) of liquid financial assets.
You Really Do Need A Financial Plan
To sum up, if you are an expat in Dubai, there’s no reason why you should not have plenty of money to save if you are sensible about how you spend your salary.
But it’s no good having money to save and invest if you don’t have a plan as well.
That’s where a professional, reputable financial adviser can step in and help.
Follow our guidance and check out your adviser’s credentials before parting with any cash and you are taking the first step on the road to a comfortable retirement that might come sooner than you think.