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Sun 31 May 2009 04:00 AM

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It’s an offshore thing

A growing number of homebound expats from the Gulf are looking to leave their money offshore.

Following the downturn, many expats in the Gulf are staring at a return to their home countries, into the clutches of the taxman. As a result, a growing number are looking to leave their money offshore. Alex Delmar-Morgan reports.

From Monaco to Malta, tax havens around the world are under threat. In the wake of the current global economic slump, governments are clamping down on the movement of money offshore as they attempt to bolster tax revenues at home.

The impact of tax and the tax regime has moved up people’s agenda in the last year or so; it has become far more prominent.

At the G20 summit in March British Prime Minister Gordon Brown stood shoulder to shoulder with his German counterpart Angela Merkel and boldly claimed the world has “no place” for tax havens.

And earlier this month the Obama administration backed legislation to crack down on tax havens, raising the possibility of a showdown with Switzerland’s opaque banking system.

According to Carl Levin, the Michigan senator who was the driving force behind the senate bill, offshore tax evasion drains the US Treasury of $100bn a year.

All of which means that those leaving the income tax-free environment of the Gulf are exploring ways to prevent their bank balances disappearing into the taxman’s pockets upon their return home.

“You get used to the tax-free lifestyle and you want to retain as much cash as possible,” says David Lewin, manager of global accountancy firm KPMG’s tax practice in Sharjah, UAE. “It’s not very palatable to go back to a tax regime after living in Dubai, for example, and if [expats have] built up sufficient wealth here, then they’ll perhaps want to keep it offshore.”

And as expatriate job losses mount across the real estate and construction sectors of the Gulf, companies who specialise in advising high net worth individuals how to keep their money offshore, are reaping the rewards.

“Globally, we’ve a lot of movement from a tax planning perspective,” says Brian Holmes, head of international tax at the Gibraltar-based STM Group. “High net worth executives are looking to minimise their exposure [to tax].“They now realise the lifestyle they’ve had is over and would like to move to a location that is more generous [for tax] than their home countries would be,” he continues. “There have been a lot of potential referrals from the Middle East and Dubai is on the top of that list.”

Widespread redundancies in the Gulf, particularly in Dubai, are the catalyst for this growing trend, according to industry figures. Since October last year, when the global credit crunch hit the Gulf’s economy, liquidity has dried up, billions of dollars of real estate projects have been cancelled, and thousands of expatriates who saw their bank balances swell during the boom years face returning home and into the arms of the taxman.

Egyptian investment bank EFG-Hermes predicted in March that the UAE’s population would contract by 5.5 percent in 2009, with Dubai’s shrinking 17 percent, driven largely by expatriate layoffs.

And those expats’ welcome home is likely to be a harsh one, at least financially. The UK government, for example, last month announced a new 50 percent tax band on those earning more than £150,000 ($237,000) a year.

As well as acting as a major disincentive to Britons considering returning home, critics say the new demands will prompt an exodus of top earners from the London business community. Indeed, UK tax specialists have already noted a lift in enquiries from high earners contemplating moving money offshore.

“The impact of tax and the tax regime has moved up people’s agenda in the last year or so; it has become far more prominent,” explains John Whiting, a London tax partner at accountants PricewaterhouseCoopers (PwC). “Individuals and companies [in the UK] are reconsidering their positions.”

The gradual tightening of tax regimes has led to the emergence of a new class of top flight business executive prepared to scour the globe in search of a more tax efficient lifestyle.

“We have seen over the last decade a growth of internationally mobile entrepreneurs and executives who will, rather than see themselves as Britons, French, or Americans, genuinely see themselves as moving around, spending two years here and three years there,” Whiting says. “Such people are naturally sensitive to tax issues.”At STM, Holmes agrees that his some of his clients develop a quasi-nomadic lifestyle in their quest to avoid the taxman’s grip in their home countries.

“We have a lot of high wealth individuals who sail the Mediterranean, or follow the sun around the world,” he points out. “They spend two or three months in Spain, the Caribbean, the US and Australia, but they are not creating a taxable presence in those locations.

“The idea is to get themselves in a good position to take advantage of the upturn in the global economy [when it occurs] and therefore to try and safeguard their financial interests going forward.”

In order to achieve that goal, those who plump for the peripatetic lifestyle are forced to be more entrepreneurial in how they accumulate their wealth.

“Those that stay in one place tend to accumulate properties and pensions, and those that [move around] may invest in different ways,” says Whiting at PwC.

“The idea with the nomadic lifestyle is to source potential opportunities as they go along,” adds Holmes. “We are dealing with entrepreneurial people who have been caught in peculiar circumstances [job losses] through no fault of their own.”

Holmes says his clients are of all ages. Some are in their 50s and have been in the Middle East for over 20 years.

“Even with people that are perceived to be retired, they are always on the lookout for making the next dollar. That’s what keeps them going, that’s why they went to the Middle East in the first place,” he says.

“Safeguarding their financial interests is more of a priority for them, particularly for pension funds — they want to have minimal exposure to taxation in whatever jurisdiction they are in.”

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