Country Rankings - Dubai
Feb 23, 2016 Dubai: free zoneTraveling further down Latin America, I'm not entirely sure what's going on at Brazil's Manaus special economic zone at the moment. One week you read that it has secured investment from another major multinational firm. The next that business in the zone is falling. The negative headlines stand out all the more starkly given that generally, the world's most prominent free zones seem to be growing rather than shrinking. For instance, the Dubai international Financial Centre (DIFC) announced yet another record jump in company registrations last week. So what's Manaus doing wrong that the DIFC is doing right? Well for a start, companies locating in the latter don't need to pay any income tax. They also have the support of a highly responsive government attuned to the needs of businesses and investors. What's more, Dubai has more or less established itself as the major trade and finance hub between the European and Asian time zones. Companies in the Manaus free zone also benefit from tax exemptions and reductions, although not on the same comprehensive scale as those in the DIFC, or the 20-plus other free zones crammed into Dubai for that matter. Firms established in Manaus that meet certain requirements are exempt from import and export taxes, excise duties, and the PIS/PASEP and COFINS taxes, which are linked to imports. The key phrase here is "meeting certain requirements," for the guide to the Manaus free zone's tax incentives is 36 pages long – itself an indictment of Brazil's byzantine tax system, one of the most complex in the world. On the other hand, I wouldn't think that one needs to create new neural pathways between the brain's synapses to grasp the tax framework of the DIFC. In fact, in terms of regulatory and legal simplicity, Brazil and the UAE are poles apart; the UAE once again topped PwC's Paying Taxes index in 2016, while Brazil languishes in 178th. Manaus's other obvious disadvantage is its far-flung location, which is deep in the Amazonian region of Brazil. The DIFC on the other hand is on the doorstep of one of the world's major aviation and shipping hubs and emerging financial centers. But I suppose a direct comparison between the two is unfair. Manaus was intended to provide employment in one of the most remote and impoverished regions of the planet, which it seems to be doing. The authorities in Dubai on the other hand had a blank canvas to create one of the world's most vibrant economies, and the money to see it through. Still, perhaps the Brazilian Government could be a little more helpful to Manaus by easing those tax requirements.
Oct 09, 2014 Dubai: diversifiesIf only Europe had oil in the sort of copious quantities found in the Middle East, perhaps it wouldn't have ended up in the economic mess it finds itself in. Then again, oil revenues are a finite gift that must be used wisely, and fiscal acumen isn't something you'd associate with Western Europe. We have to look to the United Arab Emirates, and more specifically Dubai, for a demonstration of how oil revenues can be used to power up an economy. It is actually a misconception that Dubai's current spending on infrastructure is being bank-rolled by oil revenues, because oil now only accounts for 2 percent of its GDP, whereas in the 1970s oil extraction accounted for about half of GDP. This is because Dubai's economy is now highly diversified, with industry, services and tourism all contributing to it in a substantial manner. And this has been achieved to a large extent by taxes that are among the lowest in the world. There is more or less a complete absence of taxes in Dubai's free zones, of which there are now over 20, and the Jebel Ali Free Zone, one of Dubai's oldest, now accounts for about one quarter of the entire economy. The free zones have also reported particularly strong growth in 2013 and 2014, including the Dubai International Financial Centre. One wonders what they think of all this at OECD HQ in Paris. So far, the UAE seems not to be on the OECD's radar, and Ireland, not nearly as low-taxed as Dubai, must be entitled to wonder why it has become the poster child for BEPS.
Jun 02, 2014 Dubai: doesn't careIt's always nice when a country displays a sense of humor, and usually fairly rare, so a big welcome to the news that the UAE is moving forward smartly with plans to exchange tax information with up to 75 bilateral agreement partners. Oh, I hear you thinking, what do they mean? They are always going on about privacy and the ridiculous overkill that EOI represents. Yes, that is true, but the joke is that there isn't any tax to speak of in the UAE. Banks and oil companies do pay tax, but in a highly visible way, and even then not if they are in the free zones, where there is complete absence of income tax for individuals and corporates. So what information is it that is going to be exchanged? Effectively none in the case of UAE to "rest-of-world" tax authorities; and will the German Government (to pick an example) provide information on forty million German taxpayers to the UAE? What would the UAE do with that information if it received it? And if the German Government tries to be selective, how will it achieve that? How would it know which German taxpayers have a presence in the UAE? Always remembering that they don't pay tax there in any case. Puzzled, me, but I still think it is fairly hilarious.
May 27, 2014 Dubai: gets a free-trade medal...and here is a welcome announcement that an international pro-FTZ organization will set itself up in low-tax Dubai. As any regular reader of this column will know, Free Trade Zones (or their equivalents) are a Good Thing, while governments that exclude or limit them are a Bad Thing. It's not immediately clear whether the new organization has support from the great and good of the world economic order, or whether it has any kind of reasonable financial footing; but it is welcome nonetheless, and Dubai, which is already home to a large collection of free trade zones, gets a large bouquet for supporting it. At the risk of becoming boring (just move on) let me rehearse some of the reasons why most governments dislike and discourage free trade zones, if they don't ban them outright like the dinosaur European Union. We could classify the opposition to free trade zones into three groups: the doctrinaire; the simplistic; and the corrupt. The EU provides an example of doctrinaire opposition. It doesn't believe in competition, period. Since all human interaction is based on the principle of competition, and free trade zones at their most basic exist in order to give a competitive advantage to certain types of activity or certain locations, there is really nothing more to be said. Actually the EU goes quite far in the opposite direction, by subsidizing uncompetitive activities and locations, which is the very negation of constructive economic activity. Well, we will leave it to moulder. Simplistic opposition to free trade zones is a case of not seeing the wood for the trees. Most often, it is displayed by finance ministries which cannot tolerate the "loss" of tax revenue consequent upon giving free trade zone companies corporation tax holidays. This loss, which does exist, is usually very minor by comparison with the extra tax revenues generated by increased employment: one worker earning say USD50,000 per annum generates at least USD20,000 in additional payroll and associated revenues for the government, plus the saved cost of supporting him on the dole, while the profit he generates for his employer is small in comparison and the tax lost on it is a tiny fraction of the payroll revenues that are gained. But the bone-heads in the treasury see only the "lost" tax. For them, the new job created is in replacement for a job lost "outside" the free trade zone. Competition, again, provides the answer: the existing job was going to be lost anyway, if it had not already been lost, whereas the new job is a net gain. The poor saps can't see it. Corrupt opposition can be dismissed almost as easily as the doctrinaire. Most governments in the world are corrupt to a greater or lesser degree, and most of this corruption depends on income flows which can be diverted to abusive purposes. Some of this income comes from international assistance programs (more poor saps) and some from out-and-out bribery, but most of it comes from tax revenues. A minister who is raking off 15 percent from corporation tax revenues from mineral processing in an un-named third-world country (not very greedy by prevailing international standards) is going to be very opposed to a free zone in which processing plants have 10-year tax holidays. So the wonder is that there are any free trade zones at all. I hope the new organization knows what it has bitten off, and doesn't find its own bits and pieces missing in the morning.
May 15, 2014 Dubai: smelling of roses as usualIt has been a good week, on the whole, for trade, with ABAC urging APEC to progress FTAAP through amalgamation of ASEAN, the TPP and RCEP via the Bogor goals. Sorry, I couldn't resist that. The bottom line is that most Asia-Pacific nations are very well disposed towards free trade deals. And the GCC (Gulf Cooperation Council) which has been demonstrating the opposite of cooperation by walking through trade treacle on its way to a regional tariff-free zone for the last ten years, is finally showing some signs of movement towards its goal. The GCC consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, so we can award stars to Dubai at least (confused? don't be, it's part of the UAE and a lot more market-friendly than most of the rest of it), although the remainder are all under a cloud of one kind or another at present.
Jul 18, 2013 Dubai: glitteringThis week's news that the Dubai Multi-Commodities Center Authority is set to become the largest free zone in the United Arab Emirates, having registered 1,270 new member companies in the first six months of 2013, bringing the total to more than 6,890, is nothing short of startling. Although the DMCCA sounds as if it is aimed primarily at commodities trading, which is nominally the case, in practice it forms a seamless part of the JLT (Jumeirah Lakes Towers) free zone, which has a much broader remit. It is one of between 15 and 20 existing and planned free zones in Dubai, depending on how you count them. From any perspective, Dubai now has critical mass as a business and financial center in the mid-East, and it's hard to see how any rival can catch it, over an area stretching from the eastern Mediterranean to the Far East.
Jun 20, 2013 Dubai: powers onFTSE's arrival in the DIFC (Dubai International Free Zone) is just the latest in a string of announcements paving Dubai's onward road to regional financial hegemony. Also this week there was the launch of Dubai Design District, the ninth free zone created by the Emirate. According to a recent Economist Intelligence Unit report, Dubai is expected to jump six rankings to become the most competitive city in the Middle East and North Africa by 2025. The report said that "Middle Eastern cities will be bolstered by their growing economic strength, including sizable city GDP growth rates and increased integration into global trade regimes, investment in education and physical capital, and enhanced global appeal (including increased flight connectivity and conference development) particularly Dubai, Doha, Abu Dhabi and Muscat." New York will remain in first place, followed by London, Singapore, Hong Kong and Tokyo, with Dubai at no. 23. I wouldn't want to contradict the far-seeing EIU, but when one looks at comparative growth rates, and given that 2025 is 12 years away, 23 seems a surprisingly low estimate. An example: after just seven years, the Dubai Gold and Commodities Exchange reached cumulative trading volume of USD1 trillion in value; April volumes were 140% up, year-on-year.
Jan 03, 2013 Dubai: courts on a rollA friend of mine took his family on holiday to Dubai just before Christmas, and apart from spending far too much money, reports back that the place is bursting with optimism and go-go spirits. It does seem to have put the real estate crisis well and truly behind it, and is now uncatchable as a business hub for the region, meaning not just the Mid-East, but a large swathe of Asia Minor and Africa. Now comes confirmation that Dubai's free zone courts are emerging as the common law forum of choice for international business in the region. While England was ruling the world in a commercial sense in the 18th and early 19th centuries, its accessible and business-minded courts were an essential component of its success; you are watching a similar scenario playing itself out in the UAE. All credit to the rulers who have permitted and encouraged such an unlikely development.
Sep 20, 2012 Dubai: powers aheadUnited Arab Emirates, where the DIFC (Dubai International Finance Centre) announced the latest stage in its growth and success. It's only one of a number of tax-free zones in Dubai: imagine the number of jobs that have been generated in the wider economy as a result. OK, the UAE has all that oil, but don't let that obscure the message, which is that in order to attract international business, and that holy grail of modern economies, FDI, you have to compete. And that is exactly what the blessed European Union won't allow its member states to do. How nutty is that? If Italy was allowed to create a tax-free yacht-building plant and marina in say Genoa, amid the rotting remains of Benito Mussolini's navy, or in Sardinia, where officers from the Guardia di Finanza (tax police) are camped out on the hillsides around the marina with night-glasses, tormenting businessmen who have been clever enough to make the money to buy yachts, it would be a wild-fire success. But it can't. So off go the jobs and the yachts to Dubai or the Cayman Islands.
Aug 16, 2012 Dubai: is the new Hong KongThe Dubai International Financial Centre is reorganizing itself to be ready for the next stage of its world domination plan. Only joking, but it has been a stellar performance so far: to have reached eighth-ranked world financial centre in just seven years is scarcely credible. And there is no competition to speak of in the Middle East and Africa. Qatar, perhaps, or Bahrein, which seems to have lost its way. If you are a bank, an insurance company, a regional financial holding company or a family office with interests in the region, why would you go anywhere else? We use the name Dubai, but the 'country' that is getting this right is the UAE, and it has to be thought about in relation to the DIFC as we think of China in relation to Hong Kong: there is always the risk of expropriation in a non-democratic region. But why would either host be crazy enough to kill the golden goose and see all that lovely money drain away in milliseconds?
May 24, 2012 Dubai: bounces backThe United Arab Emirates, in the shape of Dubai, is my second good news story this week. The terrible real estate mess-up, which for some people may indeed be the whole story, shouldn't overshadow the fact that Dubai has been getting everything else right for the last fifteen years. Now, in a world where so many countries have flat or even shrinking economies, Dubai lines up with the select few that are going to grow more than expected this year. Why? Well of course it's because of low or no taxes. OK, Allah was kind enough to sit the UAE on top of a lake of black gold, but of itself that doesn't make for prosperity: more often than not it ends up by destroying productive capacity in the rest of an economy. Just look at the ruination of the UK as a result of all that oil and gas in the North Sea. Cyprus will do its best to copy the UK in that respect over the next ten years!