Already a magnet for the world’s ultra-rich, the United Arab Emirates has also emerged as one of the fastest-growing corporate tax havens, according to a study released recently that highlighted $200 billion-plus flowing into the country.
Tax havens provide offshore banking services to foreign individuals and businesses that allow them to avoid paying income taxes in their countries of residence.
The index by the Tax Justice Network, which documents countries that attract companies to reduce their tax bills, added the United Arab Emirates to its top-10 ranking, which includes Switzerland and Bermuda.
Britain’s offshore territories the British Virgin Islands (BVI), the Cayman Islands and Bermuda were named as the most significant jurisdictions used by companies to minimize their tax, followed by the Netherlands.
The United Arab Emirates joined the top ranking at number 10 after multi-nationals redirected over $218 billion of foreign direct investment via the Netherlands to the UAE to save taxes, the study said, increasing financial activity by almost 180 percent.
The Tax Justice Network, a group funded by donations and campaigning for transparency, said its study measured multinational activity, as well as tax rates and loopholes. While companies are not forbidden from using loopholes, the practice is viewed critically.
“You don’t need to be a tax expert to see why a global tax system programmed by a club of rich tax havens is hemorrhaging over $245 billion in lost corporate tax a year,” said Alex Cobham, Tax Justice Network’s chief executive.
Dubai, a party capital in the United Arab Emirates and a magnet for social media influencers, was hit hard by the pandemic as lockdowns hurt tourism and shopping while lower oil prices weighed on the Gulf state’s revenues.
To counter the decline in local population and revive a struggling property market it redoubled efforts to boost the economy. The government loosened rules to encourage international companies to establish a local foothold and bolstered schemes offering visas to rich foreigners.
The country has been criticized by the Financial Action Task Force, the global dirty-money watchdog. Meanwhile, UAE recently approved the creation of a new government office to tackle money laundering and terrorist financing.