Hidden costs and high prices might be offsetting benefits of working in a tax-free environment. You might need financial planning more than anyone else!
Are you an expat living in Dubai or Abu Dhabi? This research on the hidden costs if living in the UAE for expats might be of interest to you.
If you have been wondering where all the money goes despite living in a tax-free environment, your doubts now have a research backing. According to the latest reports, a range of cost of living challenges eat into the income of professional expats–with property and education standing out.
A white paper and a documentary video released by Friends Provident International (FPI) entitled UAE Expatriates and the Bottom Line (www.fpinternational.com/ae) highlights the importance of financial planning to avoid pitfalls of such hidden prices.
“Having recently moved to the UAE from the United Kingdom I can relate to the findings outlined in the paper. A tax-free income is without doubt one of the key benefits of living and working here. However, property rental prices in some areas of Dubai have risen 60 per cent over the last 12 months and some schools are proposing an increase in education fees of up to seven per cent this year,”said Marcus Gent, Managing Director, Middle East and Rest of the World at Friends Provident International.
Gent further added, “A lot of expatriates seem to fritter away the savings they make in tax, rather than make the most of the great opportunity they have to save. With some careful financial planning and disciplined saving, the cost of a quality education and buying a property can be mitigated to a large extent.
The paper draws its data from the Economist Intelligence Unit’s Worldwide Cost of Living Survey. It tracks over 50,000 key prices, based on a basket of goods and services, over 130 cities.
“While the UAE does still offer high salary packages and zero income tax, expats should not assume they are going to simply pocket the difference of the tax break, with everything else staying equal,” said Adam Green of the Economist Intelligence Unit.
The cost of living in Abu Dhabi and Dubai are 38% and 42% respectively less than Sydney, Australia. The gap is less pronounced but still significant for London (35% and 37%) and New York (27% and 30%). However, the EIU index does not include the cost of property and education, which many expatriates in the UAE find the most significant cost of living challenges.
Furthermore, the paper noted that as against the markets elsewhere, in the UAE, there is a dearth of mid-range properties, forcing many expats to take pricier accommodation than they otherwise would.
Interestingly, Marcus Gent observed that the cost of education is another major aspect that expats ignore during their financial planning. he said, “The costs of education and accommodation are key considerations for anyone moving to the UAE with their children. I would encourage anyone making the move to the UAE to take professional financial advice and construct a savings and investment portfolio to offset the costs of education, and the other ‘hidden costs’ of living and working here.”
However, he also noted that while the UAE is a great place to live and work, one needs to plan beyond the tax-free income scenario and assess the overall costs to be able to have a secure future.