Structuring Yourself Financially as an Expat in the UAE
James Swash
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As an expat living in the UAE, it’s crucial that you understand that financially speaking the rules of the land are different here than they are back home. Firstly, as an Islamic nation, the UAE is subject to Sharia law - a code of laws governing the behaviour of Muslims and Islamic nations.
If you pass away here in the UAE there is no right of survivor-ship meaning UAE based assets are not passed to the surviving spouse.
Instead the assets of a deceased person will go to probate, meaning the state court will decide how those assets are distributed as per sharia. In sharia law, the distribution of assets heavily favours male relatives, meaning that if you are an expat male and you pass away, most of your assets will NOT go to your surviving spouse.
Furthermore, if you are called to a court order here in the UAE whether for something as low key as unpaid parking fines or a car accident that wasn't your fault, your local UAE bank account can be frozen. Similarly if you lose or leave your job and your visa is cancelled your local account may be frozen. I know this first hand as it happened to me when changing jobs and meant I wasn't able to use my local account until my new visa was processed a whole 2 months later.
Here are my tips then for structuring yourself financially as an expat here in the UAE using the simple 3 pot idea as shown in the graphic below.
The Three Pots - Structuring your wealth in the UAE
Pot 1 - Your Expenses Pot
With the above reasons in mind you should only keep a minimum amount of funds here in your UAE current account. We advise 1 - 1.5 months expenses. For instance if your monthly expenses are AED15,000 then keep a maximum of AED22,500 in this account. This ensures you have enough funds readily available to cover your expenses for that month before your next pay cheque arrives, albeit that the bulk of your funds are moved offshore for safekeeping. Keep separate accounts for both spouses.
Pot 2 - Your Emergency Pot
In this pot we advise to keep either 3 month’s salary or 6 months expenses (whichever is lower), in an account held securely offshore, whether that be back in at home in your offset account if you have one, or in an Offshore Bank Account in one of the international banking hubs such as Isle of Man, the Channel Islands, Luxembourg etc. The idea of this pot is to have some money set aside for a rainy day in case something happens whether you lose your job or have a family emergency. As this pot is for emergency purposes you don't really want to have it invested (or if you do it should be very low risk) as otherwise subject to performance you might not have enough in there in the event you need to access it for a said emergency. It is important to not leave too much money in this pot however as you'll miss up an opportunity to get your money working for you given this pot of money is earning no or little interest and thus is effectively decreasing in real value due to inflation.
Pot 3 - Your Investment Pot
As mentioned both the expenses pot and the emergency pot will be earning you little to no growth thus it’s crucial that you get your money working for you in order both 'inflation proof' these funds as well as to achieve your investment goals, whether that is saving up for a property deposit or for your retirement. Depending on a variety of factors including your investment timeframe, risk appetite and asset preferences, this pot of funds could be invested in a range of different growth orientated assets whether it's shares, mutual funds, ETFs, property, bonds or annuities. Whatever the asset/s chosen, generally speaking they should be held once again outside the UAE to avoid sharia law and for other estate planning and taxation reasons.
Also - Have a Will
By moving the majority of your assets offshore using the above, you will have reduced the issues associated with Sharia law for most of your wealth. However, there are a number of other UAE based assets to consider, which will need to be safeguarded by putting a UAE Will in place. These include your end of service gratuity benefit (EOSB), workmen compensation, death in service benefits if applicable (such as employer life insurance) and your personal effects such as your motor vehicles. Expat Wills can be produced for as little as aed3,000 so you it would be foolish not to get one in place - you will be saving your family a lot of additional hassle if tragedy were to strike.
Also – Take out International Life Insurance
Whilst you may be keeping an expenses pot as described above to cover a few months salary, for many of you, particularly those with Family or dependents who are reliant on their wage, this would be insufficient if tragedy struck and you passed away or were unable to work for a lengthy period of time due to sickness or disability.
We can assist you with all of the above including establishing an offshore bank account and drawing up a Will. If you would like to discuss any of this please contact me.
General advice warning. The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.
