11 minute read
expat investing
investment flight path
Channel Islands firms are helping the many expats based in the Middle East to build diversified and sustainable investment portfolios amid a complex regulatory environment
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Gill Wadsworth
THE MIDDLE EAST is one of the most popular destinations for expats. Nearly 90% of the United Arab Emirates’ population and more than a third of those living in Saudi Arabia are from abroad. In Qatar, just 15% of the population comprises domestic nationals – and the story is similar in Kuwait, where 70% of inhabitants are from overseas.
While most foreign nationals living in the Middle East are less wealthy migrant workers from India, Egypt, Bangladesh and Ethiopia, there are plenty of westerners who have chosen to set up in the Gulf because of a boom in employment opportunities. These range from work in the medicine and healthcare sectors, to IT and artificial intelligence and, more recently, renewable energy.
Yet while there may be ample job opportunities for those wanting to relocate to enjoy considerably warmer climes and tax-free salaries, there are challenges when it comes to building an investment portfolio that suits the vagaries of an expat lifestyle in the Middle East.
Matt Wintour, Head of Adviser Solutions at Brooks Macdonald International, says: “Identifying the challenges for expats living in the Middle East is in great measure the same as anywhere in the world. Attempting to apply the ethics and standards applicable to one’s home country is fraught with danger, as there will inevitably be unexpected differences.”
Before expats get caught in the complexities of where and how to invest, the starting point should be deciding goals and objectives. Michael Bull, Executive Director at Quilter Cheviot in Jersey, says: “We focus on the clients individually rather than where they are based. That way, we can manage their personal investment risks and meet their expectations when it comes to returns and objectives.”
SPREADING THE RISK
Bull’s colleague, Keith Owen, Business Development Director at Quilter Cheviot, based in the Dubai International Financial Centre (DIFC), adds that the main goal for all investors, irrespective of geography, is to spread risk across asset classes.
“It doesn’t matter if you live in the UK, Dubai or Timbuktu, diversification should be a major part of anybody’s investment strategy,” Owen says.
However, while it might be relatively straightforward for someone in the UK to find a domestic financial provider to build an investment portfolio giving them access to heavily regulated funds and
trusts, it’s not quite so simple in the Middle East. As Wintour says: “When investing generally, it is important to understand the legal framework hosting the investment, wherever that may be.
“In an environment such as Dubai, that has been described as a marketeer’s dream – separating the excellent from the background noise is difficult and confusing. Expats can find themselves spinning with a combination of opinions that are sometimes based on scant knowledge or even wishful thinking.”
Wintour recommends “turning down the background noise” and considering strategies that match objectives and deliver on their promises “as opposed to seeking asset classes that promise to blow the roof off”.
He continues: “Contrary to the impression given by some promoters of products in the region, it is not necessary to always seek the best performing asset to keep ahead of some game. It is perhaps more important to focus on what is relevant to your own goals and ambitions, and select a range of investments that will deliver a good enough result to meet your expectations in the long term. Diversification is key.”
THE RIGHT ADVICE
It is also important that investors find a qualified adviser working for a licensed company to provide some redress should things go wrong.
However, that may not be as easy as it sounds. There are three regulatory authorities operating in the UAE. The Insurance Authority (IA) covers insurance companies, insurance brokerages and insurance-based products; the Securities and Commodities Authority (SCA) regulates fund managers, investment advisers, traders and stockbrokers; and the Dubai Financial Services Authority (DFSA) regulates financial services conducted in or from the DIFC.
Owen says: “It is very difficult for a financial adviser to provide a holistic service because if you are SCA regulated, you can’t advise on protection products. If you are an IA regulated person, then you shouldn’t really advise on investment products. And you can’t have both licences in one office.”
Coupled with the challenges of finding a suitable adviser in the Middle East come issues with liquidity. Owen points out that, should an employee lose their job in the
Solutions in the Channel Islands allow investors to defer a decision on taxation until they decide where to settle
UAE, they will be required to leave the country within 90 days. Any investments they have may be subject to either heavy tax penalties when they return home, or they could be hit with exit penalties if investors try to withdraw early. Or both.
“The reality is that in international markets, if you don’t bring anything to the party it’s time to leave,” says Owen. “Locking into an investment for five years seems unfair as a lot of investors will fall foul of tax when they return to the UK.
“Also, a lot of the funds sold in the UAE have a rear-end load on them. So, if I put someone in those products today, they will be hit with an exit penalty.”
Wintour says this lack of liquidity proved problematic when the financial crisis hit in 2008 and expats wanted to withdraw from property.
He says: “A simple example of not paying attention to detail manifested itself back in 2008 when the financial crisis began to take effect on the global property market. Buyers of off-plan developments who expected to be able to exit incomplete properties found themselves obliged to complete the payment schedule irrespective of the build schedule as the two contracts were mutually exclusive.”
TRIED AND TRUSTED
The Channel Islands offers a strong solution for expats looking for security, stability and liquidity. As Wintour says: “A robust regulatory framework that is forward-thinking sets the islands apart from other international finance centres.
“The islands offer fiscal neutrality for non-resident beneficiaries of investment accounts and trusts, which therefore avoids potential double taxation or the ability for assets to grow free from tax if resident in a nil-tax jurisdiction.”
Expats saving for retirement might also consider the Channel Islands, particularly if they are uncertain where they will finally settle when they finish work.
Wintour adds: “The Channel Islands offer a secure solution to this problem by allowing expats to save and invest within a legal framework that is independent, secure and has stood the test of time.
“Solutions based in the Channel Islands provide an environment where investors can defer a decision on taxation until they decide where they will eventually settle. Only when they draw upon these savings and investments will the tax environment of their residence become relevant.”
MULTI-JURISDICTIONAL OFFER
The Channel Islands also have a proven track record in providing multijurisdictional corporate and trust structures, with several firms offering services designed specifically to help clients deal with the challenges of global living.
Wintour adds: “The islands have a large and well-qualified professional trust sector, modern trusts legislation and an effective judicial system, which provides a safe haven for family wealth.”
However, it is important that expats ensure that firms are sympathetic to their circumstances in the Middle East and have local knowledge and, preferably, some feet on the ground.
For expats in the Middle East, the challenges of building a diversified and sustainable investment portfolio are numerous but not insurmountable. As the Channel Islands build their expertise as centres for international finance, they offer a way for investors to save securely, wherever they lay their hats. n
It’s time to talk succession…
Paul Beale, Tax Director, and Joseph Milward, Tax Manager, at KPMG on the rising importance of succession planning
THE PANDEMIC HAS seen many family businesses face unprecedented turmoil, uncertainty and challenges. At the forefront of many of the discussions we have had with our family business clients has been the impact on their succession plans. In some cases, these have been accelerated, in some deferred and, often, it has been a catalyst for starting the conversation.
Looking back to 2019, the STEP Project Global Consortium, in collaboration with KPMG, conducted a global survey, which revealed that around 70% of family businesses did not have a succession plan. Furthermore, only 47% of businesses had any form of emergency plans should the worst happen.
Despite some businesses illustrating that the right action was being taken, this still showed a stark gap in the number of businesses that had no ‘plan B’ option at all. To put this into perspective, almost one in every two businesses still lacked the proper internal processes to manage a change in leadership at a time when it really mattered.
These statistics were eye-opening at the time and, as the pandemic evolved, it was clear that, along with financial concern, technological constraints and workforce restrictions, what was being realised simultaneously was that succession planning was no longer a long-term project, or the metaphorical can that could be kicked down the road.
Instead, succession planning was rapidly becoming a central topic for the management of organisations to consider among the upper echelons of business decision-making.
With Covid-19 having such a big impact on business, it was also changing many aspects of our daily personal lives, with leaders not excluded from that rhetoric.
Many business leaders, seeing the impact that change was having on the world, are taking a step back and asking themselves questions regarding the appropriate time to step away from the business: if not now, when? Will the business cope with such a seismic change after everything it has been through in the past 18 months? Was the pandemic the last big challenge they wished to face as leader of their business?
As the post-pandemic new reality requires fresh perspective, working from home, moving away from congested areas, and flexible time are all things that businesses have generally allowed their workforce to do – so why should their leaders be any different. The older generations within the business are keen to leverage these benefits that Covid-19 has provided. However, with the absence of a proper plan, it remains in their direct interest to see that any handover is properly facilitated and executed.
All of this is great in theory, especially when you have a ready and able successor lined up to jump in and take the reins from the outgoing generation. But what happens when the expected heir does not want a part in the business?
It is well known that the world is becoming more and more interconnected by the day, and despite the slowdown in global travel, it is still a lot easier to migrate from one place to another than it was, say, 50 years ago.
People are regularly moving away from their home towns, which can also be the business headquarters in many cases, and this culture shift is affecting family businesses that have relied on the next generation to stay local and follow suit.
Today, families are decreasing in relative size when compared with the older generations, and younger cohorts are interested in pursuing different things.
NON-FAMILY TALENT
As a result, family businesses must, in many cases, start looking to non-family talent as a means for fulfilment of the roles that they can no longer fill through family members.
This opens up another debate as to whether you promote from within the organisation or whether you bring in an external candidate. The impact of such a decision can be felt across the whole business, as sometimes such monumental change is not always great – especially when a business is flourishing as it is.
Another consideration is how this could affect other family members within the business who might not be ready to take control yet, and feel they are having their position potentially undermined by an outsider.
Of course, a key consideration in this discussion is open dialogue with the main family and non-family stakeholders. It is critical that the purpose and legacy of the family’s business is defined and protected appropriately; if indeed now is the right time for the creation and/or implementation of a succession plan.
As the world begins to consider how to react to the unimaginable consequences of the pandemic, it is more important than ever that family businesses are proactive in protecting their futures. n
FIND OUT MORE
Paul Beale is a Chartered Tax Adviser and a Member of the Association of Chartered Certified Accountants. His areas of expertise include advising on UK residence and domicile of high-net-worth individuals, inheritance tax and estate planning. In addition, he advises on efficient tax structuring, particularly in respect of UK property holding. Contact: paulbeale@kpmg.com
Joseph Milward, a Tax Manager at KPMG in the Crown Dependencies, is a Chartered Tax Adviser and a Member of the Association of Chartered Certified Accountants. His expertise lies predominantly in assisting private clients understand the complex tax landscape that faces them, with a focus on advising on family trust and foundations structures. Contact: jmilward@kpmg.com
ABOUT KPMG
The KPMG firms in the Channel Islands and the Isle of Man have combined to create KPMG in the Crown Dependencies. This creates a professional services business of 460 people, locally owned and dedicated to serving the key industry sectors across the three islands.
