Top 5 Hidden Costs and Obvious Benefits for UAE Expats
There have been many articles about the recently published Friends Provident International / The Economist Intelligence Unit (EIU) report on the cost of living in UAE. There follows one published in Emirates 24/7 which covers the main points and will be particularly useful for those considering a move to Dubai or Abu Dhabi.
New report ‘UAE expatriates and the bottom line’ reveals benefits of living in UAE. The UAE is a very popular expat work destination, with a majority moving here for the better lifestyle they can afford thanks to making – and saving – more money. But with changing times, there are certain factors that now impact the expat population more than before, ultimately determining the length of their stay.
A new report titled ‘UAE expatriates and the bottom line’ by The Economist Intelligence Unit and sponsored by Friends Provident International reveals the benefits of living in the UAE and highlights some of what it calls hidden costs – factors that can make or break the stay of an expatriate. While expats in the country will most certainly be aware of these factors, those considering a move may benefit from these in making an informed choice.
#1 Tax-free status
For most expats in the UAE, a tax-free income makes a perfect case for living and working in the country. Expatriates working here have zero levies against income, which means big saving for an average individual, the report highlights. For example, an expatriate earning $100,000 in the UAE realises the full amount. Elsewhere, the same salary would result in a take-home pay of just $66,000 (in the US), $70,000 (in the UK), $72,000 (in India) and $73,000 (in Australia). This zero-income-tax environment has proved a major draw for expatriates. The amount we may have had to pay as income tax elsewhere goes straight into our own pockets (44, 30, 28 and 27 per cent in the case of Americans, British, Indians and Australians, respectively). This would mean that this big chunk of our salary has the potential to become savings.
#2 Cost of living – you win some, you lose some
This is especially true when the UAE is compared with Western economies although it does boil down to how much fiscal discipline an individual displays in the face of windfall savings. But first, the facts: Abu Dhabi and Dubai are 38 and 42 per cent, respectively, cheaper than Sydney, based on the basket of goods used by The Economist Intelligence Unit’s Worldwide Cost of Living survey. The gap is less pronounced but still significant for London (35 and 37 per cent, respectively) and New York (27 and 30, respectively). So, for expats coming from such locations, the money they spend on several products will be lower, leaving them with more disposable income at the end of the day. But things are different when the cost of living in the UAE is compared to countries like India, where the listed goods by EIU are considerably cheaper.The same basket of goods in Dubai and Abu Dhabi are respectively 55 and 62, respectively, more expensive than New Delhi, and 70 and 75, respectively, more expensive than Mumbai. The cost-of-living benefits, however, need to be balanced against a variety of challenges, says the report. In addition, as the report notes, “there is the consumerist environment, which challenges the financial discipline of some expatriates.” It maintains that shopping is firmly ensconced as a leisure activity in UAE, especially in Dubai, and that Western expatriates often struggle to keep control of their purse strings, with some incurring high and occasionally ruinous debts. “Low long-term interest rates and easily obtainable credit have driven a debt-fuelled spending spree. Others have engaged in risky investments that proved vulnerable to market shocks such as the 2008 global financial crisis,” it notes.
#3 Property costs
Property costs have a major impact on the personal finances of expatriates, just like anywhere else. In absolute terms, rents in Dubai and Abu Dhabi for high-end accommodation compare favourably with those of London, New York and Sydney, but not New Delhi. Mumbai rents are traditionally high, and for one-bedroom apartments closely match those of the UAE, the report highlights. But while expatriate-level rents in London and New York are higher, they sit atop a very different rental market with a wider range of options and prices available, it states. In the UAE, expatriates tend to rent high-end accommodation. Clearly, these dynamics are advantageous to expatriates who own property in the UAE but the majority prefers to rent, it adds. Annual hikes do make a dent into the incomes of those who rent, but the case was reversed after the 2008-09 global slowdown when property prices and rents plunged. While several expats upgraded their rental homes during that period, the recent reversal may be forcing some to scout for cheaper options, the report maintains.
#4 Schooling fees
Schooling is a second challenging expenditure for expatriates. “Provisions for school fees, once a part of many expatriate packages, are starting to come out of the typical contract for professionals in the region as competition for jobs heats up,” the report maintains. Research quoted by the report shows that average annual Indian school fees in the UAE is Dh22,000 ($5,995) while average British school fees in the UAE are more than double that, at over Dh50,000. These averages mask big disparities, it adds, with some schools’ annual fees as high as Dh94,000. The rising cost of education impacts the expatriates and this is particularly pronounced at secondary-school level, when the fees shoot up driven by the salaries needed to attract the quality of teachers required, it adds. Schooling allowance, which, is now not necessarily a part of the expat package hits more and families have to adjust their household budgets to offset the rising tuition fee.
#5 Cost of food
At the day-to-day level, expatriates face the same cost of living increases that they may face elsewhere, but it becomes more pronounced in the UAE since, as the report points out, “with no domestic agricultural sector, most food demand is fulfilled by costly imports”. In addition, it highlights that “popular brands have a premium attached, and goods of assured quality may come with a disproportionately high price-tag”.
I hope the above is useful. Please let me know if you have any questions or comments.