One of the major reasons why so many travelers fly across Dubai's airspace is the duty free goods they can buy from its international airport. However, contrary to the popular belief, Dubai is not a tax free territory. It does provide certain tax incentives for various businesses to function and grow economically. The trend of tax benefits began making rounds with the announcement of Jebel Ali Free-trade zone in 1985. Several more have been added into this list since then, until recently. These additions include Maritime City, the Internet and Media Cities, the International Financial Centre and the Airport Free Zone.
Oil revenues were the main segment of Dubai's per capita income in the post oil exploration period of 1960s. This however, transformed dramatically once the free zones began showing dividends. As a result, no longer do they have to rely on the oil reserves for their economic well being. The amount of foreign investment has been going up remarkably in the post free zones period, and makes much of Dubai's commerce boost right now. We will have a quick overview of what these free-trade zones are all about and where they are expected to lead Dubai in the years to follow.
The Jebel Ali Free Zone
The Jebel Ali Free Zone is the largest of its kind in the entire middle east and one of the most tax friendly across the globe. The administration has spent over $2.5 billion on its development since its commencement in 1985. Closely linked with the state-of-the-art Jebel Ali Seaport and the cargo village of Dubai international airport, the free trade area provides amazing turnaround for sea-air transportation. It also gives an access to the companies to an estimated consumer market of over 1.5 billion in the countries surrounded by the Gulf and Red sea. Companies are initially allowed to have a 15 year tax exemption period, which is then allowed to be renewed by another 15 years. Over 2000 companies from across the world are functioning at this juncture from this free zone.
Dubai Internet City and Dubai Media City (DIC)
These zones were created in 1990 to address to the growing demands of media and communications companies seeking benefits on a par with the Jebel Ali Free Zone. A fifty year tax exemption is granted initially, and no restrictions of local partnership or sponsors are applicable for the investors in these areas. Leading names such as Microsoft, Canon, McGraw-Hill, Reuters, and CNN are already among the major stake holders of this free trade entity. Benefits for the investors include a highly advanced technical infrastructure for their business operations apart from the general tax booties they could enjoy.
The Dubai International Financial Centre (DIFC)
DIFC was created in 2004 with an intent on providing financial companies with a permanent foothold in the region. This will lead to the strengthening of economic activities in the UAE and the Middle East as a whole. There are no constraints on how long the companies may remain under various tax benefits, thus making investments in this zone far more lucrative. DIFC carries six segments including the Banking Services, Capital Markets, Asset Management & Fund Registration, Reinsurance, Back Office Operations and Islamic Finance.
Dubai Airport Free Zone
Established at the international airport in 1996, the Dubai Airport Free Zone already holds over 460 companies from various sectors. Benefitors enjoy 100% tax exemption, 100% ownership rights, easy access to airport facilities, rapid cargo clearance and an availability of cheap labour. Companies such as Bang & Oulfsen, Boeing and Caterpiller are some of the stake holders in this free trade area.
The Dubai Maritime City
The Dubai Maritime City will be the latest addition to the growing list of free zones in Dubai. An estimated marine area of 2.5 million square meters will be handed over to the marine and maritime related industries. The zone is expected to be completed before the end of 2006.
As Dubai’s administration continues on with their free trade policies, the share of oil revenues in the GDP is bound to go down further with each passing year. The development of free zones was aimed on achieving this miracle for Dubai's populace and they have handsomely succeeded in doing so until this date.
1) Don't chase numbers - Often, investment of insurance companies will try to dazzle you with attractive yields. If someone comes to you and say that they have tax free investment products that offer an unusually high yield, don't just take their word for it. Analyze the numbers for yourself and understand what they mean. It certainly helps to be discerning. If it sounds too good to be true, it probably is.
2) Don't chase new financial products - Investment and insurance companies are forever issuing and announcing new products. The recent trend - a plethora of new tax free products. They do this for many reasons but one of the main reasons is to keep up with the evolving needs of the marketplace. If you find some of these new products to be a good fit for your existing investment port folio, take some time to examine them. Otherwise, just walk the other way, or you may find yourself burdened with a large number of financial products that you not really need.
3) Always keep yourself updated with the latest investment deals - Keeping abreast of recent changes in the marketplace prevents you from investing in an outdated financial product. For example, if you are a high-net-worth investor (HNWI), you may qualify for a Private Placement Life Insurance policy. This new contract allows you to invest in a variety of tax free investment instruments, and gives you additional protection by wrapping your contract with an insurance element.
4) Managing your investment risks - You can do this by investing in a wide variety of bonds, equities and other tax free investment funds such as hedge funds. Keeping a close watch on your investment portfolio is a must, so that investment decisions can come quickly in respond to constant and fluid market changes.
5) Take note of any changes in the investment funds - For instance, the top management for a particular fund may have changed recently. This may mean a change in investment philosophy. If the new philosophy is not aligned to your own investment philosophy, you may want to consider switching funds. Your accountant or investment advisor may also help to keep track of other changes such as changes to fund management fees.
6) Never judge a book by its cover - Some investors think that they know everything about a fund just by looking at its name. But the fact is, the name of the fund is not always an accurate indication of the risks that the fund is undertaking. Always take the time to scrutinize prospectuses and other documentation. Even when the name claims that it's a tax free investment fund, look into the instruments that the fund will be investing in to assess the level of risk. When in doubt, consult a trusted professional investment advisor.
7) Investing in tax free funds without a plan - There is no need to rush into any investment. Hasty decisions often lead to undesirable results. So take some time to sit down and discuss various tax free investment options with a financial advisor. Draw out a plan, chart a course, and head towards your desired direction to help achieve your own financial goals.
At the end of the day, it's all about managing risks and maximizing returns in order to achieve the goals that you want as soon as possible. In the complex world of investments, there are many pitfalls. But these pitfalls can, and should be avoided. Don't hesitate to get professional help. After all, professionals look after millions of dollars of investments, and they are also more updated on the latest trends. This means they will be in a much better position to offer you sound investment advice.
Both Pankaj Mohan & Gen Wright are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Pankaj Mohan has sinced written about articles on various topics from Real Estate, Other Conditions and Watches Reviews. Pankaj Mohan is an India based freelance writer who often writes on behalf of DubaiFurnishedApartments.com. Have a look on this site to learn about various