The United Arab Emirates may offer tax-free income, but rising costs of property and education can eat into the extra income of professional expatriates, the Economist Intelligence Unit said.

Expatriates, who make up around 90% of the population, enjoy an enviable lifestyle in the free-wheeling UAE economy, but it would be naïve to paint Abu Dhabi and Dubai as “expatriate utopias”, according to the report.

“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,” the EIU said.

Much will depend on where expats are moving from, whether they are moving with their family and what type of job they hold.

“The cost of property and school fees are among the biggest challenges, but utilities, charges and indirect taxes can all add up. Expats who plan to save money while here need to do their sums before making the leap”.

The UAE, a high profile business and leisure destination, was ranked 12th most competitive business jurisdiction in the world by the World Economic Forum.

The UAE also offers cheaper cost of living. Human resources consultancy Mercer ranked the UAE as the 67th cheapest destination for expatriates, compared with Hong Kong (ranked 3rd), London (12th), and New York City (16th).

COST CREEP

However, the hidden costs creep up in other ways.

Property costs are among the biggest expense items for expatriates. While authorities have clamped down on rampant rental rates in recent years, the problem remains.

“In the UAE, there is a dearth of mid-range properties, effectively forcing many expats to take pricier accommodation than they otherwise would,” EIU said.

In some districts of Dubai, rents have risen by over 10% a quarter, while prices for some high end accommodation have returned to the 2008 peak. In Abu Dhabi, rents rose by 10% in the first quarter of 2014.

“Landlords have traditionally asked tenants to pay for entire rental periods of six or 12 months in advance,” notes the EIU. “This is easing into the more accepted global etiquette of paying monthly, but rising rents have led to sharp practices from some landlords who attempt to evict tenants mid-period to secure higher rents.”

Rents have risen 20-25% in some cases in the past year, as Dubai’s economy picks up steam once again and business confidence returns.

“After halving between 2008 and 2010, both mainstream and luxury home prices have since largely reversed their previous falls,” real estate consultancy Knight Frank in a new report.

EXPENSIVE EDUCATION

Education is a second big challenge, with fees set to rise again this year by between 1.7% and 3.5%–and some schools seeking increases of up to 7%, according to the EIU.

According to a recent report by real estate consultant Colliers, Grade 12 students enrolled at the most expensive school in Dubai is charged a tuition fee in excess of AED 100,000 annually.

An average Indian school in the country can charge AED 22,000 annually, while British schools could set you back by AED 50,000 per child, according to local media.

“As competition for jobs in the UAE intensifies, some employment packages are losing perks such as education benefits. The cost of education has made some expatriates reconsider the length of their stay in the UAE, especially as fees ratchet up at secondary-school level, the EIU said.

Setting career goals in five or 10-year periods provides an opportunity to re-evaluate when a natural break in their children’s education occurs, it added.

SPLURGING

The tax-free lifestyle can also spoil expatriates getting used to a “consumerist environment” and may be vulnerable to splurge beyond their means.

Credit card debts are high in the UAE, especially as the cost of credit in the country is high compared to other countries. Loan defaulters can also be jailed, which may serve as another warning to expatriates.

While the UAE authorities have tried to clamp down on loans and a credit bureau is on the way, the economy does thrive on a strong shopping culture.

The UAE is undoubtedly one of the most dynamic countries to live in, but foreign expatriates must be cautious and factor in all the disadvantages and negatives.

source: zawya.com