UAE considers imposing tax on remittances abroad

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The UAE is considering whether to impose a tax on the billions of dollars which foreign guest workers send back to their home countries every year, government and banking sources said.

It is unclear whether authorities will proceed with the tax, which would mark a major shift of policy, potentially raising costs in the economy and reducing the supply of foreign labor on which much of the UAE’s boom is based.

But the proposal reflects growing concern in the UAE and other Gulf countries that they may be becoming too dependent on foreign workers and are losing too much of their wealth in the form of remittances abroad.

A circular discussing the proposal and requesting feedback was sent to some banks and financial institutions in the UAE, the sources said.

“It is a pilot project, in the initial stages. Based on the feedback from banks and others, a decision will be taken,” said a Ministry of Finance source.

Official comment from the ministry could not be obtained.

About 80 percent of the population of roughly 8 million in the UAE, the second biggest Arab economy, are foreign citizens, many of them from south and southeast Asia. They fill almost all strenuous or relatively low-paying jobs in industries such as construction and services.

Employees in the UAE transferred a net AED45.1 billion ($12.3 billion) out of the country last year, up from AED41.2 billion a year earlier, according to central bank data.

The UAE’s efforts to diversify its economy beyond oil have been built partly on its low-tax environment — there is no income tax — so many bankers believe it will hesitate to introduce any heavy taxes.

“Remittances are key for expats in the UAE. A lot of them come here to support families back home,” said one commercial banker.

“If regulations block that, the attractiveness of regions such as Dubai will be under threat. So we expect any such levies to be nominal, if they are imposed at all.”

However, Gulf countries have become concerned about the vulnerability of their economies since the global financial crisis caused oil prices to plunge in 2008.

The UAE posted a massive surplus of trade in goods and services of 244.4 billion dirhams last year, but that could quickly change if oil prices fall sharply again, making it difficult for the country to afford large outflows of money.

So officials in the Gulf have been trying to boost employment of their own citizens rather than lower-cost foreigners. UAE Prime Minister Sheikh Mohammed bin Rashid Al-Maktoum said earlier this year that finding jobs for UAE citizens was one of the government’s top priorities.

Abu Dhabi is believed to run a comfortable budget surplus but the second biggest emirate Dubai, which is coping with the aftermath of its 2009-2010 corporate debt crisis, might welcome extra revenue from a remittance tax.

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