Billionaires are increasingly flocking to a growing financial hub in the Middle East to protect their financial assets as other tax havens fall out of favor.
The United Arab Emirates (UAE) and its capital city, Abu Dhabi, have become a financial refuge for high-net-worth individuals in recent years as it looks to diversify its economy from being reliant on oil revenue.
This comes as traditional tax havens like the Cayman Islands and the British Virgin Islands face heightened scrutiny from financial regulators in the U.S. and Europe, while Switzerland steps up its oversight of accounts in the country.
An analysis by Bloomberg News found that hedge fund billionaire Ray Dalio, crypto magnate CZ Zhao and the Adani family of India are among the dozens of wealthy individuals who have established special purpose vehicles (SPV) in the Abu Dhabi International Financial Center this year alone.
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The analysis found that over 5,000 SPVs now exist in the Abu Dhabi Global Market (ADGM) – a dramatic increase from 46 in 2016 – according to data from wealth advisory firm M/HQ.
A spokesperson for the ADGM told Bloomberg that SPVs allow for both equity and property assets. They also do nOt have minimum capital requirements or restrictions on the nationality of shareholders, which makes it easier for investors to park their money there and reap the benefits of low taxation.
The lack of restrictions on the nationality of investors looking to establish an SPV in Abu Dhabi has allowed it to continue to serve as a haven for Russian investors, including steel industry billionaire Vladimir Lisin, as Western countries have ramped up sanctions following Russia’s invasion of Ukraine in early 2022.
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The ADGM was first established in 2013 and became fully operational in October 2015. The ADGM free zone, similar to a free trade zone, has its own financial regulator, registration bureau for legal entities and court system.
Its court system features legal frameworks that directly apply English common law and its emphasis on precedent, as well as the impartiality and independence of judges.
The use of common law also provides confidence to global businesses that operate in jurisdictions around the world that utilize common law, which underpins the legal systems of the U.S., United Kingdom, Australia and Canada. It has also influenced the legal systems of other financial hubs, including Singapore and Hong Kong.
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In the case of Hong Kong, the Chinese government pledged to respect the common law, known in Hong Kong as the Basic Law, for 50 years following Britain’s 1997 handover of the former colony – but its imposition of a sweeping national security law on Hong Kongers in 2020 has undermined the viability of the “one country, two systems” framework.
The physical footprint of the ADGM covers Al Maryah and Al Reem Islands, making it one of the largest financial districts in the world. In April 2023, the ADGM expanded its jurisdiction into Al Reem Island.