The Abrahamic agreements officially established relations between Israel to the United Arab Emirates, after years of secret political and business ties. They brought with them the potential for mutual investments and the opening of new markets. But not only. Dubai is a tax haven that attracts businessmen and companies from all over the world, and the entire United Arab Emirates is seen by many as “one of the last legitimate tax havens”. Choosing Dubai as a place of residence is often also – and perhaps mainly – due to tax considerations.
The issue recently returned to the headlines, against the background of the sanctions imposed on Russian businessmen and close associates of President Putin following the invasion of Ukraine. One of the ways they circumvented the sanctions was to send their money to the United Arab Emirates. In a local angle, Eyal Rosen, the manager of the northern branch of a backup company and who is considered a central factor in the case of irregularities in the non-bank credit company, left Israel, allegedly for Dubai. According to the company’s lawsuit, Rosen, who had already admitted to it that he took millions of shekels – tried to smuggle assets to Dubai in crypto-currencies.
Although the open relations with Israel are relatively new, Dubai has long been a center of attraction for businesses and businessmen from around the world. Dubai is the second largest of the seven emirates that make up the Union. The United Arab Emirates and Dubai mainly are international business centers with limited control over money movements and options that were legal through extremely easy tourist and business visas. The local tax regime is considered comfortable, there is no income tax on individuals and the corporate tax is not applied, except for gas and oil companies and banks. It has six free trade zones where there is no tax at all, so many companies have established their national headquarters there.
Who is no longer a resident of Israel?
Taxation in the United Arab Emirates is also territorial and not personal. That is, Dubai does not collect tax for the income of its residents outside its borders. This is in contrast to the personal tax regime in Israel, according to which as long as a person is considered a resident of Israel, he pays tax here on all his income – in Israel and abroad.
Regarding taxation, the million dollar question in situations where Israelis leave the country, even for relocation, is when do they stop being considered residents? Some of the major disputes with the Tax Authority concerned the issue of tax liability in Israel on income abroad. The most famous case in recent years was that of the model Bar Refaeli who was convicted together with her mother Tzipi Refaeli for a series of tax offenses, including the concealment of her income abroad. The tax arrangement of the late tycoon Sami Ofer also revolved around a dispute over the question of residency. After the claim of the heirs that he was not a resident of Israel in 2009-2006 was accepted, the authority waived the demand for tax payment in the amount of about one billion shekels.
If we return to Dubai, the question arises as to whether those who move there – whether they escape investigations or seek to benefit from favorable tax arrangements – will be considered residents of Israel or not. Another question is whether the tax authority can reach their revenues. If their money is there, how can the Israeli Tax Authority get its hands on this money?
According to attorney Tal Atzmon, partner and director of the tax department at the Seligman firm and member of the committee for reform in the field of international taxation in Israel, “Obviously people move to Dubai because there is no income tax and the corporate tax policy is very lenient. There are not many countries with such favorable tax regimes. People also do not have to move the businesses, because the country does not charge tax on income outside of Dubai. The question is whether, by going to Dubai, you actually manage to avoid the tax in Israel.”
A distinction must be made between those who left Israel a long time ago and have been living abroad for years, such as the businessman Teddy Sagi, who moved to Dubai after several years of living in Cyprus; and those who came to Dubai directly from Israel, with a quick and immediate departure, as Rosen allegedly did, just before he was summoned for questioning in the holdings backing case “In practice, only after several years of living abroad can one know whether a person has really severed the answers from Israel, and all his ties to the country, and became a resident of another country,” Atzmon explains.
The tax authority will not give up
The Income Tax Ordinance states that a person who is in Israel for more than 183 days a year is a resident. In addition, there is the “Center of Life” test, which examines ties to Israel, including a permanent home, family members remaining in Israel, business affiliations, and more. According to Attorney Atzmon, “A person who left Israel in 2022, like Eyal Rosen, for example, will be liable for tax in Israel for this year, since there is no dispute that he was in Israel for more than six months in the tax year. Rosen can claim that from the moment he left he was no longer a resident and from that moment he was not liable for taxes in Israel, but the tax authority tends not to receive such reports.”
And how can the tax authority get to the assets and revenues from a practical point of view? In May 2021, the Ministry of Finance signed a tax treaty between Israel and the United Arab Emirates, within which clauses were also established to prevent abuse of the reduced tax rates there to avoid tax in Israel. According to Attorney Atzmon: “Getting to you physically is difficult, but getting to the money is easier. As soon as there is a treaty, you turn to the local authorities and they obtain the information for you and start international procedures.”
A haven for oligarchs
The Israelis, as mentioned, joined the celebration only recently. Russian businessmen, on the other hand, have been investing in the UAE’s luxury real estate for many years. New information recently leaked from Dubai property data has revealed some of the foreign investors. The data, which goes back to 2020, was obtained by the Center for Advanced Defense Studies (C4ADS), a non-profit organization based in Washington, which investigates international crime and conflict, in cooperation with E24, a Norwegian financial media outlet. Many of the names identified are legitimate residents or investors, but they also include property owners who have been accused or convicted of crimes, or who are under international sanctions. The names include more than -100 members of Russia’s political elite, public officials or businessmen close to the Kremlin, as well as dozens of Europeans involved in money laundering and corruption, including officials and legislators.
Among the prominent names who own real estate in Dubai are Ruslan Baysarov, a Russian businessman close to the Chechen dictator Ramzan Kadyrov, as well as Alexander Borodai, a member of the Duma, the Russian parliament, known as the one who became the “prime minister” of the People’s Republic of Donetsk after the Russian invasion of Ukraine in 2014. Also on the Russian list are Roman Lyavikhov, a lawmaker from the Communist Party and Dmitry Rybolovlev, a controversial oligarch.
Ownership of properties in Dubai is of course not limited to the Russian elite, on the list you can also find Daniel Kinahan, the alleged leader of an Irish crime organization involved, among other things, in the cocaine trade. Another well-known name is Czech citizen Tibor Bokor, CEO of crypto exchange Suex.io. This was accused last year by the US Treasury Department of involvement in crypto transactions by criminals who obtained money through ransomware.
In addition to real estate investments, in recent months the United Arab Emirates has become a haven for the yachts and private planes of Russia’s wealthy. According to the New York Times, more Russian private planes than ever fly from Moscow to the United Arab Emirates, and Russian billionaire Roman Abramovich even parked his Dreamliner in Dubai.
Not just Europeans
The leak of the Pandora documents last year also revealed secret financial ties in Dubai of politicians and business leaders from 17 African countries. In addition, a new wave of wealthy Indians is flooding Dubai thanks to the relaxed regulation and tax exemption it offers. In 2019, the United Arab Emirates introduced the golden visa, which offered long-term residence, of five or 10 years, and medical services to its holders. The visa is open to entrepreneurs, people of art, literature and culture, academics and athletes who will invest 10 million dirhams (about 2.7 million dollars). Among the many famous Indian citizens who received a gold visa are Grand Slam (doubles) tennis player Sania Mirza, as well as Bollywood superstar Shah Rukh Khan.
Plenty of opportunities for Israeli criminals as well
The Abraham Accords created a host of opportunities, but also more areas of activity for criminal organizations from Israel and places of refuge for their leaders. About two months ago, the Israel Police reported that as a result of its actions, about 100 of the leaders of crime organizations in Arab society fled, some to Turkey and South Africa, and dozens of others to two of the countries of the Abraham Accords – Morocco and the United Arab Emirates. The targets are not accidental, said a senior police official. According to him, they are accessible, they are international and you can easily assimilate there, and above all, Israel has no extradition agreements with them. Meanwhile.
As soon as the agreements were signed in the fall of 2020, an influx of criminals to the Emirates began. The Emirates, and Dubai in particular, are international business centers with limited supervision of money movements and obtaining a visa is particularly easy. Life is comfortable, the criminal business opportunities are many and there is also access to products that criminals like – luxury cars, jewelry and lots and lots of gold.
“Inflow of money from corruption and crime”
Global police and judicial organizations define Dubai as a haven for international crime. A report by the Carnegie Endowment for International Peace stated that “part of what underpins the city’s prosperity is a constant flow of money that originates from corruption and crime.” Smuggling gold, jewelry and coins from Dubai to Israel, which can be purchased there cheaply, has become quite common. According to intelligence information, an Arab crime organization from the north and a Jewish one from the Lakish area have branches there in the form of jewelry businesses. Recently, Balder from East Jerusalem was arrested in Netvov with gold coins worth a million shekels hidden on his body.
According to police sources, among those fleeing the Emirates is Eitan Haya, who established an activity infrastructure there that attracted dozens of criminals. Some of them moved to live there and some were on the line to Israel and other locations. Some of them manage smuggling from there, some are involved in prostitution and there is laundering of criminal money in the purchase of real estate, mainly in the Emirates, and in investments in legitimate areas. The Emirates love international businesses and make it very easy for them.
The police here and there picked up on the phenomenon, alarming intelligence reports piled up and more than a year ago Emir Ohana, then the Minister of Internal Security, decided to appoint a police attaché in the emirates, for information exchange and coordination. Since the appointment of Nir Zakash to the post, there have been reports that some of the criminals have left, but the country continues to be a center of activity and a city of refuge for Israeli criminals.
Severe international criticism
Dubai is also very convenient for white-collar criminals. As mentioned, the atmosphere is favorable for business and funds can be easily transferred, which are not closely monitored. The emirates are under severe criticism from international parties dealing with the issue and in March of this year the country received a severe reprimand from the Financial Action Task Force (FATF) for not doing enough to stop money laundering and terrorist financing. The country has joined a dubious club of 22 countries, including Pakistan, Syria and Nicaragua, which must be monitored to an increased extent.
In the conversation at the time, a senior banking official in the Emirates explained that “Our goal is to maintain the status of the international business center through the comfortable business atmosphere. With this, we will learn from the audit and apply lessons.”
Old Danny