x Abu Dhabi, UAEWednesday 17 January 2018

On Your Side: Navigating taxes for military pensions can be tricky

It is possible for someone without a residency visa to get a bank account in the UAE, but they would not be offered the full range of services, and other financial questions answered.

Although I have been in the UAE for quite a few years, I was previously in the British forces and built up a decent pension. I will shortly be eligible to draw on this pension, but have questions about the tax and what will be deducted. I am not planning to return to the UK for many years, if at all, so would like to know what I can do to reduce the tax I will have to pay on this income. CR, Abu Dhabi

Military pensions are treated differently than private-pension schemes. While it is possible for private arrangements to be paid to you overseas without any tax being deducted, for a Ministry of Defence pension, you may only apply for the basic rate of tax to be deducted. This is instead of an automatic deduction at a higher rate of tax, which is often assumed, especially for higher ranks and longer service. If you do not intend to return to the UK and your pension fund is of sufficient size to make it cost-effective, you should consider a Qualifying Recognised Overseas Pension Scheme (QROPS) because it allows for income to be paid to you without the tax deductions if you are UK non-resident. However, ensure that you take proper advice from a qualified and experienced independent adviser because this is a complicated arrangement.


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I need to ask you a question about Australian taxes. I have received my immigration visa to Australia and I will be moving there soon. If I want to transfer my money there (quite a large sum) and deposit it in an Australian bank, what is the percentage of tax, or how much money will be deducted from my capital due to tax? HD, Abu Dhabi

The information you require is available from the Australian Tax Office, although their website is not as clear or helpful as it might be. My understanding is that you can take the money into Australia without any tax liability, providing there is no tax due on the capital sum elsewhere. There are conflicting schools of thought, but my research shows that you are unlikely to be taxed on the capital at point of entry. Once the money is in an Australian bank, however, it becomes part of the system and any interest earned is taxed in accordance with your personal tax rates. These are on a sliding scale based on your overall level of income.


I have a contract that promises me an end-of-service gratuity of 21 days' remuneration for each year of the first five years of service. My question relates to how the 21-day remuneration is calculated. Does the period include weekends or is it 21 working days? How should the amount for each day be calculated? Would you take the annual salary and divide it by 365 or by 261 (minus the weekends)? DB, Abu Dhabi

Calculations for end-of-service gratuity are based on calendar years, or part years, of service and weekends are not discounted for the purposes of the calculation. The UAE's Labour Law states that the gratuity is based on the duration of the employment, taking into account unused leave. Because you are legally allowed to take a certain amount of annual leave, as long as the days taken at the date of leaving do not exceed the annual accrual rate, these days should also not be deducted.


I was recently hired by a Bahrain-based company to work in Dubai, where the company is operating. But it has not yet been incorporated. I had previously been working for another Bahrain-based company and had an account at National Bank of Bahrain (NBB), which, upon completion of my service contract, froze my account. Although NBB has branches in the UAE, I am not allowed to bank at its branch nor am I allowed to open an account at a UAE-based bank until either my company incorporates here or I become a legal resident, or both. To further complicate matters, as an American expat, I am now exposed to a full tax liability if I have no other option but to use one of my US-based bank accounts. Several colleagues in similar situations have opted to open accounts in Beirut, which seems extreme to me given the distance. I would appreciate your advice because, having been here three months, I am still trying to navigate these issues. RJ, Dubai

It is possible for someone without a residency visa to open a bank account in the UAE, but they would not be offered the full range of banking services. Essentially, you will be able to open a simple account, much like a savings account, but with an ATM card. Once your full residency visa has been issued, you will be able to upgrade to a full banking service. It may be helpful to obtain a letter from your employer explaining why you do not yet have residency. While not all institutions are amenable, you should be able to open an account at quite a few banks, including HSBC, Lloyds TSB, or ME Bank. I have also spoken to RAKBank, which has confirmed that it would open a basic account for you. On a side note, it is illegal to work without a residency visa and work permit, although there is a 60-day grace period while visas are applied for and issued. Although this is not a problem of your making and I understand that your employer has had delays in organising a branch licence and has been granted interim approval to trade, both parties could be held responsible if there are staff without the proper residency visas and face heavy fines if the authorities are made aware of the situation.

Keren Bobker is an independent financial adviser with Holborn Assets in Dubai. Write to her at onyourside@thenational.ae