UAE in top five offshore markets for client origination over next five years
Offshore Incorporations Limited (OIL), a division of OV Group, a company formation and corporate service specialist focused on serving the financial and professional intermediary sectors, has released its fifth annual market research report “Offshore 2020”. This year, over 300 global senior industry stakeholders were surveyed, highlighting major trends and providing insights into the future state of the offshore industry.
After the scrutiny and moral debate in the past 12 months over the use of offshore structures, this year’s “Offshore 2020” found that the industry is emerging strongly, embracing better regulation, more transparency and a higher degree of professionalism. In turn, respondents say the fundamental role the offshore industry plays in the global financial supply chain, including international trade, capital efficiency and asset management, is being better recognized. As developing economies mature across the Middle East, Asia, Africa and Latin America, asset protection and wealth management will be the primary drivers for using offshore entities at an individual level.
Analysing the Middle East results more closely, respondents, when asked to name the top 10 locations for client origination over the next five years, placed the UAE in 5th position, after China, US, UK and Hong Kong but ahead of countries such as Singapore, Russia and India. One of the principal reasons is owing to a new generation of individuals and families across the Middle East, as well as Asia and other countries beginning to utilise a range of legitimate wealth protection strategies as well as the growth in prominence in the UAE as a global financial and trading centre.
Martin Crawford, Chief Executive Officer of OV Group, commented: “It’s been gratifying to see the subtle shift in the responses to our fifth annual survey of industry participants. While changes and challenges remain, we also see signs of optimism and opportunities for growth, as our role in facilitating foreign direct investment becomes better understood. These capital inflows drive economic growth, fuel job creation and ultimately lift people out of poverty in emerging markets. The industry is a crucial piece of the global financial supply chain and will continue to be long into the future. Of note, the Middle East has always been an important market for us and we are happy to see it is still in a mode of rapid expansion.”
China will continue to be a major growth driver for new business within the industry. Chinese outbound direct investment continues to grow, reaching $90 billion in 2013, up from $60 billion just two years ago, with more than three quarters said to be corporate M&A related. Respondents, when asked about their preferred jurisdictions for outbound China investments, named the UAE together with Luxembourg, Cayman Islands, UK and Ireland as third most preferred destination after Hong Kong and the BVI. For customers, the shift from China inbound to outbound business continues, making the country a market of relevance for service providers such as the UAE.
Nearly two thirds of the study’s respondents expect the Foreign Account Tax Compliance Act (FATCA) already enacted in the United States to be adopted universally across the OECD by 2017, as further countries, including the UAE, reach “an agreement in substance” with US FATCA; and 88 per cent anticipate automatic exchange of information between OECD nations within this timeframe. At the same time, the debate over the critical balancing act between transparency and privacy with increased regulatory oversight will continue, to ensure that the benefits that offshore structures and financial services bring are not undermined in the process.
The consensus this year was clear that increased regulatory and compliance standards have had a significant impact, with demand switching among jurisdictions. Businesses will gravitate to jurisdictions that are seen as more transparent, offering traditional offshore benefits combined with onshore credibility. As a result, the rise of mid-shore jurisdictions such as Hong Kong and Singapore is seen as inevitable, but the BVI and Cayman Islands retain their competitiveness due to mature infrastructure and efficiency for international holding company structures and fund formations, as well as a strong commercial mindset.
Jonathon Clifton, Managing Director, Asia of OIL added: “The industry has faced its share of storms over the past few years but we believe it is emerging stronger for it. While there are likely to be winners and losers from the costs associated with increased regulation, this is not necessarily a bad thing. Obliging the industry to conform to a higher standard is essential to its long-term health and those that are able to offer a genuine value proposition will be well placed to benefit from both the industry consolidation to come, as well as the opportunities from the evolving needs of clients operating in today’s increasingly complex global financial markets.”
