Russian Move to Dubai by Low Taxes, No Sanctions

· Real Estate Booms

City-state becoming destination of choice for Russian companies and wealthy individuals seeking haven from Western restrictions

The Middle East city-state of Dubai is fast becoming the international hub of choice for Russian companies and wealthy individuals seeking to run their businesses and protect their money while avoiding sanctions over the invasion of Ukraine.

Russia’s largest oil-tanker company has set up shop and Russians are investing in Dubai’s luxury apartments. Dubai has also drawn commodity traders, startups and employees of Western companies leaving Russia.

Behind the moves is the decision by the United Arab Emirates and its main commercial city to not enforce U.S. and European sanctions on Russia, as they try to maintain a neutral stance in the war despite their longtime security partnership with Washington.

Those moving to Dubai have found an already-thriving community of about 100,000 Russian speakers and other benefits, such as relatively easy immigration laws and no income tax. Russian tourism has also doubled this year, as flights between Moscow and the U.A.E. continue.

“Dubai has almost a perfect set of conditions to make it attractive to Russians seeking a safe haven for themselves, their families and their assets,” said Racha Helwa, an economist at the Atlantic Council’s Rafiq Hariri Center for the Middle East in Washington.

Western officials have asked the U.A.E. to curb trade with Russia, to no avail. While other countries, such as Turkey and Kazakhstan, also are welcoming Russians, and India is buying Russia’s oil, Dubai’s role at the global nexus of money flows means Western diplomats are particularly concerned about whether the emirate will be used to bypass sanctions.

A spokesman for the U.A.E. foreign ministry declined to comment, referring to a statement issued by the government last week that said it “reiterated its commitment in working with the international community to combat financial crime and remind businesses of their obligations in relation to international sanctions programmes.” The statement didn’t say whether the U.A.E. was specifically enforcing sanctions imposed by other countries on Russian individuals and companies.

Abdulkhaleq Abdulla, a political scientist in the U.A.E., said the country’s openness to Russian business reflects the Emiratis’ decision to keep a neutral foreign-policy stance.

“When it comes to American and EU sanctions, we are very selective,” he said. “We can say no sometimes.”

Before the war in Ukraine, Sovcomflot, the Russian state oil tanker company, managed its vessels from St. Petersburg and conducted its European banking in Cyprus, hiring out its 122-strong tanker fleet to oil companies around the world, including France’s TotalEnergies and Saudi Arabian Oil Co., known as Aramco.

Now, U.S. and European sanctions ban any dealings with the company, making it impossible for Sovcomflot to work with insurers, banks and traders in Europe. Current and former Sovcomflot employees said the company chose to move much of its operations and some of its staff to Dubai, where executives are confident the government won’t enforce sanctions on its subsidiary there.

With a base in Dubai, Sovcomflot can get services to keep its vessels sailing, including taking on fuel, getting repairs and securing crews and banking services, said shipping-industry officials and experts on sanctions. The arrangement has thrown a lifeline to Moscow’s oil exports, with Russian state companies like Rosneft using Sovcomflot tankers to ship crude, according to shipping databases. Energy-export revenue accounts for 40% of Russia’s budget.

Most Russian individuals or companies setting up in Dubai aren’t sanctioned.

In early March, Sofia Kostiunina decided to move the headquarters of her startup Speaklab Limited from St. Petersburg to Dubai as sanctions on the Russian economy meant she couldn’t manage payments to partners overseas or use videoconference and email marketing services from Western companies. Her company brings together people from different countries to learn languages in-person and online, and she said it would have folded had it stayed in Russia. Setting up in Dubai’s financial center took a few weeks.

“A lot of companies are transferring employees to Dubai, mainly because it is easy to get workers from Russia to Dubai,” she said. “We didn’t have much choice.”

Job sites advertise roles for Russian speakers at hotels, restaurants and beauty salons across Dubai.

Financial professionals in Dubai said they are receiving requests from Russian businessmen to resettle operations from Western Europe, where banks have shut down Russian-connected accounts. Dubai banks are helping Russians establish themselves, even as they ask more questions about potential customers to avoid sanctioned individuals, financial professionals said.

One firm focused on relocating wealthy people and their assets to the U.A.E. said that until the invasion of Ukraine, it hadn’t signed up a Russian client since 2016. Since February, it has taken on 15, about a third of its new clients. The firm said the value of the assets—companies, cash and other wealth—it was helping transfer to Dubai was well over $4.5 billion. These clients have moved their residency from Russia and corporate registrations and bank accounts from Luxembourg, Cyprus, London and Zurich to Dubai.

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Virtuzone, a company that helps foreigners establish firms in the U.A.E., said its percentage of Russian clients, while only a fraction of its total base, has doubled this year versus the previous year. Western companies, including Google and JPMorgan Chase, have also moved their Russian employees to Dubai.

Some Russian assets are on public display. The Madame Gu, a blue-and-white Dutch-built ship belonging to the family of Russian parliament member Andrey Skoch, has been moored in Dubai for the past two months. Mr. Skoch didn’t respond to requests for comment. The city-state also has become a busy parking spot for grounded Russian jets, including one owned by Roman Abramovich, The Wall Street Journal has reported.

The interest in Dubai is boosting an already-hot real-estate market.

At the start of the war, Russia banned people from taking more than $10,000 of foreign currency out of the country in cash, a figure that was later increased to $50,000.

Hundreds of foreign companies from Pepsi to Apple to IKEA have pulled back operations in Russia as the West has hit the country with sweeping sanctions. Here’s how Russians are living with the economic fallout from Moscow’s decision to invade Ukraine. Photo: Vlad Karkov/Zuma Press

But Russians say they have been able to send larger amounts to the accounts of real-estate developers to fulfill commitments to buy property in friendly foreign countries. Russian banks are allowing individuals to transfer the equivalent of hundreds of thousands of dollars in cash to the bank accounts of U.A.E. property developers—but only if they are selling units in buildings under construction and due for delivery in the future, according to real-estate brokers and developers. That caused a flood of buying of units in skyscrapers and villas under construction, they say.

In one skyscraper under construction, half of the 330 apartments have already been sold, most of them to Russians, said Munir al-Deraawi, sales director for the building’s developer MAG Lifestyle Development.

Purchasing property from individual sellers is harder as, in most cases, Russians need a bank account based in the U.A.E. to make the transaction, real-estate agents said. Without a company license or a visa, setting up a bank account is difficult.

But buying apartments under construction could earn an investor a so-called golden visa, a 10-year residence permit obtained by buying a property worth no less than 2 million Emirati dirhams, about $540,000.

“Right now, obviously the Russian market is the busiest market,” said Denis Scvortov, a real-estate broker for Ax Capital in Dubai.