Jurisdictional Arbitrage and U.S. Capital Outflows: The Strategic Positioning of the UAE as a Tax Haven

Fariha T. Sneha

In an era of increasing financial globalization, U.S. individuals and corporations turn to offshore investment strategies to reduce domestic tax liabilities. This practice is called jurisdictional arbitrage, which reflects a broader trend in offshore tax planning, where taxpayers exploit differences between national tax systems in response to the Internal Revenue Service’s global reach. Tax havens offer legally permissive environments for asset protection and income deferral. While international tax avoidance remains legal within certain bounds, the line between avoidance and evasion is increasingly blurred, particularly in jurisdictions with lenient financial oversight. These tensions between national enforcement and global tax mobility are most visible in the case of the United Arab Emirates.

Long perceived as a permissive jurisdiction for foreign capital, the UAE has rapidly expanded its appeal to international investors through relatively low tax rates and residency-by-investment incentives such as the Golden Visa. The UAE’s Golden Visa, introduced in 2019, provides a ten-year renewable residency to foreign investors who contribute at least 2 million AED (approximately 545,000 USD) in real estate or qualifying investment funds. [1] Real estate income in particular is also exempt from the UAE’s corporate tax structure, making it an attractive asset class for foreign investors like U.S. citizens seeking to minimize taxable income without formally expatriating. Unlike the U.S. EB-5 program, which requires a minimum $800,000 investment and mandates job creation, the UAE’s Golden Visa imposes no such employment conditions, which is a fairly accessible path for passive investors. Moreover, the UAE introduced a corporate tax on net profits in 2022 and excluded real estate investments made by individuals. Brokerages and firms are subject to this tax unless their primary income derives from capital gains and dividends. These selective exemptions illustrate how the UAE continues to offer legal pathways for tax minimization for foreign investors. However, these methods enable lawful tax avoidance and may also facilitate tax evasion, particularly in the absence of strict regulatory oversight.

Despite its investment appeal, the UAE has faced international scrutiny for weak financial oversight and inadequate anti-money laundering enforcement. The Financial Action Task Force (FATF) placed the UAE on its grey list in March 2022, as the absence of robust penalties facilitated money laundering and terrorism financing. Back in 2020, the U.S. Embassy in Abu Dhabi requested that the UAE investigate U.S. attorney Asim Ghafoor’s financial activities on behalf of the U.S. Department of Justice, Federal Bureau of Investigation, and IRS. The investigation revealed Ghafoor had been laundering at least $4.9 million through multiple Emirati bank accounts. In May 2022, Ghafoor was convicted by a UAE court on charges of money laundering and tax evasion [2] under UAE Federal Law regarding Money Laundering, Financing of Terrorism, and Financing of Illegal Organisations. [3] As a result, he was fined $1.36 million and faced deportation from the UAE. Following the ruling, President Biden praised the UAE's efforts to strengthen policies against financial crimes. [4] Despite occasional concerns over the IRS's overreaching into tax havens, the case emphasized the critical need for international cooperation in curbing financial crimes and holding wrongdoers accountable for illicit money flows. In the same month, the UAE Ministry of Finance launched a new reporting portal for the Foreign Account Tax Compliance Act (FATCA) and Common Reporting System to increase transparency. [5] As demonstrated, the UAE has made significant strides in 2022 in improving its financial crime regulations, which eventually led to its removal from the FATF grey list in February 2024. The U.S. remains vigilant regarding potential financial crimes in the UAE, particularly those involving American citizens. 

To counter offshore tax evasion, the U.S. has deployed a series of reporting requirements and international agreements targeting financial opacity. The Financial Crimes Enforcement Network now requires reporting of foreign bank accounts with balances exceeding $10,000 via the Foreign Bank and Financial Accounts Report (FBAR), and the FATCA mandates that U.S. residents’ accounts in UAE banks be reported to the IRS. In response to global concerns over tax base erosion, the Biden administration has backed multilateral efforts to enforce a global minimum corporate tax. The Organization for Economic Co-operation and Development (OECD) and the Group of Twenty (G20) brokered a landmark 2021 agreement in which 136 nations committed to a 15% global minimum corporate tax. This agreement aims to curb tax avoidance by multinational corporations and was projected to generate an additional $192 billion in global tax revenue annually. Shortly after President Trump’s second inauguration, he signed an executive order withdrawing from the OECD tax agreement. [6] Going forward, this decision will allow U.S.-based multinational companies to continue shifting profits to tax havens. While this benefits corporations seeking to maximize profits, it also raises concerns about the stability of international tax cooperation and the potential for more competitive tax practices between nations.

The Biden administration also introduced the Global Intangible Low-Taxed Income (GILTI) rules and Controlled Foreign Corporation (CFC) regulations as part of a more aggressive approach to auditing Americans with offshore assets. GILTI targets profits stashed in tax havens and increased the rate from 10.5% to 20%. CFC rules require that if an American resident owns more than 50% of a UAE-based entity, it automatically triggers an investigation conducted by the IRS. [7] While these regulations are designed to close loopholes in offshore tax avoidance, they could be reversed in the foreseeable future under the Trump administration, as he aims to create more favorable tax conditions for businesses and their owners. A potential rollback of these measures would not only reopen avenues for profit shifting but also significantly weaken the regulatory framework aimed at deterring capital flight. In such a scenario, multinational corporations and wealthy individuals would face fewer barriers to moving assets offshore, further shrinking the domestic tax base. This could result in substantial revenue losses for the U.S. government, complicating efforts to fund public services and widening the gap between corporate and individual tax burdens. Moreover, the perception that tax enforcement is being relaxed for the wealthy and powerful may erode public trust in the fairness of the tax system, exacerbating existing inequalities and undermining the legitimacy of fiscal governance.

According to the International Consortium of Investigative Journalists, the Tax Justice Network, the Global Alliance for Tax Justice, and Public Services International, multinational corporations contribute to a loss of $312 billion annually due to tax abuse. In the U.S., the IRS estimated that tax evasion could total $1 trillion per year, far exceeding previous projections. [8] Offshore tax evasion, illegal income going undetected by the IRS, and underreporting by pass-through businesses further widen the tax gap. Since the U.S. follows a citizenship-based taxation system, U.S. citizens and corporations must report all worldwide income, regardless of residency or where the income is earned. Although the UAE’s market offers enticing opportunities, American investors remain bound by U.S. tax laws and are therefore required to pay taxes on profits from their financial ventures. For the 2024 tax year, expats can exclude up to $126,500 for foreign earned income, and a married couple with income abroad can exclude up to $253,000 combined. For self-employed individuals with financial holdings abroad, the deduction is calculated by taking foreign-earned gross receipts, expenses directly related to those receipts, and a deduction for half of the self-employment tax into account. [9] The Foreign Tax Credit also helps offset taxes paid abroad, but it has less bearing in the UAE, given the low taxation rates. 

While the U.S. continues to refine its offshore tax rules, the structural advantage of jurisdictions like the UAE, along with investors’ demand for flexible, low-tax places, means legal friction is unlikely to disappear. The continued appeal of tax havens like the United Arab Emirates reveals more than just gaps in regulatory oversight, it reveals the structural inadequacy of existing tax frameworks in addressing global financial mobility. While the United States maintains one of the most far-reaching offshore enforcement systems in the world, its approach remains limited, especially when applied to jurisdictions that actively court foreign capital. The UAE’s model of low taxation, minimal financial disclosure, and investor-friendly residency incentives creates a legal environment where tax avoidance flourishes without necessarily violating the letter of the law. This legal grey zone is sustained by the inertia of domestic policy and the limits of international coordination. While measures such as FATCA, GILTI, and CFC rules represent substantial efforts to address tax avoidance and evasion, they remain insufficient to deter capital flight or promote tax equity in the absence of uniform global standards and robust enforcement cooperation. High-net-worth individuals and multinational corporations with the resources to exploit these regulatory gaps continue to benefit disproportionately, which further undermines the legitimacy of domestic tax systems and exacerbates economic inequality. If the U.S. is to respond effectively, it must reassess the legal assumptions that allow tax havens to persist. So long as enforcement remains fragmented and discretionary, the legal foundation of offshore taxation will continue to favor opacity over accountability. Without foundational reform and stronger international alignment, the legitimacy of global tax systems will remain compromised.

[1] UAE Government, Golden Visa, (Jul. 15, 2024), https://u.ae/en/information-and-services/visa-and-emirates-id/residence-visas/golden-visa.

[2] UAE Embassy, Statement on the Case of Asim Ghafoor, U.S. Embassy in the UAE,  (Aug. 8, 2022), https://www.uae-embassy.org/news/uae-embassy-statement-case-asim-ghafoor/.

[3] Federal Law No. 20 of 2018 (UAE), On Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations.

[4] Vivian Yee, American Lawyer Asim Ghafoor’s Sentence Overturned, N.Y. Times (Aug. 10, 2022), https://www.nytimes.com/2022/08/10/world/middleeast/american-lawyer-asim-ghafoor-sentence-overturned.html/.

[5] PwC, UAE MoF New Reporting Portal for FATCA & CRS, PwC Middle East Tax & Legal News (Jun. 1, 2022), https://www.pwc.com/m1/en/services/tax/me-tax-legal-news/2022/uae-mof-new-reporting-portal-for-fatca-crs.html/.

[6] Brenda Medina, Trump Pulled the U.S. Out of Global Tax Agreements and Negotiations. It May Backfire., International Consortium of Investigative Journalists (Feb. 13, 2025), https://www.icij.org/news/2025/02/trump-pulled-the-u-s-out-of-global-tax-agreements-and-negotiations-it-may-backfire/.

[7] David S. Miller, The Biden Administration Proposes Changes to the U.S. International Tax Rules, Proskauer Tax Talks (Apr. 22, 2022), https://www.proskauertaxtalks.com/2022/04/the-biden-administration-proposes-changes-to-the-u-s-international-tax-rules/.

[8] Sean McGoey, Nearly $500 Billion Lost Yearly to Global Tax Abuse, Due Mostly to Corporations, New Analysis Says, Int’l Consortium of Investigative Journalists (Nov. 19, 2021), https://www.icij.org/inside-icij/2021/11/nearly-500-billion-lost-yearly-to-global-tax-abuse-due-mostly-to-corporations-new-analysis-says/.

[9] U.S. Internal Revenue Service, Figuring the Foreign Earned Income Exclusion, https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion (Mar. 14, 2025).