Five considerations for investors based in the GCC

Investors in the Gulf share some circumstances that are worth considering when building a long-term plan. None of the points below is a recommendation. They are questions to discuss with your advisers.

What should GCC-based investors consider when building a plan?

Five points come up repeatedly: how currency pegs affect overseas investments, how residency and nationality shape tax, the tendency to over-invest at home, differences in regulation between countries and free zones, and the availability of Sharia-compliant options. Each is a question worth discussing, not a recommendation.

1. How do GCC currency pegs affect a portfolio?

Most GCC currencies are pegged to the US dollar, so dollar-denominated investments carry little exchange-rate risk for someone spending in those currencies. Investments in euros, sterling or other currencies do carry that risk, because their value in your spending currency rises and falls with exchange rates.

The pegs are long-standing. The UAE dirham has been fixed at 3.6725 per dollar since 1997, the Saudi riyal is pegged at 3.75, the Qatari riyal at 3.64, the Bahraini dinar at 0.376 and the Omani rial at 0.3845. Kuwait has linked its dinar to an undisclosed basket of currencies since 2007. A peg is a policy commitment rather than a guarantee.

As a hypothetical example, an investor spending in dirhams who holds an investment worth 100,000 euros will see its dirham value change as the euro moves against the dollar, even if the investment itself does not change in price. Whether to accept, reduce or hedge that effect is a decision to make deliberately.

2. How do residency and nationality affect tax for GCC investors?

Your tax position depends on your nationality, where you are resident now, where you may live in future and where your investments are held. Living somewhere with no personal income tax does not always mean your investments are free of tax elsewhere. Specialist tax advice is essential before acting.

The UAE, for example, has no personal income tax, but the region's tax landscape has been changing, with measures such as VAT and corporate tax introduced in several countries. Citizens of some countries may remain taxable at home wherever they live, and some investments may be taxed where they are held. Rules change, so treat any general description as a starting point only.

3. What is home bias, and why does it matter?

Home bias is the tendency to invest heavily in your own market and in familiar assets, such as local property and equities. Familiarity has value, but a portfolio concentrated in one region can be more exposed to a single economy, sector or policy change than one spread more widely.

Regional economies have historically been closely linked to energy markets. An investor whose income, business interests, property and investments are all tied to the same region may be more concentrated than they realise. Looking at all of your assets together, including any business and your home, gives a truer picture. Diversifying does not mean abandoning local markets. It means deciding how much regional exposure suits you, knowing what you already hold.

4. How does financial regulation differ across the GCC?

Each GCC country has its own financial regulators, and some financial free zones have separate regulators and legal frameworks of their own. The protections available to you, and the routes for complaints, depend on who provides a service and where that provider is licensed and regulated.

The UAE, for example, has federal regulators as well as separate regulators in the Dubai International Financial Centre and Abu Dhabi Global Market. Before working with any provider, ask which regulator oversees them, what activities they are permitted to carry out and which entity you are actually contracting with. Permission to give advice, to arrange transactions and to hold client assets are often separate.

5. Can Sharia-compliant investing be part of a diversified strategy?

For many investors, yes. The range of Sharia-compliant options has grown considerably and now spans several asset classes, including screened equities, sukuk and certain real estate and private market structures. A preference for compliance can usually be built into a diversified strategy rather than limiting it.

Compliance is usually confirmed by a Sharia supervisory board, and standards and interpretations can vary. If this matters to you, ask how compliance is assessed, who reviews it and how often, and what happens if a holding stops meeting the criteria.

How should GCC investors think about property?

Property is often the largest asset for investors in the region, held as a home, as rental investments or through a family business. It can be a sound part of a plan, but it is less liquid than listed investments, can be costly to buy and sell, and is usually concentrated in a few locations.

When reviewing your position, look at property alongside everything else: how much of your total wealth it represents, how quickly it could be sold if needed, how much debt is attached and how its income compares with alternatives after costs. None of this implies that property is unsuitable, only that it should be sized deliberately.

How should GCC investors plan for a change of residency?

Many people in the GCC expect to move at some point, whether within the region, back to a home country or somewhere new. A move can change how your investments are taxed, which providers can serve you and which currency matters most, so it is best planned before the move rather than after.

Some investments that are straightforward to hold in one country can be complicated or costly to hold after becoming resident in another. Reviewing your holdings with tax and legal advisers ahead of a move helps avoid surprises and leaves time to make any changes in an orderly way.

What mistakes do GCC-based investors commonly make?

• Assuming that no local income tax means no tax anywhere.
• Holding most wealth in local property and regional equities without seeing the overlap.
• Overlooking currency risk on investments that are not in dollars.
• Not checking where a provider is regulated, and by whom.
• Treating a Sharia-compliance label as the only due diligence needed.

Key questions to take to your adviser

• How much of my portfolio is exposed to currencies other than my spending currency?
• How do my nationality and likely future residency affect the way my investments are taxed?
• How concentrated is my overall wealth in the region, including property and business interests?
• Which regulator oversees each provider I use, and what protections apply?
• How would a Sharia-compliant approach change my options, if at all?

None of these considerations has a single right answer. Understanding them helps you ask better questions and make decisions that fit your own circumstances.