A growing number of British startup founders and investors are relocating to Dubai to take advantage of the region’s low tax regime as rates rise in the UK, according to industry insiders.
The UK’s Labour Party came into power in July last year with a broadly positive mandate from the country’s tech sector, but budget cuts and tax rises in the second half of 2024 have seen sentiment towards the government cool.
Now tax advisors and industry leaders tell Sifted that UK founders and investors are increasingly relocating or seriously considering a move to Dubai as they look to reduce their tax bills.
“We’ve seen an enormous uptick in UK-based tech founders and investors enquiring about moving to Dubai in the past six months,” says Tom Bohills, founder at London and Dubai-based startup law firm Founders Law. “Relocation to the UAE probably features in 15-20% of all new business enquiries we get.”
It comes as the government pushes on with a tech charm offensive in 2025 as it looks to reset a bruised relationship with the startup sector. In the past week, the UK has announced plans to facilitate billions of pounds more funding into UK startups and make it easier for companies to access tech talent visas.
But for some in the tech sector, it’s too little, too late.
Cooling sentiment
Late last year, UK finance minister Rachel Reeves announced rises and changes to a relief scheme on exit earnings up to £1m.
It meant that, from April this year, the amount of tax founders pay on an exit increased, year, and the rate is set to increase again next year. Employers’ national insurance contributions (NIC) were also hiked, from 13.8% to 15%.
While some founders and investors saw the tax rises as necessary to raise the £40bn Reeves said the country needed to plug a hole in its finances, others were more critical.
“The recent increase in capital gains tax and the scrapping of Entrepreneurs’ Relief have significantly accelerated the exodus of top founders from the UK,” says Barney Hussey-Yeo, founder and CEO at fintech Cleo.
“There is now a ceiling on what the most ambitious founders can achieve here,” he adds. “A shortage of growth-stage capital, an onerous regulatory environment and a broken London Stock Exchange leave virtually no path to scale or list generational companies domestically.”
Four tax advisors, including those from Wilson Partners, Evelyn Partners, Founders Law and Capital Partners tell Sifted they’ve seen an increase in enquiries from UK-based startup founders considering relocation in Dubai in the past six months.
“It’s largely tax related,” says Bohills. “However, it’s also a general ‘feeling’ that the UK is heading in the wrong direction and that it doesn’t value wealth creators or entrepreneurs any more.”
The UAE’s corporate tax rate is 9-15% and it does levy any income tax on individuals.
One London-based founder, who preferred not to be named to protect business interests, tells Sifted that their family is planning a move to Dubai in the coming month.
“With upcoming tax changes and the state of the UK, we felt that Dubai was a better option for us,” they say. “As high earners, we pay 50% tax and get very little back on our investment into the state.”
They add: “NHS care is poor, we’ve got private health insurance for that reason, which is expensive. Nursery care is extremely expensive and it becomes prohibitively expensive to have more than one child, especially as an entrepreneur in this country now.”
There’s also positive stories from UK tech folk who upped sticks previously filtering back to London.
“I know at least ten founders who have left the country to move to Dubai,” the founder says. “They are loving life over there and essentially it’s giving them the flexibility to build a company from a place where taxation is virtually zero.”
Other Gulf destinations are also seeing increased interest. Alex Nicholls, director of expansion at AstroLabs, a trade body which helps companies expand to the Gulf, says he has seen an uptick in companies wanting to head to both the UAE and Saudi Arabia — which offers a 30-year tax exemption if companies set up their headquarters in the country.
Downsides
There appear to be some downsides to upping sticks to Dubai, however.
Founders and investors tell Sifted that it can be harder to raise early-stage funds, as the startup ecosystem has a much smaller VC and angel network than London.
“The problem with Dubai though is the startup scene is not mature whatsoever,” says the founder, limiting access to capital.
“Many that have moved, have done so for personal reasons, including their individual tax circumstances, but not necessarily in reference to setting up or moving their businesses elsewhere,” says Bhavika Nesbitt, tax advisor at Wilson Partners. “They continue to operate their UK businesses, but are able to do so remotely.”
Others point to the 11-hour time difference between Dubai and San Francisco — a key expansion target for many UK-based startups — as making a move less attractive.
There are also signs that the UK government is working to boost its tech sector.
Prime minister Keir Starmer has pointed to the AI sector as a key lever for economic growth in the country, launched an ambitious and well-received AI plan and ramped up engagement with the tech sector.
Despite that, many argue that the UK tech sector is losing momentum right now.
UK startups picked up just €7.3bn ($7.9bn) in the second half of 2024, according to Sifted data, the lowest figure since the first six months of 2020, according to comparable data from Dealroom.
Public markets are also struggling to attract the best homegrown tech companies and successive governments have increased the tax burden on an exit for entrepreneurs.
“The government is focusing on the right issues,” says Hussey-Yeo. “But it needs to be bolder and move much faster to reverse the managed decline.”
Read the orginal article: https://sifted.eu/articles/uk-founders-departing-for-dubai/
