Entertainment Business

Duabi Free Zones — Boon or Boondoggle?

UAE hopes for hit as a motion picture producer

We all get spam but this one stood out because my name got mixed in with people who have big money or make big decisions. It was a peek into the world of international tax shelters and billion-dollar boondoggles.

I have an interest in crime, not run-of-the-mill smash and grab or the murder mystery so popular in series television but rather international money laundering and tax evasion. The depth of greed drives exotic schemes to avoid paying the fair share that supports civilization. America’s infrastructure is long overdue for an upgrade, my taxes might pay for a lamppost but the real money could provide high-speed rail across the entire country.

The email was interesting because it did not smell like a scam. It was an offer for business services. The look was more like a legitimate ad than clickbait.

I got a second one from another company, this time with more services listed.

The price was the kicker. I had to know how much money 20K AED was. Turns out, it is only $5,445, not a lot of money and the terms seemed pretty good too; set up your company here and keep all the money. So how does this work?

Tax Free is not Free or Tax Free

There are tax-free zones within Dubai, think of these as duty-free shops at the airport. No taxes are collected on corporations doing international trade and the country benefits from collecting rents and selling products and services. This is especially attractive for any company that does not require a specific geographic location. Financial and information technology services are the most obvious businesses that can virtualize but many other businesses could locate there as well.

That line about no personal or corporate taxes should have an asterisk for the fine print. First, some businesses are taxed, the big one is oil at 55%. Banks also get hit for a slice and once these two industries fill the Dubai coffers, other businesses get skipped over. But there is more than one way to skin a dead cat. The list of other taxes, fees, and duties imposed by the government are extensive and are applied by the service provider so they may not be apparent to the purchaser.

• Hotel and Restaurant bills at 10%
• Admissions and leisure activities
• Importation of alcohol: 50% duty + 30% point of sale
• Utility generation
• Highway tolls
• Parking lots are state-owned and expensive.
• National ID card (a measly $27/year but worth mentioning)
• Rental income is 5% (applied on top of property tax)
• Visa processing fees
• Surcharges for flying out of the UAE

If you try to sit, I’ll tax your seat If you get too cold, I’ll tax the heat If you take a walk, I’ll tax your feet

If you build it, they will come

With all the nickel and dime taxes and fees, it appears the budget would die of a thousand cuts. Even so, if substantial amounts of money are being moved about it could be a good deal. Considering the cost of making a movie and potential revenues this might be worth considering. After all, this is why productions often shoot in Georgia for anything vaguely rural. So maybe UAE building Media City and Studio City Free Zones is a good idea.

Dubai is not the first place to build a collection of sound stages and set for movie production. D.W. Griffith built stages in California because at that time interior sets were lit with sunlight to be able to expose the primitive and insensitive film. This became Hollywood but when it was time to shoot The Wizard of OZ the stages were built in Culver City where there was more land available. The MGM lot and stages are now Sony Pictures Studios after transitioning through MGM/Pathé, Columbia/Tri-Star. Down the street is The Culver Studios, the former headquarters of David O. Selznick of Gone with the Wind fame. Between these two majors, there are 31 certified sound stages and significant office space.

Tuscon built stages and backlots specific to shooting westerns and facilities in Georgia, North Carolina, Florida and Toronto have all done well. The Pinewood Studios, of British fame, set up shop in Toronto and runs 11 stages with one monstrosity at 45,900 square feet. Outside, thier backlot has a 60,500 square foot Caribbean horizon water tank. Picture a zero-edge swimming pool big enough to float a sportfishing boat.

Can Dubai build and run a studio complex that would attract filmmakers? From a technical perspective, it is not too hard. At some level, a sound stage is just a large warehouse with no central pillars, lots of electrical power, and soundproofing. Other features like a floor pit or elephant door are nice additions but the real differentiator is the support services. The major studios have mill shops, prop houses, costume shops, lighting rental, editing suites, dressing rooms, and production offices at close hand. An extensive list, but entirely possible with enough cash.

Mother, may I?

The real problem is censorship. To film in Dubai you must get script approval from the government [sound of tires screeching to a halt]. The creative power struggle between producer and director is already like Mortal Combat. Director Michael Ritchie was willing to shelve his beloved “The Fantastiks” for five years rather than let the studio make cuts to the final edit. The list of Hollywood script battles is epic in its own right.

Never interfere in a boy and girl fight. — William S. Burroughs

Script approval by the UAE takes up to 25 days and the entire script must be submitted even if only one scene is to be shot in Dubai. The submitted script may not be amended after submission and filming scenes that differ from the approved script may incur fines of $6,800.

For films and TV serials, the final approved script must include the itinerary of scene shots and each location or scene intended for filming. No further amendments shall be permitted once the final script is submitted with the application form to DFTC. — Film Dubai

The modification of film scripts by the government is a lead balloon waiting to take off. Can you imagine Quentin Tarantino being told Jules can’t use Ezekiel 25:17 in Pulp Fiction?

The censorship goes beyond production and into distribution. In 2007, Dubai shut down digital communications for two news channels at the request of Pakistan. The following year, the telecom company du EITC, with 4.5 million subscribers, was ordered to route all traffic through government censorship networks where the content would be filtered for blasphemy in addition to porn, drugs, and copyright infringement. Since du EITC is the exclusive telecom provider for UAE Free Zones, those sites had no alternative communication channel when network lines were damaged. Redundancy is the heart of the internet and business continuity.

The future of Free Zones

The limitations on production in the Free Zones certainly hobbles it’s future as a Hollywood alternative but there is certainly enough business to be had from regional content producers who can hit the sweet spot of being tame yet popular.

Mission: Impossible — Ghost Protocol and Star Trek Beyond were partially filmed in Dubai in 2011 and 2016 respectively but 5 years is a long stretch without an A-list picture to tout. As a blockbuster destination, Dubai is a bomb.The real future of Media and Studio Cities is the same as the other 43 Free Zone “Cities”. Regardless of whether the zone is popular or even profitable, it will continue to run for prestige and organized crime.

Nothing says made it like running a studio. Manufacturing cars has not been an exclusive club for decades now and running a space program is next to go the way of commoditization. Hollywood on the other hand has a well-established legacy synonymous with glamor. The UAE billionaire’s boys club will always be outsiders no matter how many walled estates they buy in Beverly Hills. The only way to gain prestige in the “biz” is to build it yourself.

Despite large oil revenues, the UAE is not meeting its budget for a lavish lifestyle. The gap is being covered by enabling money laundering via international remittance companies like Wall Street Exchange. These laundering schemes avoid more than taxes, supporting drug cartels and terrorist networks including the Taliban.

Regulatory arbitrage is not illegal per se as it is merely selecting the best logistical route to minimize overhead but it can easily cross the line into smuggling to avoid tariffs, duty, and sanctions. The complexity of 45 different sets of rules creates a byzantine paper trail difficult to decipher. Most of the jurisdictions include a paper process to track shipments intentionally making auditing a nightmare.

Maybe the next Wolf of Wall Street or Traffic will be about the UAE but I’ll bet my popcorn it won’t be shot in Dubai.