Exchange rates and rents lift cost of living in Abu Dhabi and Dubai

Abu Dhabi and Dubai are the 33rd and 23rd most-expensive cities in the world, because of global currency fluctuations and a steep rise in rents for expatriates.

Abu Dhabi moved up 35 places from last year’s Cost of Living survey by Mercer, the human resources consultancy. The cost of living in Dubai has also risen – the city was 67th last year.

Dubai and Abu Dhabi are also the most expensive cities in the Middle East for expatriates, with Jeddah, at 151, still the least expensive despite rising 24 places.

A significant increase in the cost of living was recorded in almost all big Middle East cities.

Beirut, third most expensive after Dubai and Abu Dhabi, climbed 19 places to 44 in the ranking. Manama and Doha moved up 59 places, ranking 91st and 99th respectively.

Amman climbed 49 places to 54, while Riyadh moved up 40 places to 71. Kuwait City was the 117th costliest city, up 30 places from the previous index.

“Many currencies in the Middle East are pegged to the US dollar, which pushed the cities up in the ranking,” said Nuno Gomes, information solutions leader for the Middle East at Mercer.

“Global currency fluctuations were a key factor influencing the significant changes observed in the overall raking.

“Steep increases for expatriate rental accommodation, particularly in Abu Dhabi and Dubai, also contributed to the increase of the cities in the ranking.”

Although the rankings do not have a direct impact on employees working and living in the UAE and other countries in the region, the cost for multinationals to move staff to Middle East countries has greatly increased over the past year, which could reduce the attractiveness of the region for such assignments.

Conversely, regionally based companies looking to send employees overseas on work assignments have found it to be more affordable.

“GCC-based organisations may take this as an opportunity to increase their international assignment activity and provide greater career experiences to high-potential employees,” Mr Gomes said.

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Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks.

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.

8. Pillar 2 implementation

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

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