Oman set to be the first Gulf state to introduce income tax

September 27, 2022

While foreign nationals may be subject to personal income tax on income above $100,000, Omanis may be subject to tax on net global income above $1,000,000

Diversifying income sources to support its 2030 sustainability goals
Runs the risk of making it harder to attract foreign talent
Possibility of other Gulf states implementing income tax in years ahead

Oman’s government is on track to implement income tax to high-wage earners by 2024, after having first announced the plans back in 2020.

“There is no delay in the target set for 2024 implementation,” Dr Said Al Saqri, Oman’s Minister of Economy, said during the MSX Investors Roadshow conference held earlier this month.

The Gulf states have been steadily introducing taxes over recent years, as they seek to generate new sources of revenue as part of their bid to diversify beyond hydrocarbons and bulk up their state coffers in the wake of the coronavirus pandemic.

The GCC signed the Unified VAT Agreement in 2016 and four GCC states – Bahrain, Oman, Saudi Arabia and the UAE – have introduced VAT since 2018.

Oman introduced VAT in April 2021, but its plans to introduce a personal income tax will make it the first GCC country to do so.

“Although the fiscal position of the Omani government is improving amid high hydrocarbon gains, authorities are aware that income sources should diversify further in order to support Oman’s 2030 sustainability goals and Vision 2040,” said Ali Metwally, Middle East and North Africa economist and risk analyst at Infospectrum.

“The anticipated ease in oil price growth in 2023-2024, and the rising costs of debt servicing, will likely push the government to intensify its diversification efforts, including through the implementation of the income tax in the next 12 to 18 months.”

Although details have not been confirmed, it has been reported that foreign nationals would be subject to a personal income tax rate between five and nine percent, likely on Oman-sourced income above a threshold of $100,000. Omanis would be subject to five percent tax on their net global income above $1,000,000.

A report published by S&P Global Ratings notes that it expects Oman’s personal income tax to be “introduced gradually, with a relatively low tax rate” and that the government is also planning to introduce offsetting measures, something that Metwally expects to happen.

“Oman might resort to a gradual implementation of the income tax, taxing the high-income segment on a few phases, starting with the ultra-rich who earn more than $1 million per year, then taxing those earning between $500,000 and $900,00, and so on until reaching the $80,000-100,000 threshold,” said Metwally.

“The government will likely introduce measures that would ease investment barriers further, just like it has been doing in the last three years to increase the private sector participation in the economy.

“However, revisions to the Omanisation policy may be important to achieve the desired outcome of attracting foreign investments and supporting the non-oil private sector.”

Dome, Architecture, Building — Oman is looking to generate additional revenue to fund its public expenses – roads, hospitals and all the government spend

While personal income tax will bolster Oman’s public finances, it also runs the risk of making it harder to attract foreign talent.

Consequently, some industry experts have speculated that it might link the introduction of personal income tax with permanent residency or other incentives to ensure it remains an attractive work destination.

“Oman is looking to generate additional revenue to fund its public expenses – roads, hospitals and all the government spend. They’re obviously under pressure to do so hence why they’re looking to introduce a personal income tax,” said Shiraz Khan, head of taxation in the Dubai office of Al Tamimi and Co.

“Of course, the governments in the region don’t take these decisions lightly – they carry out feasibility studies to assess the impact on the economy and the people, and various other social economic decisions.”

The UAE has made clear that it currently has no plans to implement a personal income tax.

UAE’s Minister of State for Foreign Trade Thani Al Zeyoudi said in February that an income tax is “not on the table at all now,” following an announcement that the country will start levying a nine percent corporate tax in June 2023.

However, Metwally does not rule out the possibility of other GCC countries implementing a personal income tax in the coming years.

“It depends on the necessity of implementing such a measure, given that the Gulf has always been perceived as the region with a generally low tax environment,” he said.

“Bahrain is the most likely candidate because adding such an income stream would support the Bahraini government in repaying its debt and strengthening its fiscal position.”

“It is worth mentioning that other candidates such as Saudi Arabia, UAE, and Qatar have already been working on strengthening their income stream. They are using their oil windfalls in diversifying their economies, as well as promoting private investments through lower barriers and a better regulatory environment,” he added.

“An income tax is not a main target for them now, but it could be in 2024-2025, depending on the business environment, oil price levels, and competition among regional neighbours to name a few factors.”