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Oman makes key changes to draft income tax law

Oman ruler Sultan Haitham bin Tariq (2nd L) pictured at a meeting in Brussels in December. The draft of the new personal income tax now moves to the sultan for final approval Reuters/Belga Photo/Didie Lebrun
Oman ruler Sultan Haitham bin Tariq (2nd L) pictured at a meeting in Brussels in December. The draft of the new personal income tax now moves to the sultan for final approval
  • Applicable to foreign workers
  • Threshold raised to $130k
  • Economic impact questioned

Oman has issued a new draft personal income tax law with key amendments, raising the exemption threshold and lowering proposed tax rates.

The timeline for the law’s implementation remains uncertain.

The latest draft, which was delayed last year, has been approved by the State Council and Majlis Al Shura and will now move to Sultan Haitham bin Tarik for final approval.

Under the proposed law, foreign workers earning more than $130,000 (OR50,000) annually will be subject to income tax, up from an earlier threshold which was previously around $100,000, the Oman Daily Observer reported.

The maximum tax rate has also been cut from 15 percent to 5 percent, significantly reducing the impact on the middle class. 

This puts the rate on par with Omani citizens, who would be taxed 5 percent on global income exceeding $1 million.

The State Council and Shura Council further excluded gratuity and end-of-service benefits from taxable income, a move that will have a big impact on expatriate workers.

The bill’s approval comes as Gulf nations debate new revenue sources amid fiscal reforms and economic diversification efforts.

The UAE has ruled out introducing personal income tax, with economy minister Abdulla bin Touq Al Marri dismissing speculation that the country might end its traditional tax-free status.

“[Income tax] is not on the table,” Al Marri said at the World Economic Forum in Davos earlier this month

Oman economy at a glance

The UAE introduced a 9 percent corporate tax in 2023 as part of efforts to reduce reliance on oil revenue and align with GCC members’ adoption of OECD-backed Pillar 2 standards, which mandate a 15 percent corporate tax on multinational businesses – fuelling speculation about potential income tax reforms.

While Oman’s revised tax proposal signals progress, the State Council's lawmakers have recommended delaying implementation and making further amendments, citing the need for further analysis. 

The original framework was based on a 2019-2020 government study, which some argue does not reflect current economic conditions.

Some members also suggested raising the minimum income threshold further if the law is enacted.

Finance minister Sultan Salim Al Habsi has previously stated that the tax will not be imposed “unless conditions are suitable”. 

The next medium-term fiscal plan, expected in January 2026, may provide further clarity.

If implemented, Oman would become the first Gulf country to introduce personal income tax, a shift from the region’s long-standing no-income-tax policy, which has been key to attracting expatriates and driving economic growth.

Oman is under pressure from the International Monetary Fund to reduce its reliance on oil and gas, which account for 72 percent of its revenue.

The country already imposes corporate income tax, value-added tax (VAT) and excise tax.

Saudi Arabia and the UAE have introduced corporate taxes, while Qatar has hinted at potential tax reforms.

However, the economic impact of the tax remains uncertain. 

Azza Al Habsi, an economist at Ominvest, estimated that tax at an OR30,000 threshold with a 15 percent flat rate would contribute just 0.3 percent of non-hydrocarbon GDP – a figure now expected to be even lower with the revised higher exemption threshold and reduced rate, he said in a social media post.

Oman raised around $3.6 billion (OR1.4 billion) from taxes in 2024, which include corporate, selective and VAT.

James Swallow, commercial director at business set-up company Sovereign PPG told AGBI last month that Oman’s challenge lies in balancing fiscal stability with economic competitiveness. 

“Fiscally, it is attractive for the country as it needs to generate income for development and growth. But it must balance this with ensuring it remains a competitive place to work and do business,” he said.