UAE: After Oman Starts, Will Other GCC Countries Introduce Personal Income Tax?

UAE: After Oman Introduces Personal Income Tax, Will Other GCC Countries Follow?

Introduction of Personal Income Tax in Oman

Oman is set to become the first GCC country to implement personal income tax (PIT). This tax is expected to be introduced in 2025. The Shura Council recently advanced the draft law to the State Council, marking a crucial step in the legislative process. The bill, first drafted in 2020, is now nearing its final approval stages.

Potential for Other GCC Countries

Analysts believe other GCC countries might follow Oman’s example. However, they do not anticipate immediate adoption. Oman’s approach could serve as a model for these nations. This move represents a significant shift in fiscal policy for a region historically reliant on oil revenues.

Current Tax Landscape in the UAE

In contrast, the UAE has no plans to introduce a personal income tax at this time. Haji Al Khouri, the undersecretary of the UAE’s Ministry of Finance, reaffirmed that the UAE will focus on other revenue-raising mechanisms. Recently, the UAE implemented a 9% corporate income tax to diversify its revenue streams beyond oil.

Impact on Expatriates and Omani Citizens

Oman’s PIT will affect expatriates and Omani citizens differently. Expatriates earning over $100,000 will face a PIT rate of 5% to 9%. For Omani citizens, the PIT applies only if their net global income exceeds $1 million, with a 5% tax rate. This design aims to minimize the tax impact on most people.

Economic and Demographic Context

Oman’s population is about 5.2 million, with 2.2 million expatriates, making up 42.3% of the total population. Most expatriates (1.4 million) have less than a general diploma. Only 214,503 expatriates hold a bachelor’s degree or higher. Therefore, the number of expatriates earning over $100,000—and thus liable for PIT—is relatively small. Similarly, few Omani citizens meet the $1 million income threshold.

Oman’s Tax History and Regional Comparison

Oman introduced corporate income tax in 2009, increasing it from 12% to 15% in 2017. This contrasts with its delayed introduction of value-added tax (VAT) compared to the UAE and Saudi Arabia. The upcoming PIT represents a significant policy shift for Oman. It reflects efforts to diversify revenue sources and reduce dependence on oil.

Oman’s introduction of personal income tax marks a significant change in GCC fiscal policy. As the first GCC nation to implement such a tax, Oman could influence others in the region. While the immediate impact on expatriates and Omani citizens will be limited, this policy shift may lead to broader tax reforms across the GCC. The UAE, while currently focused on corporate tax, will closely observe Oman’s implementation and continue evaluating its fiscal strategies. This evolving approach to taxation highlights a trend towards diversification and modernization in the region’s fiscal policies.