Oman may Introduce Personal Income Tax for Nationals and Expats

The Middle East Gulf States have been one of the world’s largest bastions of tax-free salaries, attracting expatriate workers from all over the world with lucrative employment packages. But this may change. Oman is on cusp of introducing personal income tax.

The Middle East Gulf States (Saudi Arabia, Bahrain, Qatar, Kuwait, United Arab Emirates and Oman) have enjoyed huge revenues from oil and gas since the 1970s, fuelling their economies and infrastructure and creating favourable employment conditions for the thousands of expatriate workers who have flooded into the region from all corners of the world in pursuit of generous tax free salaries.

But since 2015, declining hydrocarbon revenues and growing, ageing populations have strained the national budgets on which the tax free largesse depended and economic diversification has been slow to replace the deficits. As with the other Gulf states, Oman is considering imposing taxation.

Consulting firm Oliver Wyman in their report Taxation for the Future of the GCC reported that as of 2019, Saudi Arabia derived only 16% of government revenues from taxes, compared to an average of 90% in OECD countries. It should be remembered that Saudi Arabia introduced value added tax (VAT) but not income tax in 2016. This report recommended that "structural changes to fiscal policy are an opportunity for GCC countries to turn taxation into a sustainable, reliable source of revenue that is independent of oil". Oman is the first country to consider this and others may follow.

All Gulf nations are watching Oman with interest.

After two years of suspense and intermittent announcements that personal income tax on high earners could be implemented, the Gulf state of Oman may finally pull the trigger next year, 2023.  Oman's National Program for Fiscal Balance has just finished the drafting of the law and is doing some operational readiness. It expects the personal income tax to go live in 2023 [probably first half], provided that it receives all approvals including the royal decree.

Oman Personal Income Tax - Nationals and Foreigners

It is expected that personal income tax in the range of 5-9% will be introduced but with important distinctions between foreign and Omani nationals. Foreign nationals would be subject to a personal income tax rate between 5-9%, likely on Oman-sourced income above a threshold of $100,000, whilst Omanis would be subject to 5% tax on their net global income above $1,000,000. This would impact most professional expatriate staff.

According to the National Program for Fiscal Balance, the proceeds will go toward social programs designed to preserve social and political stability by strengthening social safety nets. Rare social unrest in May 2021 over high unemployment and resentment among youth towards the country’s political elite alarmed the Omani leadership.

Oil prices have reached their highest levels since 2008 recently in response to the Russian invasion of Ukraine, briefly trading above $139 a barrel in March 2022 which has provided the Gulf economies with a boost but more than immediate revenue, the primary goal of income tax appears to be laying the groundwork for greater wealth redistribution. 

Will other Gulf States Start Taxation?

Oman’s move would be the first time a Gulf Cooperation Council (GCC) member state introduced personal income tax. The wind of change blowing from the southern region of the Gulf could arouse the interest of other GCC governments to explore new revenue streams, such as value-added tax, to diversify their rent-driven fiscal landscapes.

Hydrocarbon resources are finite, their prices volatile, whilst the populations of the GCC nations grow steadily and make demands. Bahrain is the next most likely candidate to follow Oman. In 2018, neighbouring Saudi Arabia, the UAE and Kuwait gave Bahrain a $10 billion bailout to avoid a financial crisis and currency collapse which could have spread across the region. Although Bahrain resumed making payments into its Future Generations Reserve Fund, the island country has small oil reserves and weak fiscal positions.

It is unlikely that the larger Gulf countries will implement personal income tax by 2030. In the UAE, an income tax is “not at the table at all now,” Minister of state for foreign trade Thani Al Zeyoudi told Bloomberg in February 2022 following an announcement that the country will start levying a 9% corporate tax in 2023. 

The Impact of Personal Income Tax

Although personal income tax could benefit public finances, it might also make the Gulf nations a less attractive work destination. In the UAE, the government focuses on attracting global talent by providing long-term residency visas and tax-free income, hence it is unlikely to implement personal tax in the next seven years. 

In 2017, Saudi Arabia's Shura Council considered taxing remittances sent by foreign workers to their countries — $41 billion in 2021 — before withdrawing the proposal to avoid a backlash.

Oman may choose to make personal income tax less unpalatable by linking it with permanent residency or other incentives. In 2021, Oman launched the Investor Residency Programme through which wealthy foreigners can secure long-term residency.

It is expected that Oman's personal income tax will be introduced gradually, with a relatively low tax rate and some offsetting measures. Policymakers are reluctant to introduce new taxes as citizens grew accustomed to a tax-free salary.

A History of Taxation in the GCC

Contributing financially to the common good is not alien to 21st-century citizens of GCC states. The Islamic Zakat is a religious contribution which has to be paid every year to support charitable purposes and poor or needy members of the society. However historical amnesia influences human perceptions and since the oil discoveries in the 1930s,  taxation in the GCC was halted and the economic structure revamped completely as Gulf governments brought in the welfare state system and numbed the people.

Prior to the oil era, taxes were an integral part of Gulf societies’ fabric as trade and pearl diving dominated the local economy. Since time immemorial, taxing was a norm in Gulf coastal towns, including pearling season tax, customs duty, transit tax on goods re-exported, land taxes, and tax on renting a shop.

In 1910, prominent pearl merchants left Kuwait for Bahrain after Mubarak Al-Sabah, Kuwait’s ruler at the time, hiked taxes to fund military ambitions.

In 1950, Saudi Arabia attempted to introduce personal income tax on nationals and non-nationals, but the tax law was reformed six months later to exclude citizens and suspended for foreigners in 1975 as oil revenues grew and the Gulf kingdom needed foreign expertise.

In 2016 the GCC states agreed to implement value-added tax (VAT) but Qatar and Kuwait failed to do so. Saudi Arabia, UAE,  Bahrain and Oman have VAT.

How to Apply for Jobs in Oman

Candidates who are looking for jobs in the Oman Medical Sector are invited to register a recent CV and contact us to discuss available opportunities.  Currently advertised jobs are displayed on the website where applications may be made by submitting a CV. The CV should address the credentials required by the employer.

An overview of Oman can be read on our website with information and links to relevant information.