Oman to tax top earners: Will UAE, other GCC nations soon take similar steps?

Vijay Valecha, June 24, 2025, Gulf News

Dubai: In a region long known for its tax-free personal income policies, Oman’s decision to roll out a personal income tax from January 2028 has sent ripples across the GCC.

The new tax, set at 5%, will only apply to residents and citizens earning more than OMR 42,000 annually — or just 1% of Oman’s population, based on average income levels.

The announcement marks a historic policy shift for Oman as it aims to diversify public revenue under its long-term fiscal plan, Oman Vision 2040.

What does Oman’s tax policy look like?

The structure of Oman’s income tax includes a range of exemptions and deductions — such as relief for healthcare, education, charitable giving, housing loans, and even income earned overseas (temporarily). The tax applies only to net income after all deductions and exemptions are applied.

According to Vijay Valecha, Chief Investment Officer at Century Financial, Oman’s tax model reflects a cautious and highly targeted approach.

“Looking at the initial guidelines of the proposed taxation rules, the overall structure looks more progressive, with only the top 1% of the working class getting taxed,” he said. “Furthermore, the provisions for the number of deductions and exemptions provide a proper way of tax planning for the taxpayers.”

The new tax is a major milestone in the Sultanate’s efforts to reduce dependence on oil and gas, which currently make up 68% to 85% of total public revenue, depending on market prices.

Will other GCC nations follow?

While Oman is the first GCC nation to enact a personal income tax, other Gulf countries have already made strides in indirect taxation. Since the rollout of VAT in January 2018, the UAE has collected more than $45 billion, and Saudi Arabia has generated over $15 billion, according to ministry data.

Valecha explained: “GCC nations have already enacted indirect taxation reforms. The imposing VAT and corporate tax on big corporations already sees fiscal taxation collection for the Gulf states.”

However, when it comes to personal income tax, the rest of the GCC appears to be watching cautiously — and for good reason.

“Most GCC nations have not publicly announced their initial plans for even drafting a personal income tax proposal,” said Valecha. “Any significant incorporation of direct tax or associated taxation policies would be done with much thinking and policy planning.”

Why UAE, Saudi may tread carefully

Across the region, governments are balancing the need for fiscal reform with their competitive edge as tax-free destinations for global talent, investors, and entrepreneurs. The UAE and Saudi Arabia, in particular, have benefitted from inter-regional migration and a surge in ultra-high-net-worth individuals, drawn by lifestyle incentives and ease of doing business.

“Ongoing trends within the GCC suggest a lot of inter-regional migration, and foreign nationals are also seeking jobs and business opportunities here,” said Valecha. “This has turned out to be one of the anchor support factors for the growth in diversification themes in both these nations.”

The UAE’s zero personal income tax is a major pull factor for residency, investment migration, and corporate setup — and any change in this policy would require careful consideration.

“Any direct enactment could also be a double-edged sword for the GCC nations since the allure of 0% personal income tax is the number one factor driving the growth in the new residency population and business setup here,” Valecha added.

Bottom line?

With Oman taking the first step toward targeted personal taxation, the door may be open for other GCC nations to explore similar models in the future — but no such plans have been formally announced. For now, the UAE and its neighbors continue to rely on indirect tax mechanisms and corporate levies, while keeping their tax-free personal income status intact.

Whether Oman’s model becomes a template or an outlier remains to be seen — but its rollout will be closely watched across the region.

Source:

Gulf News