Arabian Business: Tax Exemption on Salaries a Key Gulf Competitive Advantage... Globally
Arabian Business magazine examined the future of taxation in the Gulf states, amid the region’s rapid fiscal reforms, noting that Oman’s introduction of the first personal income tax in the Gulf has raised questions about whether other Cooperation Council for Arab States (GCC) countries might adopt similar measures in the future, despite their continued adherence to the policy of exempting salaries from income tax.
The magazine added that one of the most prominent factors that have distinguished the Gulf states for decades is the absence of taxes on salaries. This has allowed employees, professionals, and entrepreneurs from high-tax economies to retain nearly all of their income, making the region a key destination for attracting global talent and investments. However, this model is beginning to shift, with the Sultanate of Oman enacting a law in June 2025 imposing a 5% personal income tax on annual incomes exceeding 42,000 Omani rials, to take effect from January 2028, affecting only about 1% of the population.
The magazine pointed out that, despite its limited direct impact, this decision carries broader implications for the region, opening the door to questions from investors, executives, and expatriates about whether other GCC countries will follow the same path in the future, or whether tax exemptions on salaries will remain a fundamental pillar of the Gulf’s economic model.
The magazine noted that the prevailing belief that the Gulf is a tax-free region is no longer accurate. Value-added tax (VAT) is now applied in most GCC countries, while corporate and selective taxes have expanded, and compliance and disclosure requirements have strengthened in line with international tax standards. The UAE implemented a 9% federal corporate tax in 2023, while Saudi Arabia raised its VAT rate to 15%. Additionally, Bahrain, Oman, and the UAE have rapidly enhanced their tax administrations.
The magazine emphasized that maintaining salary tax exemptions remains a key competitive advantage for Gulf states in their race with global financial centers, as it enhances their ability to attract investors and top talent compared to cities such as London, Singapore, New York, Hong Kong, and Zurich. Countries like the UAE, Qatar, and Kuwait also possess strong fiscal health, making the absence of personal income tax an essential component of their economic identity and competitiveness.
The magazine confirmed that salaries remain the most prominent exception within the Gulf’s tax system, as the UAE, Saudi Arabia, Qatar, Kuwait, and Bahrain continue not to impose a general personal income tax on salaries, while personal incomes in most advanced economies are subject to high tax rates.
The magazine views this approach as having evolved from a consequence of abundant oil revenues into a strategic tool to enhance competitiveness by attracting regional headquarters of global companies, as well as international entrepreneurs, talent, and wealth managers.
The magazine clarified that the difference in the Gulf’s economic model stems from governments’ historical reliance on oil and gas revenues, followed by state-owned enterprises and sovereign wealth funds, to finance public spending and essential services, rather than depending on income taxes. However, governments’ shift toward diversifying revenue sources over the past decade has led to a wide range of fiscal reforms aimed at reducing future reliance on hydrocarbons.
She noted that Oman was in greatest need of this transformation due to its limited oil reserves, which prompted it to gradually broaden its revenue base by implementing a value-added tax (VAT), reforming the subsidy system, and strengthening public finances, culminating in the introduction of personal income tax. She emphasized that the tax was designed with caution, applying only to high-income earners at a low rate, thereby preserving the attractiveness of the business environment.
She added that the Gulf countries have experienced a quiet tax transformation in recent years, characterized by expanding tax frameworks rather than raising tax rates. Governments have moved to boost revenues through consumption taxes, corporate profits, investments, and licensing fees, while also leveraging sustained growth in the private sector, which has reduced the need to impose taxes on salaries.
The magazine pointed out that Gulf governments recognize that relying solely on oil is no longer a viable long-term strategy amid price volatility, the accelerating global energy transition, and rising spending requirements for services and infrastructure. However, over the past years, they have been building a more diversified fiscal system by implementing VAT and corporate taxes, enhancing tax administration, and executing economic diversification programs.
The magazine noted that experts do not currently expect the UAE or Saudi Arabia to introduce personal income tax in the near future, pointing to the absence of official indicators suggesting similar moves in other Gulf Cooperation Council (GCC) countries. Any such step, if it occurs, is unlikely to take place before 2030, and would likely follow a gradual approach similar to Oman’s experience.
The magazine concluded by noting that imposing a limited personal income tax, akin to the Omani model, is unlikely to drive away foreign talent, as the tax burden would remain significantly lower than in Europe, North America, and Australia. Meanwhile, factors such as quality of life, stability, infrastructure, career opportunities, and the business environment will continue to be key attractions for the Gulf countries.
