Legal Overview on Oman's Draft Personal Income Tax Law

Oman's Draft Personal Income Tax Law

Oman is edging towards the introduction of the Gulf region's first-ever personal income tax (PIT), which could be a possible turning point in the region's historic tax-free status for individuals. The most recent draft of Oman's Personal Income Tax Law, which has recently been endorsed by both the State Council and the Majlis Al Shura, makes far-reaching proposals for the protection of the middle class, relief for expatriates from the tax burden, and fiscal balance without sacrificing the competitiveness of the country. Nevertheless, even after these endorsements, the implementation period of the law cannot be specified as yet because the legislation now has to be given final approval by Sultan Haitham bin Tarik.

The decision follows increasing fiscal pressures, diversification attempts, and continuing GCC disputes over new sources of government income. Should it be passed, Oman would be the first GCC nation to introduce a direct personal income tax, marking a historic precedent and a significant change in the fiscal direction of the region.

Key Amendments to Oman's Personal Income Tax Law

The new draft of the law presents a number of major changes that are seen to be more beneficial to both Omani nationals and the expatriate community, particularly compared to previous suggestions. The main changes presented in the new draft law are discussed below:

I.             Increased Tax Exemption Ceiling

One of the most prominent changes introduced by the State Council and Majlis Al Shura is the increase in the tax exemption ceiling. According to the new draft, the threshold has been increased to OMR 50,000 (around USD 130,000) of yearly income. The rise from the previous proposed threshold of about OMR 30,000 (USD 78,000 – USD 100,000) was done with the aim of minimizing the tax burden on middle-class citizens and only taxing high-income earners.

II.            Cutting Maximum Tax Rate

The draft bill also reduces the maximum rate being proposed from 15% to 5%. This is a significant relief in the potential economic burden on taxpayers under the charge and brings it in line with the current levy imposed on Omani nationals on their worldwide earnings above USD 1 million.

III.          Exclusion of Gratuity and End-of-Service Benefits

In a strongly positive development for expatriate employees, the State Council and Majlis Al Shura have concurred that gratuity and end-of-service benefits should not be included in taxable income. These are important financial protections for most foreign workers, and removing them from taxable income serves to maintain these monies, ensuring that expatriate savings and financial security are less impacted.

IV.          Impact on Expatriates

On the basis of the draft available at present, foreigners who earn over OMR 50,000 per year will be taxed based on income if the legislation passes. Previous studies by the government proposed taxing individuals who earn OMR 30,000 and more, covering around 32,000 people. Increasing the exemption level however lowers the number of people taxable considerably and more specifically targets better-paid individuals rather than the whole expatriate workforce.

Delays and Further Amendments

Notwithstanding the developments in legislative endorsements, the roll-out of the Personal Income Tax Law is still delayed. The draft, proposed initially on the basis of studies conducted between 2019-2020, encountered setbacks in the previous year and has been referred for final approval by Sultan Haitham bin Tarik. Nevertheless, a number of members of both councils have suggested further study and prudence prior to implementing the law.

There is increasing acknowledgment that the economic situation in Oman now is far different from 2019 when the law was initially developed. Some State Council and Majlis Al Shura members have demanded either postponing the implementation or raising the minimum income level higher to more accurately represent the economic situation now.

Finance Minister Sultan Salim Al Habsi has also assured that the tax will not be levied "unless conditions are suitable," indicating that the government is still cautious about the possible economic and social implications of implementing a personal income tax.

Why Is Oman Introducing Personal Income Tax?

The pressure for personal income tax in Oman stems from the requirement for fiscal restructuring and diversification away from dependence on oil and gas revenues, which provide around 72% of the nation's income. The International Monetary Fund (IMF) has persistently encouraged Oman to diversify its revenues and decrease its exposure to variations in world oil prices.

Aside from the individual income tax, Oman is also already applying corporate income tax, value-added tax (VAT), and excise taxes. These policies were rolled out over time under the broader economic reform initiatives under Oman's Vision 2040 strategy, aimed at establishing a diversified and sustainable economy.

The imposition of personal income tax, if made, is anticipated to contribute towards Oman's financial stability by providing an added, though modest, source of income to the state budget.

Regional Context

Oman's push toward personal income tax is occurring at a time when other Gulf states are also looking at diversifying revenue. Yet, so far, none of the other members of the GCC have implemented personal income tax on people:

I.             United Arab Emirates (UAE)

Personal income tax has been strictly excluded by the UAE. Economy Minister Abdulla bin Touq Al Marri has recently said income tax is "not on the table," reiterating the nation's determination to continue keeping its traditional tax-free status for individuals intact. The UAE implemented a 9% corporation tax in 2023 but is still against taxing personal income.

II.            Saudi Arabia

Saudi Arabia introduced corporate taxes and VAT but has not yet suggested personal income tax. With the continuing fiscal reforms, however, it may pave the way for future talks on wider taxation.

III.          Qatar

Qatar introduced corporate taxes and raised the prospect of tax reforms but has not proceeded with concrete steps toward personal income tax.

Oman's suggestion is the most tangible move toward personal income taxation in the GCC, and therefore it is watched closely by investors, workers, and policymakers at the regional and international levels.

Economic Impact and Challenges

The fiscal effect of Oman's personal income tax is still in doubt. Economists such as Azza Al Habsi at Ominvest estimate that the previous proposals with the lower threshold and higher flat rate  would have accounted for only 0.3% of non-hydrocarbon GDP. With the new higher exemption level and lower rate of tax, the fiscal contribution is likely to be even lower.

For Oman, the challenge is to strike a balance between the need for more revenue and the imperative to remain an attractive destination for talent and investment. As James Swallow, commercial director at business setup firm Sovereign PPG, pointed out, "Fiscally, it is attractive for the country as it needs to earn income for growth and development. But it must weigh this against keeping it a competitive environment in which to work and conduct business."

The worry is that any substantial personal income tax would chase away expatriates who have long been attracted to the Gulf by the offer of tax-free wages. This would have a knock-on effect on the rest of the economy, including the real estate, retail, and education sectors, which rely greatly on expatriate consumption.

What's Next?

The next major update on the law's status may come with Oman’s medium-term fiscal plan, expected in January 2026. Until then, the government is likely to continue assessing economic conditions and considering whether or not to proceed with implementation.

If Oman does proceed, it will be venturing into new territory as the initial GCC nation to levy taxes on personal income, potentially establishing a precedent for the region. But the cautious approach by the government, continuous amendments, and deferment of implementation reflect a reluctance to go ahead and initiate any adverse effects on the economy and society.

For the moment, Oman's draft personal income tax law is both a brave move toward fiscal reform and a delicate balancing act in preserving the nation's competitiveness and social equilibrium.