Oman to impose Gulf's first income tax on high earners to 'help economic goals'

Oman’s move to introduce personal income tax from 2028 is a significant milestone in the sultanate's push to achieve its economic diversification goals, although the tax ratio remains low to reduce burden on the population, analysts have said.

On Sunday, Oman issued the Personal Income Tax Law through royal decree, which imposes a 5 per cent tax on annual income exceeding 42,000 Omani rials ($109,236), Oman News Agency said, citing the country’s tax authority.

The law, which will come into effect at the beginning of 2028, will levy tax on income derived from “specific income types as defined by the law”, the news agency said.

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The Tax Authority said that the new law was in line with Oman’s economic and social conditions and contributes to the objectives of Oman Vision 2040 to cut reliance on revenue generated from the sale of hydrocarbons.

“The introduction of income tax is another signal that a country has achieved a mature economic position,” David Daly, partner at Gulf Tax Accounting Group, told The National.

“That the rate is competitive internationally will ensure that Oman remains a country of choice for international professionals.”

Careful study

Oman, which has been in the process of drafting the personal income tax framework since 2022, said the move to finally implement the tax law follows an in-depth study that assessed the economic and social impact, based on income data from a number of government entities.

The study has established a “carefully considered exemption threshold”, which means 99 per cent of Oman’s population will not be taxed.

“The law is a precedent, setting Oman as the first GCC country to impose income taxes on its citizens,” EFG Hermes analyst Mohamed Abu Basha said in a research note on Monday.

“In that sense, while partially symbolic in nature – given the limited base of citizens to be impacted by the law (only 1 per cent of the population as per official estimates) – the move is still significant, considering the precedent it sets.”

The law not only sets a higher personal income threshold and a low tax ratio, it also includes deductions and exemptions accounting for social considerations in the sultanate, such as education, health care, inheritance, zakat, donations, primary housing and other factors, according to the ONA report.

Oman's plans to levy income tax on high earners was first mentioned in a bond prospectus published by the Finance Ministry in 2020 when the sultanate raised $2 billion in external financing.

At the drafting stage, the expected reported tax rates ranged between 5 per cent and 9 per cent for foreign nationals, with a flat rate of 5 per cent for Omanis.

ONA on Sunday did not disclose details on whether there are separate tax brackets for expatriates and Omani nationals.

Oman, like its peers in the Gulf, is trying to diversify its economy away from oil. Tourism and agriculture are among sources of economic activity outside of the oil and gas sector, which accounts for about 70 per cent of the government revenue.

Under its economic and social reforms programme, the sultanate aims to reduce its dependence on oil income by 15 per of its gross domestic product by 2030 and further reduce it by 18 per cent by 2040.

Oman’s economy is set to expand at a faster pace over the medium term, with overall GDP growth projected at 2.4 per cent in 2025 and 3.7 per cent in 2026, according to the International Monetary Fund.

The country’s real GDP strengthened to 1.7 per cent in 2024, an increase from 1.2 per cent in 2023, boosted by robust non-hydrocarbon activity, notably in manufacturing and services sectors of the sultanate, the IMF said earlier this month.

Systems in place

Oman on Sunday said the new tax not only aims to promote wealth redistribution among societal segments, it will also support “the state budget, and specifically, financing part of the social protection system”.

“Given the tax-free allowance and structure of the Omani economy, I don’t see any material economic impact in the near to medium term. Indeed, it should allow for government investment in their society to the benefit of all,” Mr Daly said.

When implemented, personal income tax will be a first in the Gulf region and is likely impact only the high-earning foreign workers and wealthy Omani citizens.

All necessary preparations and requirements for implementing the tax have been completed, said Karima Al Saadi, director of the Personal Income Tax Project at the Tax Authority.

“The executive regulations of the law will be issued within one year of its publication in the Official Gazette,” she added.

An electronic system has been developed by the Tax Authority to promote voluntary compliance and has been linked with the departments concerned to ensure accurate income calculation and verification of tax declarations, she told the news agency.

“Guidance manuals for natural and legal persons will be published according to a predetermined schedule,” she said.