Oman breaks tax ground

Oman is set to become the first Gulf Cooperation Council (GCC) country to introduce personal income tax (PIT), marking a historic shift in a region long known for its tax-free incomes.

The move represents a major turning point for accountants and tax advisers who will see increased demand from both individuals and employers needing to prepare ahead of implementation.

Alkesh Joshi, EY Oman tax leader, calls this ‘a huge opportunity’ for young professionals to enter the field as advisory firms will need to hire to meet the growing client demand.

A royal decree issued in June ratified a planned 5% PIT starting from 2028 on Omani residents’ earnings over 42,000 Omani riyals, or around US$109,000. However, it is expected to have only a modest impact on most citizens, affecting only 1% of the sultanate’s five million inhabitants. It will mainly affect high-earning foreign residents.

Wealth management expert Adam Fayed notes that while the rate is modest, it signals a shift away from the region’s zero-tax image, potentially making Oman less attractive to expats.

The tax will apply to tax residents – a person who has spent more than 183 days in Oman in a tax year. Residents are subject to tax on their worldwide income, while non-residents are only taxed on their Oman-sourced income.

‘The biggest concern for professionals looking to reside in Oman may not necessarily be the tax on their Oman income, but that the tax will seemingly apply to worldwide income for all Oman tax residents, says Charles Dolphin, managing partner of CMS Oman.

‘So professionals who hold assets elsewhere, particularly in non-income tax jurisdictions, or jurisdictions that do not have a double taxation treaty with Oman, may find that they have a tax liability in Oman even if their annual income in Oman doesn’t reach the tax threshold,’ he added.

Possible deductions

There will, however, be the possibility to apply tax credits in the case of taxes paid abroad. And at the same time, it is also possible to exempt certain types of income sources that are derived from abroad.

There are also several broad exemptions and deductions which can be applied before the rate is calculated. Individuals will want expert advice on structuring their income and assets, and making use of the exemptions and deductions available.

‘They will really have to track all their expenses and be aware of what kind of expenses will be possible to deduct in order to include them in their tax return at the end of the financial year,’ says Urban Marolt, a tax manager at DLA Piper Middle East.

Deductions can be applied in relation to education fees, healthcare costs, charitable donations, zakat, freelance work-related expenses, housing loan interest and costs associated with rental income.

Exemptions are available on income from the sale of a primary residence, inherited income and gifts, and income from intellectual property rights, with one-time exemptions for proceeds from the sale of a secondary residence, and foreign income that is valid for two years.

Nils Vanhassel, a legal director within the Middle East tax team at DLA Piper, says although the legislation ‘looks pretty straightforward… tax can get complicated pretty fast, especially when it comes to correctly applying deductions, exemptions and cross-border elements’.

He adds: ‘Not everyone is going to want to file their own tax return in Oman, as in other jurisdictions, so I definitely see a role there for accountants and tax advisers to assist with that.’

Corporate angle

Although the PIT is targeted at individuals, tax advisers expect a spike in demand from corporate clients.

‘This is going to have a larger burden on the corporates to implement. Employers will have multiple areas to look at,’ Joshi says. ‘The finance, IT, HR and tax teams will have to carry the burden of the compliance for and on behalf of their high-earning employees.’

Employers will be required to withhold income tax on salaries, pensions, end-of-service benefits and board remuneration, and will also need to file a tax return on behalf of the employee in some instances.

‘Employers should proactively prepare by setting up systems for tax withholding on wages, pensions and board remuneration, establishing processes for tax remittance and return submissions for employees who earn income solely from these sources, if requested,’ says Namrata Nehru, a director at Deloitte.

‘Strengthening record-keeping practices is essential to support compliance and audit readiness when the law takes effect,’ Nehru adds.

Employment contracts

The new law could also spur companies to review their employees’ employment contracts and salary structures.

Nehru, who leads Deloitte’s mobility team within the Global Employer Services service line in Dubai, says that companies may wish to reconsider how they approach expatriate employment contracts and benefits packages to remain competitive.

‘This could include tax-equalisation or gross-up provisions for expatriates, which need to be supported by an overarching HR and tax policy,’ she says. ‘Providing robust tax compliance support is essential for secondments to the GCC, to ensure that home and host country tax positions are reconciled appropriately.’

Dolphin at CMS also predicts there could be a shift for expatriate employment packages, ‘since the tax is not leading to any additional benefits which can be availed by expatriate workers in Oman, such as free healthcare’.

However, there has been a general move away from employers offering ‘all-in’ employment packages in recent years, Dolphin adds.

‘We expect some resistance from employers to make wholesale changes to their employment packages,’ he says – at least while the rate of the personal income tax remains low.

Wait and see

With the proposed tax not being implemented until January 2028, employers and advisors are waiting for the detailed regulations along with further guidance manuals, which are due to be issued by June 2026.

It also difficult to predict whether Oman’s decision marks the start of a wider regional shift amid broader efforts by the United Arab Emirates, Saudi Arabia and Qatar to diversify revenue sources and reduce dependence on oil and gas.

Manjot Singh Chug, a Deloitte tax partner based in Oman, says given the sultanate’s proposed PIT is relatively modest, ‘the tax rate alone may not prompt other Gulf countries to follow suit, especially as they already have higher indirect tax rates than Oman.

‘However, what could be interesting for Oman and other Gulf countries is the potential requirement for a new individual financial reporting culture,’ he says. ‘This shift could enhance the country’s international ratings regarding tax transparency and information exchange.’