Since gaining independence at various points during the 20th century, the GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – have maintained a fiscal model built on oil revenue and a low- to no-tax environment. Historically, GCC governments did not impose taxes because they achieved independence without fiscal burdens such as reparations or colonial taxes, relying instead on oil and gas wealth to fund public services and development. This resource driven model supported social contracts based on government-provided benefits rather than taxation, promoting economic stability, political loyalty, consumer spending and foreign direct investment, while subsidising key sectors such as energy, education and health care. However, oil market volatility, rising public expenditure and the global energy transition have exposed vulnerabilities in this model.
Diversification Efforts
At the heart of the shift lies oil dependency: hydrocarbons still account for over 60% of government revenue across much of the GCC. Although elevated oil prices between 2021 and 2023 temporarily eased fiscal pressures, global decarbonisation efforts, output constraints by the Organisation of the Petroleum Exporting Countries and other allied oil-producing nations, collectively known as OPEC+, and geopolitical uncertainties have underscored the need for more diversified and sustainable revenue streams. Meanwhile, public spending remains high as governments invest heavily in infrastructure, economic diversification, job creation and social welfare programmes. With crude oil prices hovering around $80 in 2024 and projected to decline to an average of $73 per barrel in 2025 – down from a peak of $100 in 2022 – the risks of overreliance on oil have become clear, driving efforts to establish broader, more resilient fiscal foundations.
In response, GCC member countries have introduced structural fiscal reforms and embraced global tax frameworks since signing a common value-added tax (VAT) agreement in 2016. Following the agreement, VAT systems – originally at a 5% rate – were introduced: Saudi Arabia and the UAE implemented VAT on January 1, 2018, with Saudi Arabia later raising its rate to 15% in 2020; Bahrain introduced VAT in 2019 and increased the rate to 10% in 2022; and Oman followed with a 5% VAT introduction in April 2021. Qatar and Kuwait signalled their intention to implement VAT but have faced delays due to domestic considerations. The 2016 agreement also led to the rollout of excise taxes on selective products such as tobacco, energy drinks and soft drinks, with Saudi Arabia, the UAE and Bahrain implementing them in 2017, followed by Qatar and Oman in 2019. Kuwait remains the last holdout, having yet to introduce either a VAT or an excise tax, largely due to strong parliamentary opposition, particularly after the 2022 elections and the dissolution of parliament by the emir in May 2024. Despite its prior commitments, Kuwait’s latest four-year plan, launched in February 2024, rules out VAT implementation but includes the introduction of excise and corporate taxes within three years.
Meanwhile, personal income tax reform in the region remains limited. Oman became the first GCC country to approve such a measure in July 2024, introducing a proposed 5% tax on Omani nationals earning over $1m and on expatriates earning more than $100,000 per year. The law, approved by the State Council, is expected to affect only 1% of the population and contribute an estimated 0.2% to GDP by 2026.
Multinationals
Corporate taxation – particularly under pillar two of the OECD’s agreement – has become the latest frontier in global fiscal reform. While most GCC countries have historically applied corporate tax only to oil and gas companies or foreign financial service providers, mounting global pressure, particularly from the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, has prompted a shift. Launched in July 2013 with G20 backing, BEPS released its first major action plan in October 2015, comprising 15 measures aimed at curbing tax avoidance by multinational corporations.
The follow-up initiative, known as BEPS 2.0 or the two-pillar solution, was released in October 2021. It gained the endorsement of over 140-member jurisdictions in the OECD/G20 Inclusive Framework on BEPS. Pillar one reallocates taxing rights for large multinationals to market jurisdictions, while pillar two introduces a global minimum corporate tax rate of 15% for companies with annual revenue above €750m, ensuring they pay at least this rate in every country where they operate. While implementation begins in 2024 for many jurisdictions, full rollout is delayed to 2025, marking a major shift in international tax policy and raising significant compliance challenges.
All GCC countries apart from Saudi Arabia have taken steps towards adopting pillar two. Despite being an active member of the inclusive framework, Saudi Arabia has yet to announce formal plans. The Kingdom is pursuing a cautious and consultative approach, considering internal priorities, administrative readiness and external factors such as rising US investment, before deciding whether to introduce a global minimum tax or a domestic minimum top-up tax (DMTT) – a mechanism that enables countries to collect top-up taxes locally to ensure compliance with the 15% minimum threshold.
Increased Profits
Expected revenue gains from pillar two will vary across the GCC, depending on existing tax systems and the presence of qualifying multinationals. Countries like Bahrain and Kuwait stand to benefit from the implementation of DMTTs. As the only GCC country without a corporate tax, Bahrain stands to gain by applying a DMTT to large multinationals. Kuwait’s DMTT is expected to generate approximately KD250m ($813.4m), or around 0.5% of GDP, primarily from 20 major Kuwaiti multinationals. Oman, which already imposes a 15% corporate tax, could still benefit from pillar two through top-up levies on offshore profits earned by Omani-headquartered multinationals.
Despite not having a standard corporate tax, Bahrain became the first GCC country to adopt a DMTT in September 2024, allowing it to levy top-up taxes on multinationals with effective tax rates below 15%, in line with OECD pillar two rules. The UAE, which introduced a 9% Corporate Income Tax (CIT) through Federal Decree-Law No. 47 of 2022 – effective from June 1, 2023 – later amended the law to include a 15% DMTT, applicable to multinational enterprises for financial years starting on or after January 1, 2025. Other GCC countries have followed suit. Kuwait, which already had a 15% CIT, adopted the DMTT framework, effectively eliminating tax exemptions for around 370 Kuwaiti and GCC-national companies, including 20 with overseas operations as of December 2024. Qatar, with a 10% CIT, enacted Law No. 22 of 2024 to implement both the DMTT and the income inclusion rule (IIR), effective from January 1, 2025. Lastly, Oman issued a royal decree on December 31, 2024 introducing a 15% DMTT and a supplementary top-up tax via the IIR mechanism.
Shifting Strategies
Saudi Arabia, which levies a 20% CIT has not indicated plans to adopt OECD pillar two reforms. In December 2023 the Kingdom launched a 30-year tax incentive package under its Regional Headquarters programme, offering 0% CIT and withholding tax to attract multinationals and strengthen its position as a leading MENA business centre. However, these incentives may lose effectiveness under pillar two, as parent countries could apply top-up taxes, resulting in potential double taxation and undermining the programme’s appeal. This reflects an emphasis on foreign direct investment over immediate revenue generation. Other GCC countries face similar pressures, as the global minimum tax poses challenges to free zone models that rely on low- or zero-tax regimes. Jurisdictions like Qatar Financial Centre and Khalifa Industrial Zone Abu Dhabi – historically attractive due to tax holidays and capital repatriation – are re-evaluating their value propositions. In response, many are shifting focus to non-tax benefits such as regulatory efficiency, advanced logistics infrastructure and innovation ecosystems to maintain competitiveness under the evolving global tax landscape.
As fiscal reforms become integral to national strategies like Qatar National Vision 2030, they are playing a central role in driving economic diversification and sustainability. For GCC countries, aligning with OECD pillar two and implementing tax reforms is not just about compliance, but is a strategic move to bolster economic resilience in a post-oil future. Creating transparent, globally aligned tax regimes boosts investor confidence, and signals economic maturity. While concerns about reduced profit margins remain, these are outweighed by the benefits of predictability and improved governance, including transfer pricing rules, anti-abuse measures and stronger compliance frameworks. Adopting international tax standards deepens the region’s integration into the global economy. Though the transition is gradual and tailored to preserve regional competitiveness, the direction is clear: by broadening revenue sources, improving transparency and modernising public finances, GCC governments are laying the groundwork for sustained, future-ready growth.
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