Comparison of Taxes Across GCC

Navigating tax systems across the GCC: a guide to Corporate Tax, VAT and Compliance

The Gulf Cooperation Council (GCC) states have always been known for tax-friendly policies, both for businesses and for individuals. But in recent years, GCC governments have implemented a range of tax measures to meet international standards, generate income to support public spending and investment, and to reduce their reliance on oil and gas revenue.

Wherever you are operating your business – Abu Dhabi, Dubai, Saudi Arabia, Bahrain, Qatar, Oman, Kuwait or in one of the many Free Zones – you will need to understand your tax and filing obligations within that jurisdiction, as well as the implications of doing business across the wider GCC.

Value Added Tax (VAT)

In 2016, the GCC States agreed a common legal framework to introduce Value Added Tax (VAT) across the region. Under the agreement, a minimum standard rate of 5% is applied to all goods and services that are not zero-rated or exempt, and VAT registration is mandatory for any business with annual turnover above AED375,000 (c. USD100,000) or its local equivalent.

Saudi Arabia and the United Arab Emirates (UAE) were the first to implement VAT with effect from 1 January 2018; Bahrain and Oman followed suit in January 2019 and April 2021 respectively. Saudi Arabia increased its standard VAT rate to 15% in 2020, and Bahrain increased its standard VAT rate to 10% in 2022.

The introduction of VAT has led to changes in business operations, including accounting and record-keeping requirements. Businesses must now keep proper records of all transactions and ensure compliance with VAT regulations. Non-compliance can result in substantial penalties, which makes it essential for businesses to understand the new tax system and comply with its requirements.

Kuwait and Qatar are the two GCC members that have yet to introduce VAT. The Kuwaiti parliament has repeatedly delayed the VAT implementation date several times due to the strength of opposition. In 2023, the government ruled out implementation during its current four-year plan and is proceeding with the introduction of alternative excise levies. The long-delayed implementation of VAT in Qatar is anticipated in 2025.

OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS)

All the GCC member states have now signed the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS), a 2016 international initiative to address the tax challenges arising from the digitalisation of the economy and to ensure that profits are taxed where economic activities generating the profits are performed and where value is created.

The Inclusive Framework brings together more than 140 countries and jurisdictions to collaborate on the implementation of the BEPS Project. Signatories have committed to implementing 15 actions to tackle tax avoidance, improve coherence of international tax rules and ensure a more transparent tax environment.

The initiative is aimed at ensuring that companies pay taxes where economic activities take place and where value is created. It also sets a global minimum corporate tax rate of 15% for large multinational enterprises.

The impact of the BEPS project has had significant consequences in the GCC. Of the six member states, only Saudi Arabia previously had a qualifying corporate tax (CT) rate and comprehensive transfer pricing (TP) regulations.

Oman and Kuwait also had qualifying CT rates (15% or above) but did not have comprehensive TP systems and, in practice, only foreign companies operating in Kuwait were subject to CT.

Qatar operated a comprehensive TP system, but its CT rate was only 10%, while the UAE and Bahrain previously operated only partial TP systems and neither imposed any CT.

To avoid giving up its taxing rights to other jurisdictions, the UAE announced the introduction of a tax on business profits at a rate of 9% for financial years starting on or after 1 June 2023. Bahrain is to introduce a domestic minimum top-up tax for multinational enterprises from 1 January 2025.

Tax systems of GCC Member States

It is an ever-increasing challenge for businesses operating in the GCC to keep up to date with all relevant tax and regulatory regimes at both a local and regional level as governments in the region bring their tax systems into line with technological advances and international standards.

The GCC has always offered some of the lowest tax rates globally and governments will need to balance their need for revenue with the need to attract investment and promote economic growth.

UAE Tax System

01

The UAE Federal Corporate Tax Law, effective for financial years beginning on or after 1 June 2023, applies to all business and commercial activities across all Emirates, except to certain UAE government-controlled entities, companies engaged in an extractive business in the UAE, qualifying investment funds, or pension or social security funds.

02

UAE CT applies at a standard rate of 9% to taxable income exceeding AED375,000 or non-qualifying income of a Qualifying Free Zone Person (QFZP).

03

Branches of foreign banks and companies engaged in UAE oil and gas and petrochemical activities are subject to varying rates.

04

UAE corporate residence extends to all legal entities incorporated under the laws of the UAE, under either mainland legislation or applicable Free Zone regulations, as well as to foreign companies that are effectively managed and controlled in the UAE.

05

Every taxable person is required to electronically register for UAE CT with the Federal Tax Administration within a prescribed timeline and obtain a Tax Registration Number. CT returns must be filed and final tax due must be paid within nine months of the end of the relevant tax period.

06

Federal Decree Law No. 60 of 2023 amended specific provisions of the UAE CT Law to introduce definitions for a ‘top-up tax’ under OECD Pillar Two rules and MNEs.

07

Other applicable taxes may include: VAT (5%), Customs and Excise, Municipal or Property Tax, and Social Security contributions.

08

The withholding tax (WHT) rate is 0% for both domestic and cross-border payments.

09

There are no distinct capital gains provisions under the UAE CT law. Any gains or losses on disposal of capital assets form part of the taxable income.

10

The UAE CT Law introduced transfer pricing rules and regulations in alignment with the OECD Transfer Pricing Guidelines.

Saudi Arabia Tax System

01

Corporate income tax (CIT) is charged on resident non-Saudi or non-GCC individuals, and most types of businesses, at a flat rate of 20% of net adjusted profits, but oil and hydrocarbon production income is subject to varying rates from 50% to 85%.

02

Saudi Arabian interests and citizens of GCC countries pay 'zakat', a religious wealth tax based on the taxpayer’s net worth rather than income. The effective rate is 2.5% of the net worth of natural persons and 2.5% of total capital resources of companies.

03

For Saudi tax purposes, a company is resident in Saudi Arabia if it is formed under the Saudi Arabian Regulations for Companies or if its central management is in Saudi Arabia.

04

Taxable income from a branch of a non-Saudi based corporation is taxed at 20%.

05

CIT returns must be filed with the Zakat, Tax and Customs Authority (ZATCA) and final tax due must be paid within 120 days after the taxpayer’s year-end.

06

Other applicable taxes may include: VAT (15%), Customs Duties, Social Insurance tax and Real Estate Transaction Tax (RETT).

07

The WHT rates applicable to non-Saudi or non-GCC interests and individuals are 5% for dividends and interest, and 15% for royalties.

08

Capital gains are subject to the standard income tax rate applicable to the taxpayer.

09

For financial years starting on or after 1 January 2024, transfer pricing rules apply to all tax and Zakat paying entities.

Qatar Tax System

01

Residence is not the basis used to determine whether an entity is taxable for corporate income tax (CIT) purposes in Qatar.

02

An entity that is wholly or partially owned by non-Qatari or GCC nationals and derives income from sources in Qatar is taxable in Qatar according to the foreign partners’ share of the profit.

03

Taxable income generally is subject to a flat (CIT) rate of 10%, with certain exceptions. The rate applied in respect of oil operations is not less than 35%.

04

No CIT is levied on a corporate entity that is wholly owned by Qatari or GCC nationals that are resident in Qatar.

05

CIT returns must be filed with the General Tax Authority (GTA) and final tax due must be paid within four months of a taxpayer’s year-end.

06

Other applicable taxes may include: Customs Duties, Excise tax, Social Insurance contributions.

07

The WHT rates applicable to non-Qatari or non-GCC interests and individuals are 0% for dividends, and 5% for interest and royalties.

08

Capital gains are subject to the standard income tax rate applicable to the taxpayer.

09

Transfer pricing provisions apply to all tax paying entities and a transfer pricing declaration is required to be filed as part of the annual income tax return.

Oman Tax System

01

A legal entity is tax resident in Oman if it is established under Omani law or is headquartered in Oman. An Omani company is subject to tax on its worldwide net income, while a permanent establishment of a foreign company is only subject to tax on Oman-source income.

02

A standard CT rate of 15% applies to all businesses, including branches and permanent establishments of foreign companies, with a 3% rate applying to small companies. A special tax rate 55% applies to income derived from the sale of petroleum.

03

CIT returns must be filed with the Oman Tax Authority (OTA) and final tax due must be paid within four months of a taxpayer’s year-end.

04

Other applicable taxes may include: VAT (5%), Customs Duties, Municipal taxes, property transfer fees and social security contributions.

05

Foreign companies that do not have a PE in Oman for tax purposes and that derive income from Oman are subject to WHT at 10% of gross income from royalties.

06

Capital gains are subject to the standard income tax rate applicable to the taxpayer.

07

Transactions between related parties must be valued at arm’s length and TP methodologies are generally reviewed during tax audits.

Kuwait Tax System

01

A company is resident in Kuwait for CIT purposes if it earns income directly or indirectly from Kuwait. CIT in Kuwait does not apply to Kuwaiti entities. Only foreign entities earning income from Kuwait are subject to tax.

02

CIT is charged on resident non-Kuwaiti or non-GCC individuals, and most types of businesses, at a flat rate of 15% of net adjusted profits.

03

Kuwaiti interests and citizens of GCC countries pay the 'zakat' religious wealth tax. The effective rate is 1% of the company's net profits.

04

CIT returns must be filed and final tax due must be paid before or on the fifteenth day of the fourth month following the end of the taxable period.

05

Other applicable taxes may include: Customs Duties and Social Security contributions. Under the National Labour Support Tax (NLST), companies listed on the Kuwait Stock Exchange (KSE) are required to pay an employment tax of 2.5% of the company’s net annual profits.

06

There is no WHT in Kuwait, but a contract owner is required to retain 5% from all invoices paid pending presentation of a tax clearance certificate.

07

Capital gains are subject to the standard income tax rate applicable to the taxpayer.

08

There is no Transfer Pricing Law in Kuwait, but the Kuwait Tax Authority is entitled to inspect transactions to ensure that they are made on an arm’s-length basis and not for obtaining illegal tax benefits.

Bahrain Tax System

Bahrain has a limited corporate tax at 46% that only applies to entities engaged in the exploration, production or refining of hydrocarbons in Bahrain. Bahrain does not impose capital gains tax, withholding taxes or other taxes on the repatriation of profits.

Other applicable taxes may include: VAT (10%), Customs Duty, Stamp Duty, Social Insurance contributions and Municipality taxes.

VAT is administered by the National Bureau for Revenue (NBR) and all businesses with an annual taxable turnover exceeding BHD37,500 are required to register within 30 days of the date the threshold is exceeded or is expected to be exceeded. Non-resident businesses supplying goods or services to non-VAT registered customers in Bahrain must register within 30 days of their first taxable supply.

There is currently no specific legislation regarding transfer pricing or thin capitalisation in Bahrain. However, Bahrain joined the OECD Inclusive Framework on BEPS in 2018 and has therefore committed to implementing TP Documentation and Country-by-Country Reporting (CbCR) as part of the BEPS minimum standards.

Conclusion

The tax frameworks across the GCC member states show both similarities and distinct approaches. As part of ongoing efforts to diversify revenue sources beyond oil, most have introduced – or are considering the introduction of – CIT and VAT, while personal income tax remains absent across the region.

All GCC members states have now joined the OECD Inclusive Framework on BEPS, which is driving widespread change. Additionally, there are unique tax obligations for specific industries, such as oil and gas, across different jurisdictions.

Sovereign’s team provides tailored tax services across the GCC, ensuring that your business remains compliant while optimising its tax strategy. From understanding VAT in the UAE to managing corporate tax obligations in Saudi Arabia and beyond, we’re here to help you navigate these dynamic taxation landscapes with confidence.

This table provides a comparison of key tax types across the GCC countries, including corporate income tax, VAT, and withholding taxes, which are essential for businesses to understand when operating or planning to expand in the region.