The Gulf Cooperation Council (GCC) countries, formerly famous for their low-tax regimes, are undergoing a seismic shift in their taxation policies. Historically reliant on oil revenues, these nations are diversifying their economic strategies to ensure fiscal sustainability. This article discusses the most recent tax updates in the GCC and provide practical advice for entrepreneurs who wish to effectively adjust to these changes.
The paradigm shift in GCC tax policies
The Gulf Cooperation Council (GCC) countries are experiencing significant transformations in their tax frameworks. Declining oil prices and the need for economic diversification, as outlined in strategic plans such as Saudi Arabia’s Vision 2030 and the UAE’s Economic Vision 2030, have triggered the changes.
The most notable change was the introduction of corporate taxes in Saudi Arabia and the UAE, paving the way for the rest of the GCC countries to follow suit. Kuwait has published a draft Business Profits Tax Law proposing a 15 percent corporate income tax, which would be imposed first on multinational corporations and Kuwaiti companies with international operations. This phased approach, with starting date of January 2025 and prepayment delayed until 2026, is all within the context of a broader shift toward achieving fiscal sustainability.
Another significant developments in the Gulf is the introduction of the Domestic Minimum Top-Up Tax (DMTT) by Bahrain, Kuwait, and the UAE. This tax mandates a 15 percent global minimum corporate tax for multinational enterprises with consolidated revenues exceeding €750 million ($821.38 million).
Read: UAE announces new tax rules regarding non-resident nexus for corporate regulations
Alignment with international standards
The GCC’s commitment to aligning with international tax standards is evident in their adoption of the OECD/G20 Inclusive Framework. GCC countries, with the exception of Saudi Arabia, have started applying the Global Anti-Base Erosion (GloBE) rules as of January 2025. This is part of the OECD/G20 Inclusive Framework on BEPS, which sets a minimum effective tax rate for international corporate taxation for MNEs with turnover in excess of €750 million, these rules aim to ensure a fair tax environment across cross-border activities while supporting economic goals.
The GCC nations have also updated their network of Double Tax Treaties (DTTs) to prevent double taxation and attract foreign investments. The updates include the UAE’s approval of a protocol amending its DTT with Switzerland on January 2, further solidifying fiscal relations and ensuring more stable investment flows between the two countries.
Similarly, new treaties have been signed or initialed, between Bahrain and the UAE, and between Russia and the UAE, indicating a strengthening of economic ties and a mutual commitment to supporting cross-border business activities. These agreements reflect the GCC’s broader strategy to create a more favorable business environment and integrate more closely with global economic systems.
Practical tips for entrepreneurs
Navigating the evolving tax landscape in the GCC requires strategic planning and proactive measures. The following are some key considerations for entrepreneurs:
• Understand the change
It is very important for entrepreneurs to first understand the specifics of the tax changes within the GCC. Awareness of how these changes affect both local operations and international activities is crucial. For instance, the GloBE rules require understanding international tax obligations, while local changes like VAT amendments directly affect daily business operations.
• Stay informed
Tax legislation evolve very quickly in the region, as seen in the GCC’s rapid adoption of various tax measures. Regularly update your knowledge through attending workshops, seminars, and consultations with tax professionals. Monitoring changes and understanding their implications can significantly reduce compliance risks and enhance strategic decision-making. As transfer pricing regulations become more prevalent, businesses need to be aware of recent changes and comply with transfer pricing laws is the best way to prevent penalties.
• Tax efficiency
Entrepreneurs need to examine their current tax structures to identify where efficiencies can be achieved under the new legislation. This could involve restructuring certain aspects of the business to align with the new tax environment, such as making adjustments to supply chains or reconsidering where to place certain business activities.
• Invest in technology
As the GCC countries embrace digital transformation in tax administration, investing in technology is necessary. For example, accounting software that supports e-invoicing and electronic record-keeping will be crucial in countries like the UAE and KSA, where electronic compliance is becoming mandatory. Robust digital compliance solutions can be adopted to make tax administration easier and improve compliance monitoring.
• Consult tax professionals
Given the complexity of the evolving tax environment, it is valuable to engage with Lawyers and tax experts who can provide perspective on the latest developments, navigate businesses through the compliance challenges, and uncover opportunities for tax efficiency improvement.
Conclusion
The evolving tax landscape in the GCC underscores the region’s dedication to fiscal sustainability, economic diversification, and global standards alignment, promising a promising future for both investors and businesses. While the changes present challenges, they also present great opportunities for growth.
Entrepreneurs willing to adapt to these changes and make strategic planning decisions can effectively cope with the new tax environment. By staying on top of regulatory developments, investing in technology, and consulting tax professionals, businesses can optimize tax efficiency and minimize risks.
As the GCC countries continue to diversify their economies and align with global tax standards, proactive engagement and strategic planning will be key to thriving in this new fiscal environment.
Shamma Alfalahi is partner, head of tax, BSA Law.
For more op-eds, click here
