Oman has introduced income tax. Dubai could be next
Oman has become the first Gulf Arab state to introduce income tax – sparking fears Dubai residents could face a similar levy in the next five years.
In a royal decree, Sultan Haitham bin Tariq Al Said, prime minister of Oman, announced residents would pay 5pc income tax on earnings above OR42,000 (£80,282).
The tax won't come into effect until 2028 and the rate is modest compared to Britain where workers pay up to 45pc in income tax. However, the move marks a seismic shift, as Oman looks to reduce its reliance on oil and gas revenue.
Tax experts said the change could be a sliding doors moment and provide the political cover for other Gulf states to introduce their own income tax.
David Denton, of wealth manager Quilter Cheviot, said: 'I think it's inevitable that other states will follow Oman. I'm sure none of them wanted to be first. While I don't think [the rate] will be significant to begin with, these things are all gradual.
'A decade ago corporation taxes were practically non-existent but most of those countries now have taxes on corporate profits. They all have goods and services taxes, the equivalent to VAT.
'Taxes on personal income are one of the last things that you bring in, but it is all as a result of natural resources being slightly unreliable and demand varying. They are therefore looking for alternatives in income resources.'
Nimesh Shah, of accountancy firm Blick Rothenberg, said Oman would not be an outlier and it was 'the next natural step' for the United Arab Emirates — which comprises Dubai, Abu Dhabi and five other emirates — to introduce income tax.
There are estimated to be around 240,000 British expats living in Dubai alone, which has grown increasingly popular in recent years as the level of taxation in the UK has reached the highest level in more than 70 years.
There is no personal income tax on salaries, investments or rental income in the UAE. Residents who spend at least 183 days in a year there also pay no taxes on assets held outside of the country.
It has been able to create a low-tax environment thanks to an abundance of oil and natural gas reserves found in the 1950s. The country possesses the equivalent of 6pc of the world's total oil reserves. However, government revenue is therefore heavily reliant on the natural resources and at the mercy of their volatility and demand.
Mr Shah said: 'I have long said that places like the UAE will have to introduce income tax at some point. The next natural step will be income tax. As the natural resources in the region deplete over time, the state needs to find new ways to generate revenues.
'The income tax rate announced by Oman is comparatively low but there is only one way from here over time. For me it's a question of when rather than if, and I expect the UAE will confirm the introduction of income tax before the end of the decade.'
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