The Sultanate of Oman, long known for its oil and gas wealth, has been making serious efforts to reduce its dependence on hydrocarbons in recent years. The government has been gradually building a broader and more structured tax system as part of this shift. The decision to bring in Personal Income Tax from 2028 is a big move toward reshaping its economy, but with a low tax rate planned, the aim is to keep things easy on people’s pockets

Current Revenue Sources in Oman

Oman has introduced several tax measures over the past few years reducing its reliance on oil and ensuring a more balanced economy.

1. Excise Tax

Oman has been charging excise tax on products that are considered harmful to health or the environment since June 15,2019 which includes items like tobacco, alcohol, energy drinks, sugary drinks, and pork. The tax is not just limited to producers and importers.

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It also applies to supermarkets, hotels, restaurants, and anyone else selling these products. The current tax rates are 100% on tobacco, alcohol, energy drinks, and pork, and 50% on carbonated drinks. While the tax helps raise revenue, it is also meant to encourage people to make healthier choices.

2. Corporate Income Tax

Most businesses pay corporate tax at 15% in Oman but for small Omani-owned businesses if they meet certain conditions like capital below OMR 50,000, annual income under OMR 100,000, no more than 15 employees, and not being involved in banking, finance, insurance, or natural resources they get a lower rate. And this helps in supporting small local businesses while larger companies continue to contribute more in taxes.

Companies involved in selling petroleum in Oman are taxed at a special rate of 55%. However, this tax is handled differently under Exploration and Production Sharing Agreements (EPSAs) that these companies sign with the government.

Under these agreements, the government itself pays the company’s share of income tax by deducting it from the government’s portion of the oil production. So while the tax rate is high on paper, the company does not actually pay the tax out of its own pocket. It is covered by the government’s share.

3. Value Added Tax (VAT)

Oman introduced a 5% Value Added Tax (VAT) in April 2021. It applies to most goods and services, but there are some important exceptions.

Some items, like exports, international transport, and certain essential foods, are zero rated. This means they are taxed at zero percent, and businesses can still claim back the VAT they pay on related costs.

Other items, like financial services, education, public transport, and residential rent, are exempt from VAT. So no tax is charged, but businesses also cannot recover the VAT they pay on related expenses.

This VAT system has helped Oman grow its non-oil revenue and bring its tax policies more in line with other Gulf countries.

4. Tourism Tax

A 4% tourist tax is charged on services provided by hotels, restaurants, and cafes in designated tourist zones. This tax helps fund the development of tourism infrastructure and is often collected through franchise-style setups.

Sector-Specific Exemptions and Concessions

While many exemptions were withdrawn under Royal Decree 09/2017, Oman continues to allow certain tax breaks to encourage investment in priority areas:

• Industrial Activities: 5-year exemption for manufacturing entities
• Special Economic Zones (SEZs): Extended exemptions up to 30 years
• Omani Marine Companies: Exempt regardless of ownership
• Dividends and Capital Gains: Exempt if from listed Omani companies
• Investment Funds: Exempt if regulated by the Capital Market Authority
• Foreign Airlines: Exempt if reciprocal benefits are extended to Omani carriers
• Oil & Gas Companies: Tax treatment governed by specific contracts
• National Importance Projects: May receive tax relief through negotiation

How Personal Income Tax Could Affect Businesses, Expats and High Earners in Oman

Oman is the first country in the GCC to introduce personal income tax, which marks a big change in how the region approaches taxation. The tax is expected to be in place by 2028 and could have different effects on businesses, foreign workers, and high-income individuals.

For Businesses

Companies might need to review how they structure salaries, especially for employees with higher pay or those from overseas. If take-home pay drops because of tax, businesses may need to increase salaries or offer new benefits to stay competitive. This could lead to higher costs for employers. On the positive side, the tax collected could be used to improve public services and infrastructure, which can support long-term business growth.

For Expats

Currently the income of the foreign workers is not taxed in Oman. Once the personal income tax is introduced the expats who are earning above a certain limit may see a drop from their savings which might make them think to either stay in Oman or shift to another country in the region where personal income is not taxed, especially countries like UAE.

For Omani High Earners

Planning for extra financial responsibility may be needed for Omani citizens with higher incomes. Careful budgeting and planning will become important even with a low tax rate like 5%.

Double Taxation Avoidance Agreements (DTAA)

Oman has signed Double Taxation AvoidanceAgreements (DTAAs) with many countries to make sure people and businesses do not get taxed twice on the same income. These agreements are helpful for those who live or earn money in more than one country. For example, if someone works in Oman but also earns income in their home country, the DTAA helps avoid paying tax on that income in both places.

Depending on the rules, the income might be taxed only in one country or in both with tax relief given in one. These agreements usually cover things like salaries, business income, interest, dividends, and pensions. Oman has DTAAs with countries like India, the UK, France, Germany, and others.

Recently, Oman and India updated their tax agreement, and the new rules came into effect in May 2025. Some of the key changes include lower tax rates on payments like royalties and technical services, reduced from 15 percent to 10 percent, which will make cross border business cheaper. The updated agreement also includes stronger rules to prevent misuse of the treaty just to get tax breaks.

New tie breaker rules will help decide which country a person or company belongs to for tax purposes if both countries claim them. There is also a new clause to ensure people and businesses from one country are not treated unfairly in the other, and both sides have agreed to share financial information and help collect taxes if needed. These changes bring the agreement in line with global best practices and make tax cooperation between the two countries stronger.

Conclusion

Oman’s plan to introduce Personal Income Tax is a bigger step towards building a stronger and a more balanced economy. It may come with challenges,but with the right approach it can help support growth and move the country closer to its Vision 2040 goals.

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