The Gulf States have begun adopting a global minimum corporate tax of 15%, yet strategic incentives continue to attract multinational investments despite the region’s main attraction and reputation as a tax-free environment.
Historically, the Gulf States’ low tax rates have played a key role in attracting multinational companies seeking to benefit from the region’s strategic location, affordable energy, and growing markets, according to “The National”.
The report stated that Kuwait has decided to implement the tax in the new year, following a ministerial decision. Meanwhile, the UAE, which had no federal corporate tax until last year, now imposes a 9% corporate income tax.
In late 2021, the OECD (Organisation for Economic Co-operation and Development), established a global standard, in agreement with 136 countries, requiring large multinationals to pay a minimum tax rate of 15% in each country they operate. This year, several Gulf countries announced plans to adopt this policy by January 2025.
Bahrain will continue to maintain a zero percent corporate tax rate for most sectors in 2024, with the main exceptions being the oil and gas industries.
In contrast, Oman took earlier action by introducing a corporate tax rate that met the OECD minimum in 2017. Since Saudi Arabia, Qatar, and Bahrain are part of the same OECD agreement, these Gulf States are likely to eventually raise their corporate tax rates as well.
Meticulous Approach
The report highlighted that Gulf countries can no longer rely solely on competitive tax rates to attract multinational companies and foreign investors. Instead, they are adopting a more nuanced approach to attract foreign investment by enhancing their offerings with targeted subsidies, often in the form of tax exemptions for specific investments.
For example, Saudi Arabia offers a 30-year tax holiday to foreign companies that establish regional headquarters in the Kingdom, exempting them from corporate and withholding taxes during that period.
Additionally, the UAE Ministry of Finance has announced plans for tax incentives for companies, including one to boost research and development starting in 2026. This incentive will provide a refundable tax credit ranging from 30% to 50%, depending on the company’s size and revenue within the UAE.
The amendments aim to boost the competitiveness of Gulf countries in a global market, where tax rates alone can no longer set regions apart in attracting foreign capital. While these changes mark a shift, they are unlikely to deter committed investors or multinational companies. For global businesses, the key is to incorporate the new tax framework into a broader evaluation of the region’s overall offerings.
Tax Policy
The report stated that the Gulf’s competitiveness is driven by more than just tax policy, including factors such as low energy costs, world-class infrastructure, and a high quality of life. These elements together create a framework that continues to attract many multinational companies.
Morgan Stanley is relocating its Middle East headquarters to Riyadh, Saudi Arabia’s capital, while hedge fund, Marshall Weiss is establishing a presence in Abu Dhabi to tap into the region’s investor base.
Major energy companies like Shell, BP, TotalEnergies, and Mitsui have supported a significant new initiative, led by ADNOC, to boost LNG production in the Gulf.
In the consumer sector, American brand, Kosas Cosmetics has recently entered the Gulf market, capitalizing on the region’s high-spending beauty industry.
The Gulf has become a hotspot for businesses seeking growth opportunities. However, for companies looking to establish or expand operations in the region, understanding and aligning with the Gulf’s long-term vision is crucial for success.
Saudi Arabia has raised the stakes by requiring multinational companies to establish regional headquarters in the kingdom in order to bid on government contracts.
At the core of this vision is the drive to attract foreign capital, not only for financial gain but also for the talent, intellectual property, and technology that often accompany it.
These statistics highlight the region’s increasing success in attracting global investment as part of its broader efforts to diversify the economy.
Diversify Revenue
The report explained that diversifying revenue sources away from fossil fuels is a key driver of government strategies in the Gulf. The UAE and Saudi Arabia are leading ambitious initiatives, such as ‘Saudi Vision 2030’ and the ‘UAE Centennial 2071’ aimed at reducing their dependence on oil and reshaping their economies.
Both countries are expanding their trade base, making significant investments in artificial intelligence, renewable energy, and logistics. The shift away from oil and gas reflects a broader adaptation to the ongoing energy transition and efforts to strengthen the Gulf’s position in a competitive global economy.
Ideas, Experience and Ambition
The report emphasized that for companies seeking to establish or expand in the Gulf, aligning with the region’s economic priorities is essential. Governments are supporting companies that contribute to their long-term plans for economic diversification, innovation, and localization, including employing nationals and sourcing from local businesses.
Companies that align with this vision will reap the greatest benefits through incentives, partnerships, and access to a market that values strategic collaboration. In an increasingly competitive global economy, the Gulf’s message is clear: don’t just bring capital, bring ideas, expertise, and ambition.
Source: Al Qabas
