Tax is, by and large, the most significant source of government revenue in nearly all countries. However, until recent years, tax revenue earned by the Gulf Corporation Council (GCC) governments was relatively insignificant. Revenue from oil and oil-based products made a significant portion of the government revenue in all six member states of the GCC.

Because of diversifying a government’s sources of income, some countries in the GCC introduced direct tax as early as 1955, but the application of which had been restricted to certain segments or activities.

The United Arab Emirates (UAE) is at the forefront of adopting a more stringent tax regime in the region. Value Added Tax (VAT) laws have been in place since 2018. It has now been announced that Corporate Tax (CT) will be implemented in 2023.

This concise article will help to understand how the tax landscape of the world, GCC countries, and the UAE have been evolving over the years. This would also shed some light on the direction of taxes in the GCC countries.

World History of Taxation

The evolution of tax revenues commences with a selection of early-industrialized countries such as the United Kingdom, France, Sweden etc. Referring to history (during the colonial period), until 1920 tax revenues were low across all these countries. Indeed, until 1910 less than 10% of national income was collected by these governments through taxation – just enough for them to fulfil basic functions, such as maintaining law and order and enforcing property rights. After the First World War, however, taxation started growing considerably. In the period 1920-1980 taxation as a share of national income increased drastically, more than doubling across all the countries. These increases in taxation went together with more government expenditure on public services, particularly education and healthcare. After 1980, tax revenues started stabilizing, albeit with marked differences in levels for each country. Today these differences remain significant.

Taxation in the GCC Countries

The Gulf Cooperation Council (GCC) countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. GCC was founded in Abu Dhabi in the United Arab Emirates (UAE) in 1981. Its purpose is to facilitate cooperation among members in the fields of international commerce, education, shipping, and travel. The GCC aims to achieve unity among its members based on their common objectives and similar political and cultural identities, which are rooted in Arab and Islamic cultures.

The GCC countries have a long history of using taxes to develop their economies and promote social inclusion. Zakat, a payment obligation promulgated by the religion akin to a progressive tax that began in the 12th century, is still collected to fund social spending in GCC countries including KSA, Kuwait, etc. The GCC has a low tax rate primarily due to alternate sources of government revenue in the hydrocarbon industry. However, due to depleting nature of the oil and oil-based revenue, economic reforms aiming at diversifying government revenue are on priority in the government agendas.

GCC countries faced many ups and downs about the tax introduction. Table 1 summarizes the significant changes that took place over the last 70 years in the GCC countries. However, implementation and collection of tax in the GCC are still low due to the high-income source from the oil and gas-based exports. 

Table 1: Milestone in taxes in the GCC countries

Milestones of GCC in terms of Taxes






Introduced corporate tax laws



Suspended its tax because of the increase in its oil revenues



The government tried to introduce personal or corporate taxes but faced great opposition so, it was declined.



The tax was reintroduced in 1988 to offset the declining oil revenues.



The representatives of the GCC states performed a feasibility study in the early 1990s on introducing Value Added Taxes (VAT) and Corporate Taxes as part of their economic reforms.



By the early 1990s, international organizations like the United Nations, Moody’s, and the IMF, started to encourage the GCC states to implement taxation policies.



Introduced a corporate tax, which later exempted certain sectors and projects, even though there was a continuous decline in oil prices.



To attract foreign investments, KSA and Oman announced tax reductions on foreign businesses.



IMF report argued that GCC states could no longer rely on oil revenue and recommended they cut spending and implement corporate tax, consumption tax, and value-added tax.



Introduced the first written tax laws in the country



Amended its original tax laws of 1955 and reduced the tax rate to a flat 15%.



Qatar introduced income tax laws.



Implemented VAT at the rate of 5%.



Implemented VAT at the rate of 5%.



Implemented VAT at the rate of 5%.



Increased VAT to 15%.



Schedule to implement income tax on corporates at the rate of 9%.

(Source: International Business & Economics Research Journal – July/August 2014 Volume 13, Number 4, Ministries of finance (outturn 2011-19, budgets for 2020/21), IMF Article IV reports )

Taxation Today – World

Figure 1 shows a map of the total tax revenues of each country in the world. These estimates come from the International Centre for Tax and Development and are expressed as a share of GDP. As we can see from the most recent data, at one extreme of the spectrum we have countries such as Cuba, France, Denmark, Norway, and Sweden, where total tax revenues are higher than 30% of GDP. And at the other extreme, we have countries such as Libya where taxes account for less than 2% of national income. More generally, this map shows that there is a clear correlation between GDP and tax revenues – richer countries tend to collect through taxes a much larger share of their domestic production.

                                                               Figure 1: Tax Revenue of countries in the world


                                                                     (Source: ICTD/UNA-WIDER government revenue dataset, August 2021)

Today, there are many instruments used to collect government income in the world. The chart below shows components of income correlated to the size of each revenue category. It is also clear showcase of the role tax playing all over the world to facilitate government income.

Indirect taxes are larger than direct taxes. In principle, a larger portion of tax revenue should be derived from direct taxes as it justifies the tax base. Indirect taxes are collected from all people irrespective of earning capacity of each individual, hence it does not indicate good practice in the tax system. However, indirect taxes are mostly used all over the world since it is effective and easy to collect.

                                                   Figure 2: Composite of Governments’ revenue including tax revenues

(Source: Prichard, W., Cobham, A., & Goodall, A. (2014). ICTD Government Revenue Dataset ICTD working paper 19. Institute of Development Studies, Brighton.)

Taxation today – GCC Countries 

When compared to the rest of the world, GCC countries have still very low tax rates implemented among all the members. For the oil-rich countries of this region, oil tends to be a very large share of government revenue. In Saudi Arabia and Kuwait, more than 60% of the citizen workforce (that is, not counting immigrant workers from other countries) work in the government sector. With fluctuating oil prices with external factors, GCC faces many challenges. Many international organizations recommend to implement tax reforms in the GCC to maintain consistent government income. The bulk of the tax increases since 2017 have come from VAT, implemented in KSA, UAE, Oman, and Bahrain. During the last 5 years. The GCC countries have implemented important tax changes mainly in Saudi Arabia and UAE aiming to convert diversified income sources to the governments to maintain consistent government expenditures. Upcoming income tax in the UAE will be an important step to taxation being an international business hub in the GCC. The introduction of corporate tax in the UAE will also help to prevent profit shifting and fiscal evasion. As per current information, the corporate tax rate will be 9%. After implementing the corporate tax, still UAE will be a competitive place for business and it will gain the confidence of the business community on sustainability.

Figure 3 shows the income from tax as a percentage of GDPs of the GCC countries individually and together to have a basic understanding. Tax revenue in GCC countries is still below 10% of GDP whereas some countries outside of GCC account for over 30% of GDP from tax revenue.

Figure 3: Tax revenue of GCC countries as a percentage of GDP

(Source: Ministries of finance (outturn 2011-19, budgets for 2020/21), IMF Article IV reports)

Table 2: Tax revenue Vs non-tax revenue over the last decade in GCC countries





 Tax revenue

 Non-tax revenue

 Tax revenue

  Non-tax revenue




































(Source: Ministries of finance (outturn 2011-19, budgets for 2020/21), IMF Article IV reports)

Over the last decade, the tax landscape of GCC countries has changed significantly. GCC countries are gradually shifting their revenue sources towards more tax-based revenue. Table 2 indicates the shift over the last decade. Due to pressure from international organizations and the country’s economic reform strategies, this trend will continue to maintain its momentum in years to come. Therefore, companies that operate in GCC countries would require to keep a close look at their tax functions to comply and efficiently manage their taxes.   

GCC governments understand the importance of a good international financial reputation and will take steps to improve credibility, but elevated cross-border business activity will automatically bring them under international compliance requirements. For example, the introduction of the Economic Substance Regulations in the UAE, and the increasing number of double tax treaties entered into by regional governments, are designed to increase investment into and through the region. Member states in the GCC are increasingly welcoming tax regulations and being part of international tax developments. Given avoidance of double taxation and prevention of fiscal evasion regarding taxation and income and capital, tax treaties between member states are being signed. KSA and UAE signed the first tax treaty between member states which became effective in January 2020. On 24th August 2022, UAE and Kuwait initiated the final draft of the tax treaty which will become effective after ratification and entry into force.


We, Crevaty, have been building experience and expertise over the years in terms of tax compliance and advisory services in the GCC countries. We believe that we are best positioned to assist you to structure your businesses in the region and efficiently support tax compliances and controversies. We would, therefore, be pleased to assist you with your concerns/questions about the introduction of corporate tax in the UAE and support you from this early stage.

Please contact our tax team for any further information or discuss the way we could assist you.

We look forward to hearing from you.


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