The Bread-and-Butter Issues of Jobs and Taxes in the Gulf

With the U.S. presidential election heating up, jobs and taxes have become hot topics on the campaign trail. Employment initiatives and tax reform remain salient policy issues in the Gulf too, though the underlying political economy dynamics differ. In July, Oman’s government announced more than 30 new professions that non-Omanis would be prohibited from working in as of September 2. Meanwhile, a draft law on personal income tax – the first ever for a Gulf Cooperation Council country – is making its way through Oman’s Parliament.

As Gulf governments accelerate domestic development agendas, local job creation and tax revenue are measurable indicators of economic policymaking success. Gulf citizens understand how employment status, salary, and tax liability affect their economic well-being, while it is much harder to determine the personal economic impact of foreign direct investment inflows. Expatriate workers and foreign investors can likewise calculate the costs associated with stricter requirements to employ local jobseekers and with new tax obligations. These two sensitive policy domains reflect the tricky tradeoffs associated with Gulf states’ development agendas.

Nationalizing Workforces

Regional policymakers have long relied on workforce nationalization – direct government interventions to increase the quantity and quality of jobs available to citizens – to address labor market challenges. This policy approach remains a key feature of government efforts to ensure that local employment accompanies ambitious development initiatives and domestic-oriented investments. New workforce nationalization measures are most visible in Saudi Arabia, Bahrain, and Oman, where citizens outnumber expatriate residents and local employment demands are more pressing.

The Saudi government has steadily increased Saudization requirements across various industries alongside sustained inflows of expatriate workers. In December 2023, the Ministry of Human Resources and Social Development implemented new Saudization regulations for professions in sales (15%), project management (35%), and procurement (50%). The ministry raised Saudization requirements in consulting to 40%, up from 35%, in March. Since July, private-sector businesses with five or more accredited engineers have been required to meet Saudization targets for all engineering roles of 25%, up from 20%. Many regulations stipulate minimum salaries required for meeting Saudization quotas. Salary requirements matter: Saudis experienced a contraction in real wage growth in 2022 and 2023, while non-Saudis experienced strong real wage growth.

Key government entities are supporting workforce nationalization objectives. The governor of the Saudi sovereign wealth fund, which is investing heavily in the Saudi economy, mentions enhancing Saudization as one way the Public Investment Fund “supports national development.” The PIF’s “Annual Report 2023” describes the creation of 730,249 “direct and indirect jobs” from 2018-23 and highlights the employment expectations surrounding various PIF-owned initiatives, such as Riyadh Air. While not all these roles are filled by Saudis, the intended message is clear: Sovereign wealth fund investments create jobs.

Bahrain’s “National Labour Market Plan 2023-2026” seeks to push more citizens into private sector jobs and lower the wage gap between Bahrainis and non-Bahrainis, among other initiatives. Bahraini members of parliament have pushed to boost Bahrainization across key sectors: medicine, law, accounting, education, and banking. According to reports, companies failing to meet Bahrainization targets would be barred from competing for government tenders. The Council of Representatives is reviewing a draft law that would place a 30% cap on non-Bahrainis working in private sector establishments.

Oman has made significant progress on several economic policymaking fronts, leading Moody’s Ratings to change the country’s outlook to positive from stable. Muscat nevertheless confronts constant pressure to address labor market challenges. Indeed, in recent years there have been protests in the sultanate over employment-related grievances. The latest labor market measures prohibiting the hiring of non-Omanis for around 30 professions include stipulations that all private sector establishments employ at least one Omani based on criteria to be issued by the Ministry of Labor. Higher fees and stricter inspections to encourage Omanization compliance are expected. Additional restrictions on non-Omanis holding certain roles – such as systems analysts, computer programmers, or website designers – are slated to come into effect from 2025-27.

The Kuwaiti government has accelerated efforts to replace expatriate workers with Kuwaitis over recent years, with Kuwaitization policies picking up pace from 2021-23. The country’s Public Authority for Manpower is currently exploring how to boost Kuwaitization rates across various industries even further. There is less demographic pressure in Kuwait than in other Gulf countries to advance strict workforce nationalization policies: Kuwaiti citizens only account for approximately one-third of the population. Yet the relatively robust political system permits more room to air labor-related concerns, and the elected Kuwaiti Parliament possesses the power to legislate associated policies. Although Kuwait’s Parliament has been dissolved for a period that is not to exceed four years, its legacy remains an important feature of the country’s political economy. Meanwhile, the growing perception that a stagnating Kuwaiti economy is falling behind faster-moving, dynamic economies in neighboring Gulf states as well as high numbers of college graduates being added to the workforce each year may fuel demand for stricter Kuwaitization initiatives.

Governments in the United Arab Emirates and Qatar also implement workforce nationalization policies, but there is less urgency for policy outcomes. Emiratization and Qatarization initiatives focus on pushing more citizens into the private sector. The Emirati Talent Competitiveness program, for example, is spending  around $6.53 billion to employ 75,000 Emiratis in the private sector from 2021-25, and by the end of that period, the Emirati government hopes that its citizens will hold 10% of private sector jobs. 

The Taxman Cometh

Compared with workforce nationalization, efforts to advance tax reform across the region have been slow and cautious. Regional governments are concerned about the impact of taxes on vulnerable households, inflation, and FDI flows. But Gulf citizens and expatriates are coming to terms with new and higher taxes, which support diversification initiatives by generating more non-oil revenue.

On September 1, Bahrain announced the introduction of a domestic minimum top-up tax on multinationals beginning January 1, 2025. Those firms operating in Bahrain with global revenue exceeding 750 million euros (approximately $838 million) will be subjected to a 15% tax on profits, in line with the OECD’s global minimum corporate tax initiative. Bahrain is the only country in the region that still does not have a broad-based corporate income tax. The UAE implemented such a tax on June 1, 2023: A federal corporate income tax broadly applies a standard statutory rate of 9% to companies in all emirates, with certain exemptions. (The average corporate income tax rates for OECD countries are closer to 21%.) In March, the UAE’s Ministry of Finance launched a public consultation paper over the 15% tax on multinationals with global revenue exceeding 750 million euros, but a decision on this matter is not expected to be finalized until 2025.

Kuwait imposes a corporate income tax with a flat rate of 15% on companies with foreign ownership, and Oman has a similar corporate income tax, which increased from 12% to 15% in 2017. Qatar imposes a 10% corporate income tax on taxable income, and Saudi Arabia imposes a 20% corporate income tax on net-adjusted profits, with certain exemptions. Zakat – an assessed obligation under Islamic law – is imposed on companies across the region.

In its 2024 Article IV consultation report, the International Monetary Fund recommended that Saudi Arabia increase corporate taxation, introduce a personal income tax, and implement a property tax amid the country’s construction boom. Much of the Saudi progress on increasing non-oil revenue relates to the value-added tax, which is levied at a standard rate of 15%, up from 5% as of July 2022. Bahrain increased its VAT from 5% to 10% in January 2022, while the UAE and Oman have maintained the standard 5% rate since the tax came into force in 2018 and 2021, respectively. These rates are low by global standards. The European Union’s average standard VAT rate is 21%.

There is no personal income tax in the region, but Oman appears to be getting closer to enacting a personal income tax law on high-income individuals. Any eventual tax rates and taxable income thresholds are likely to differ for citizens and expatriates. The significance of the new tax would be more symbolic than transformative for Omani finances. According to the IMF, the personal income tax would only generate additional tax revenue of about 0.4% of nonhydrocarbon gross domestic product.

Not all Gulf governments feel a pressing need to boost government revenue through taxation. Gas-rich Qatar is a case in point. However, modest progress on tax reform serves longer-term objectives, such as building the foundation and capacity needed to gather important country data and implement future taxes. Kuwait has made even less progress on tax reform. The country has not even implemented excise taxes, which exist in all other GCC countries.

Other fees – such as road tolls, housing fees, or expatriate labor fees – offer related avenues for governments to boost non-oil revenue. Some Gulf governments have scrapped or reduced fees to improve the business environment: The UAE revised various fees in response to the coronavirus pandemic and has continued adjusting fees. In March, the Saudi finance minister indicated that the Saudi government would reconsider fees on the dependents of expatriates in the country. In September, Saudi authorities removed licensing fees for hotels and resorts in a bid to boost the tourism sector and investment environment.

Interest Alignment  

Aligning the interests of governments, citizens, and noncitizens concerning employment and taxes is no easy task. Saudi Arabia’s Regional Headquarters Program is a useful case study in this regard. As part of the government’s ongoing efforts to lure multinationals to the country, companies with a Regional Headquarters license receive a 30-year corporate income tax exemption. These companies must hire at least 15 employees in their first year, highlighting the importance of job creation within Saudi Arabia, but the companies also enjoy a 10-year exemption from Saudization requirements. Free zones and special economic zones in other Gulf countries offer preferential tax treatment and workforce nationalization exemptions too.

As regional governments double down on domestic economic development, Gulf policymakers are counting on a substantial return on investment. Workforce nationalization initiatives can reserve jobs for citizens, while new and higher taxes can boost non-oil revenue. Subsidy reform also presents the opportunity for significant government savings: The cost of energy subsidies in Saudi Arabia represented about 5% of gross domestic product in 2023. But cutting back subsidies directly impacts socioeconomic dynamics and investment attraction efforts in Gulf countries. These policymaking domains entail real costs and involve tough tradeoffs.

Workforce nationalization initiatives are likely to advance steadily across the region, especially in Saudi Arabia, Bahrain, and Oman, given a clear alignment of interests between government aims and the important domestic constituency of citizens. Tax reform is likely to unfold in a slower, experimental fashion and with more exemptions, as governments enjoy less support among citizens and noncitizens for new and higher taxes. Regional officials must also decide the right mixture of varying tax liabilities for key actors: citizens, noncitizens, high-income individuals, local firms, and multinationals. Implementing effective local employment and tax policies will therefore require a careful threading of the political needle.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.