One of the biggest pulls for expats to work in the Middle East has been the opportunity to work and pay virtually no tax.
This was particularly true in the Arab states of the Persian Gulf: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (often referred to as the Gulf Cooperation Council or GCC states*). Although none were completely zero tax nations, they weren’t that far away.
With falling oil revenues, exacerbated by the reduced demand during national lockdowns, the states are gradually introducing more taxes, albeit at far lower levels than in Europe or America.
In countries unused to taxes such as VAT, there is an inevitable shortfall in taxation skills. And this creates opportunities for global tax professionals.
Now, one of the biggest pulls for tax expats is the opportunity to work in Middle East countries that have limited experience of tax!
And in the case of Oman, the need is particularly pressing. The new 5% VAT rule comes into play on April 16th - yes, tomorrow!
Is Oman ready?
A report published on 7th April on arabianbusiness.com suggests not!
The news site quotes a survey by PwC which found that just 26% of businesses have fully completed the requirements needed to be ready for implementation on April 16th.
The survey revealed an apparent skills shortage among businesses looking to adapt to the new rules. It cited the lack of VAT technical resources, staff and VAT awareness challenges as the main barrier to a successful implementation.
Businesses have not been helped by the lack of time to prepare. Jeanine Daou, Partner, Indirect Tax Leader at PwC Middle East, told Arabian Business that a delay in Oman releasing the Executive Regulations (ERs) has made it difficult to plan ahead, and some uncertainties remain.
She said: “Many businesses have realised that the ERs themselves do not address all business scenarios, and much more practical guidance on transactions in specific sectors will hopefully be addressed in sector specific and wider general administrative guides.
“As more detailed and comprehensive guidance from the Tax Authority is eagerly awaited, some businesses have taken positions on potential VAT treatments based on their understanding of the published legislation and/or based on practices adopted in the wider GCC/international best practice.
“For organisations with limited knowledge and experience of VAT, this has the potential to cause additional challenges, and crucially, these positions may differ from those ultimately adopted by the Tax Authority, with potential compliance and penalty implications.”
This lack of clarity means that the need for indirect tax professionals will continue to be urgent after the rules come into effect. This is good news for tax professionals who have worked in other Gulf states which have already gone through the VAT implementation.
And for all those candidates who feel they missed out on the rush to the GCC, there is still very much a second chance.
Why have the GCC states embraced VAT?
Fossil fuels were never going last forever. Last year, an International Monetary Fund report warned that: “Oil-exporting countries may need to be ready for a post-oil future sooner rather than later,”
Predicting that Middle East countries could run out of money long before they run out of oil, the report noted that global oil demand is likely to peak around 2040, although it could happen much sooner if there is a concerted global effort to address climate change issues.
The IMF gave notice that the clock is ticking for Gulf oil exporters to fundamentally rebalance their economies and that, without significant reforms, the financial wealth of Saudi Arabia, Kuwait, the UAE and others could be depleted by 2034.
The GCC states have long been aware of the need for diversification - and have also conceded that the days of almost zero tax have come to an end.
In June 2016, all six GCC states signed the Common VAT Agreement, agreeing that all would introduce a VAT system at a rate of 5%. So far, Bahrain, UAE and Saudi Arabia have implemented VAT - Oman is about to become the fourth. Saudi Arabia went even further last year by increasing the new VAT to 15%, as the full impact of Covid became apparent.
In seeking other sources of revenue to finance their development programmes, the GCC states saw VAT as largely risk-free compared to taxes on salary income. VAT is imposed on a broad base, so low rates can still generate significant funds. A paper in 2016 predicted that 5% VAT should generate revenues approximately equal to 1.6% of the GDP in Bahrain and Saudi Arabia, 1.5% in the UAE, 1.4% in Kuwait and Oman, and 0.8% in Qatar, implying a significant rise in current, non-oil revenues.
But the revenues would only be achieved if the taxes were introduced effectively and businesses understood how to be properly compliant. Enter the tax professionals.
The opportunities for indirect tax professionals
Over the last few years, we have seen a flock of VAT & Goods and Services Tax (GST) expats move to the GCC as the region braced itself for the impending introduction of VAT.
In some countries, such as UAE and Bahrain, the demand has now peaked and started to tail off. But as one door closes, another opens - to the south in Oman. And for those with the right skills, there is the potential to find lucrative contracts.
Even in mature VAT markets like the UK and EU, finding VAT talent is tough as it's such a candidate short market. So what does this mean for somewhere like Oman?
Just as in the UAE and Bahrain, there is a need for experts, particularly with experience of VAT implementation, whether from other GCC countries, Europe, Australia, Malaysia or India.
Until now, opportunities in Oman have been dominated by The Big 4 (Deloitte, KPMG, EY and PwC), all of which have offices in the capital, Muscat. There have traditionally been very few in-house tax jobs available, but, then again, there was hardly a big requirement up to now.
For those indirect tax professionals looking for a new adventure, Oman is the place to be. It is a place where tax experts are needed, yet those experts won’t be required to pay much tax themselves!
One fact that any tax professional will know is that there is still no income tax to pay in Oman. With such a friendly tax break, who can complain about having to pay an extra 5% when dining out?
* GCC is actually an outdated term. The countries re now aligned under the banner of The Cooperation Council for the Arab States of the Gulf.
Alex Mann is Associate Director, Indirect Tax & Tax Technology at Harvey John
For expert advice on how to get the best out of your tax career, whether in a professional services firm or in-house, contact us today.