The Gulf Cooperation Council (GCC) has undergone significant tax reforms in recent years. For small and medium-sized businesses (SMBs) operating across these countries, understanding the tax landscape is crucial for compliance and strategic planning. 

In this article, we explain the current tax frameworks, recent developments, and practical compliance strategies for SMBs in the GCC. 

Tax in the GCC: A quick recap

Historically, the GCC countries were known as tax havens with minimal taxation requirements. These countries primarily rely on oil revenues to fund government operations. However, the need to diversify revenue sources has led to some tax reforms.

The Gulf Cooperation Council (GCC) introduced Value Added Tax (VAT) in 2016 to diversify revenue sources and establish a unified tax system across member states. This transformation began with the implementation of Value Added Tax (VAT) and has since expanded to include corporate income tax in several member states.

1. Value Added Tax (VAT)

In June 2016, the GCC VAT Framework Agreement was signed by all six GCC member states. This significant agreement established the foundation for implementing VAT throughout the region.

• UAE and Saudi Arabia: First to implement VAT at 5% on January 1, 2018

• Bahrain: Introduced VAT in January 2019 at 5%, increased to 10% in January 2022

• Oman: Implemented VAT on April 16, 2021, at 5%

• Kuwait and Qatar: Yet to implement VAT systems Kuwait and Qatar have yet to implement VAT

Saudi Arabia notably increased its VAT rate to 15% in July 2020 as part of fiscal measures to address economic challenges on 1st July 2020 Saudi Arabia became the first country to break ranks by hiking its standard rate to 15%.

2. Corporate Income Tax (CIT) 

The most significant recent development has been the introduction of corporate tax systems:

• UAE: Implemented a federal corporate tax at 9% for financial years starting on or after June 1, 2023, with a 0% rate for taxable income up to AED 375,000 In terms of rate, the headline rate of corporate tax is 0% and 9%. Zero percent is applicable to taxable income up to 375,000 dirham.

• Saudi Arabia: Maintains a 20% corporate tax rate on non-GCC businesses

• Oman: Applies a 15% corporate tax on business profits

• Qatar: Levies a 10% corporate tax on business profits

• Kuwait: Applies a 15% tax on non-GCC businesses

• Bahrain: Historically tax-free except for the oil and gas sector (taxed at 46%), but is introducing a domestic minimum top-up tax in 2025. 

• MNEs with global revenues over €750m that are headquartered or operating in the GCC are subject to a minimum 15% corporate tax rate in Bahrain, Kuwait, Oman, Qatar and the UAE from 1 January 2025.

Key tax considerations for SMBs in the GCC

1. Value Added Tax (VAT)

VAT registration requirements for SMBs:

• UAE, Saudi Arabia, and Bahrain: VAT registration is mandatory for businesses with annual turnover exceeding AED/SAR/BHD 375,000 (approximately USD 100,000).

• Oman: Mandatory registration for businesses with annual turnover exceeding OMR 38,500.

• Voluntary registration is possible at lower thresholds in most countries (typically at 50% of the mandatory threshold).

Compliance requirements for VAT-registered businesses:

• Issue VAT-compliant invoices for all transactions.

• File regular VAT returns (monthly or quarterly depending on turnover).

• Maintain detailed records of all transactions for audit purposes.

• Apply correct VAT treatments to supplies (standard rate, zero-rated, or exempt).

• Keep records for at least 5-7 years, depending on the country's requirements.

2. Corporate Income Tax (CIT)

UAE's new corporate tax framework for SMBs in the UAE, introduced in 2023, has several regulations that businesses should be aware of:

• Small business relief: Businesses with annual revenue under AED 3 million may elect for tax relief until December 31, 2026. The most recent measure, "Small Business Relief" (SBR), is set to provide tax exemptions for businesses with an annual revenue of Dh3 million or less, irrespective of actual profits.

• Free zone benefits: Qualifying Free Zone businesses may be eligible for 0% tax on qualifying income.

• Registration deadlines: Natural persons (individuals running businesses) earning over AED 1 million annually must register by March 31, 2025. The Federal Tax Authority (FTA) has outlined a structured compliance schedule, with the March 31, 2025, deadline set for natural persons.

• Filing timeline: Tax returns must be filed within nine months after the end of the tax period, with the first filings for many businesses due by September 30, 2025 The first tax return filing needs to be submitted before the end of September 2025.

3. Corporate tax across other GCC countries

SMBs operating in other GCC countries are subject to the following corporate tax.

• Saudi Arabia: Zakat (religious tax) at 2.5% applies to Saudi/GCC-owned businesses, while 20% corporate tax applies to non-GCC businesses.

• Oman: 15% corporate tax applies to most businesses, with potential exemptions for small Omani proprietorships.

• Qatar: 10% tax on profits, with higher rates (35%) for oil and gas sector.

• Kuwait: Generally tax-free for GCC companies, but 15% tax on foreign entities.

Record-keeping and documentation requirements

Proper documentation is crucial for tax compliance across the GCC. This section includes the details on financial statements, record retention, and electronic filing systems that businesses should be aware of.

Financial statements

Proper documentation is essential for tax compliance across the GCC, with specific financial statement requirements varying by country. In the UAE, financial statements must follow accepted accounting standards (typically IFRS), with auditing by UAE-licensed auditors mandatory for businesses earning over AED 50 million in revenue during relevant tax periods. Saudi Arabia generally requires IFRS-compliant financial statements, while other GCC nations are increasingly adopting IFRS-based financial reporting standards.

Record retention

Record retention periods vary by country in the GCC. In the UAE, businesses must maintain all records and documents for 7 years following the end of the relevant tax period, as specified under UAE CT Law purposes, notwithstanding provisions in the Tax Procedures Law. Saudi Arabia imposes a longer retention requirement of 10 years for tax documents, while other GCC countries generally require businesses to keep tax-related documents for periods ranging from 5 to 10 years. These retention requirements ensure businesses maintain adequate documentation for potential tax authority reviews and audits throughout the region.

Electronic filing systems

Most GCC countries have implemented electronic tax filing systems to streamline compliance processes and improve efficiency. The UAE utilizes the EmaraTax portal for both VAT and corporate tax filings, providing businesses with a centralized platform for their tax obligations. Saudi Arabia manages its tax administration through the ZATCA portal (Zakat, Tax and Customs Authority), which handles various tax types and customs procedures. Similarly, Oman and Bahrain have established digital tax portals that function comparably to the UAE's system, reflecting a region-wide movement toward digitalization of tax administration and compliance processes.

Penalties and enforcement

It is critical for businesses to stay away from risks of penalties, as it can mean a huge expense for small and medium-sized businesses. Non-compliance with tax regulations across the GCC can result in significant penalties. Here's what you should know about penalties in the different GCC countries.

UAE penalties

• VAT registration: Late registration penalties of AED 20,000

• Corporate tax registration: AED 10,000 for failure to register by the deadline Failure to register within the prescribed time frame results in an administrative penalty of AED 10,000 (US$2,722.5)

• Late filing: Penalties starting at AED 1,000 for first offense, increasing for repeat offenses

• Tax evasion: Up to 5 times the evaded tax amount plus potential criminal charges

Other GCC countries

Penalty regimes vary across the region but generally include:

• Registration penalties

• Late filing penalties

• Late payment penalties

• Inaccurate return penalties

• Tax evasion penalties that can be substantial

Strategic considerations for SMBs

Small and medium businesses operating in the GCC region face unique challenges and opportunities that require thoughtful tax planning and strategic decision-making. The following considerations can help SMBs optimize their tax positions while maintaining compliance with evolving regional tax frameworks.

Cross-border operations

For SMBs operating across multiple GCC countries, consider these regulations and requirements.

• Double taxation agreements: Most GCC countries have extensive networks of double taxation treaties. Currently, Qatar and Kuwait have signed more than 40 treaties, Oman has signed 24 treaties, Saudi Arabia has signed 33 treaties and the UAE has signed about 60 double-taxation treaties.

• Free zone benefits: Consider using qualifying Free Zones in the UAE for regional operations.

• Transfer pricing: Be aware of increasing transfer pricing requirements, especially for cross-border transactions with related parties

Business structure optimization

Businesses must conduct a comprehensive assessment of multiple factors that can impact their tax position. To begin with, the selection of an appropriate entity type is critical, as sole proprietorships, partnerships, limited liability companies, and corporations each carry distinct tax implications that directly affect both compliance requirements and overall tax burden.

Equally important is the careful consideration of ownership structure, as the proportion of GCC versus non-GCC ownership can substantially influence applicable tax rates and available exemptions across several countries within the region, potentially creating strategic advantages.

Additionally, the strategic selection of headquarters and operational locations represents a critical decision point, as various jurisdictions offer different tax regimes, incentives, and free zone benefits that, when leveraged appropriately, can optimize a company's overall tax position while supporting operational objectives and market access requirements.

Digital compliance tools

Investment in proper tax management systems is increasingly crucial.

• Accounting software: Ensure systems can handle VAT and corporate tax requirements

• Documentation management: Implement robust digital systems for record retention

• Compliance calendars: Maintain awareness of filing deadlines across all jurisdictions

Recent developments around taxation in the GCC

The GCC countries are implementing the OECD Pillar Two global minimum tax rules:

• Domestic minimum top-up tax (DMTT): Being introduced across GCC countries from January 1, 2025 As a result, MNEs with global revenues over €750m that are headquartered or operating in the GCC will be subject to a minimum 15% corporate tax rate in Bahrain, Kuwait, Oman, Qatar and the UAE from 1 January 2025.

• Affected businesses: Applies to multinational enterprises with annual global revenue exceeding €750 million

• Impact on SMBs: While most SMBs won't be directly affected, they may be indirectly impacted through supply chains and business relationships

GCC integrated customs tariff

A new harmonized customs system is also being implemented from January 2025. There is an expansion from eight-digit to twelve-digit tariff codes. The GCC Integrated Customs Tariff expands the tariff code system from eight digits to twelve digits, allowing products to be classified more precisely.

Practical tax compliance strategies for SMBs

Short-term actions

Effective tax compliance for small and medium businesses requires a structured approach beginning with assessing VAT and corporate tax registration thresholds to determine filing obligations. Once requirements are established, updating accounting systems is essential to ensure accurate tax calculations and reporting capabilities.

Simultaneously, investing in staff training to educate key personnel on relevant tax regulations and compliance requirements creates internal expertise to maintain ongoing adherence. Completing this foundation with a thorough audit of current record-keeping practices will verify documentation aligns with retention requirements, establishing a comprehensive compliance framework that addresses both immediate needs and supports long-term regulatory conformity.

Medium-term planning

A robust medium-term tax compliance strategy for SMBs should incorporate the development of a consolidated tax calendar that tracks all filing and payment deadlines to prevent costly oversight. This framework should be reinforced through periodic internal compliance audits designed to proactively identify and address potential regulatory issues before they escalate into penalties.

To strengthen this approach, businesses should consider engaging tax advisors with specific expertise in GCC tax matters, providing specialized guidance through complex regulatory landscapes. Finally, integrating anticipated tax payments into business cash flow forecasts ensures financial preparedness, preventing liquidity challenges when tax obligations come due and maintaining operational stability throughout the fiscal year.

Long-term strategy

A comprehensive approach to long-term tax strategy involves reviewing and potentially restructuring your corporate organization to optimize tax efficiency, while simultaneously incorporating tax implications into regional expansion planning to ensure market entry strategies account for jurisdictional variations in tax treatment.

Complementing these structural considerations, developing scenario-based contingency plans prepares your business for potential regulatory changes, allowing for agile responses to evolving tax landscapes without disrupting operations. As your business scales, investing in advanced tax management technologies becomes increasingly valuable, providing automated compliance capabilities, enhanced reporting accuracy, and data-driven insights that support both operational efficiency and strategic decision-making in complex tax environments.

Manage taxation with Timber’s AI solutions

The tax landscape across the GCC continues to evolve rapidly, presenting both challenges and opportunities for SMBs. Timber helps businesses in the GCC make the most of opportunities. 

Timber offers a hybrid approach, combining sophisticated AI-based tax management capabilities with the strategic expertise of human accountants. This comprehensive solution not only simplifies complex taxation processes through automation but also provides businesses with personalized guidance from experienced professionals who understand nuanced compliance requirements. 

This dual-layer support system ensures companies benefit from both the efficiency and consistency of AI-driven calculations and the contextual judgment and strategic insight that only human accountants can provide, delivering a complete tax management experience that adapts to your business's unique needs at every stage of growth.

Timber features:

• Automated tax processing

• Deadline management

• Tax record management

• Financial planning based on taxation

• Human expertise support

• Multiple subscription plans based on budget and requirement

Timber brings the best of both worlds—AI and human intelligence—together to help SMBs in the GCC with comprehensive tax management solutions.

Explore Timber for your business!