New Taxes in Gulf Countries Are a Shield Against War’s Turmoil

The current conflict in the Middle East is having an economic ripple effect throughout the region affecting multinationals. This series examines the impact the conflict is having on corporate tax practice and tax administration there.

The Arabian Gulf’s next revenue story won’t be found in oil barrels. It will be written in code.

The US-Iran war has disrupted trade routes and shaken investor sentiment in the region, raising fears of rising pressure on future government revenues, as the Strait of Hormuz remans a battleground for control and bombing continues in neighboring countries. All of this is happening against a backdrop of a highly sophisticated tax transformation.

Due to the current conflict, we understand from our clients that calls have emerged from some to slow down this transformation, possibly to ease compliance burdens on businesses. The response from the authorities, however, is the opposite.

In discussions with tax administrators in the region, the strategy is instead to ‘turbo-charge’ these initiatives. Multinational corporations operating in the region should budget and plan appropriately. Digital tax administration initiatives on the government side mean that taxpayers will need to invest in technology advancements in order to comply.

Read more:
Gulf Conflict Creates Tax and Liquidity Risks for Multinationals
Middle East Worker Mobility Is a Corporate Resilience Strategy
Gulf Instability Tests Multinationals’ Transfer Pricing Policies

Tax Renaissance

Saudi Arabia and the United Arab Emirates introduced a 5% value-added tax in 2018, with Saudi Arabia increasing the rate to 15% during the Covid-19 pandemic. Bahrain and Oman followed with their own VAT systems in 2019 and 2021, respectively.

During the same period, these four countries and several other Gulf nations implemented excise tax systems targeting specific goods such as tobacco, energy drinks and sweetened beverages, further broadening the region’s indirect tax base. The UAE’s introduction of a corporate tax in 2023, alongside the rollout of economic substance regulations and the implementation of the OECD’s Pillar Two framework, have collectively contributed to what can be described as a period of Gulf tax maturation.

The Gulf region is also investing in digitalizing and modernizing its tax systems with technology. Saudi Arabia is on its way to implementing mandatory real-time clearance-style e-invoicing. Under the Fatoora framework, the tax authority must clear business-to-business invoices before they can be issued to a purchaser. Last year, this system was extended to include all VAT-registered businesses in the Saudi Kingdom via Wave 24, which included full business-to-consumer requirements.

The UAE is building a delegated clearance ‘5 corner’ model on the Peppol network, under Ministerial Decisions 243 and 244 of 2025, which will go live for large taxpayers with annual revenues of and above 50 million UAE dirham ($13.6 million) in January 2027. Oman has announced a similar system with similar timing, and very recently Qatar and Bahrain will also follow suit and roll out their versions of e-invoicing, likely in the short term.

All these countries are investing heavily in big data and artificial intelligence engines that will extract insight from the transactional information they collect. Multinationals operating across the region should take warning here. Tax authorities will be able to increasingly identify discrepancies, mismatches, and audit issues well before any tax returns are filed. What a business thinks its tax position is versus what the authority already knows will be a material risk item for such businesses.

Tax as Protection

Gulf countries were able to move quickly because they didn’t have legacy administrations or infrastructures to work around. They could double-click on tech transformation without the risk or political cost of adversely disrupting older processes, systems and people. Unlike many of their western counterparts, they didn’t modernize or digitize a version of something that existed before. Instead, they’re able to build digitalized AI-enabled platforms that effectively capture transactions as they happen.

The starting point today is fundamentally different than it was a decade ago. Across the Gulf Cooperation Council, non-oil sectors account for the majority of economic activity. Tax revenues, especially from VAT, are now an important part of this. In the face of potentially decreasing government revenue, tax is seen as a key economic driver. Collecting this tax efficiently and accurately has become a priority.

What the Gulf is building is a different, more advanced model of tax administration, one in which government has a real-time lens on economic activity. This can help the government manage its broader fiscal position with precision. In a disrupted economic environment, this becomes a powerful strategic advantage.

A government that has this kind of transaction level visibility can do many things to “dial” how it manages uncertainty. It can model and predict the impact of trade disruption, demand shifts, and changes in commercial patterns, all before they become real problems. This would be essential for managing budgets and even broader fiscal and policy strategic planning: It may even help manage sovereign credit.

Rating agencies and international capital are watching the region now more than ever. They are keen to see how this period of fiscal stress is managed and how GCC countries react. How they respond could very well set the tone for the next decade. Fortunately, GCC countries are building fiscal systems that give them the data and the power to navigate these dynamics.

In its latest Global Economic Prospects update, the World Bank outlined how growth in the Middle East region is expected to remain subdued amid heightened geopolitical uncertainty, highlighting the impact of trade disruptions and external shocks on regional economies. The International Energy Agency stated that, “the war in the Middle East is creating the largest supply disruption in the history of the global oil market,” pointing to the persistent volatility in oil markets that is driving geopolitical tensions.

The current disruption hasn’t derailed the Gulf countries’ plans for advanced fiscal dig: To keep pace with the tax authorities, they should prioritize their own tax function process redesign and technology advancements in order to avoid potentially significant costs.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

R. Jay Riche is co-founder and chief executive officer of Dariba Technologies LLC, a Dubai-based AI-enabled tax technology company.

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