Why multinationals are betting on the Gulf despite tax increases

Historically, the GCC's low tax rates have been a big part of its strategy to lure multinationals looking to tap into its strategic location. The National

Gulf nations have shifted to adopting a global minimum tax of 15 per cent for corporations, yet particular incentives are keeping multinationals invested despite the region's main attraction of being a known as a tax-free environment.

Historically, the region’s low tax rates were an important part of its strategy to lure multinational corporations looking to tap into its strategic location, cheap energy and expanding markets. Up until last year, the UAE had no federal corporate tax. Now, it has a corporate income tax of 9 per cent.

The Organisation for Economic Co-operation and Development's set a global standard for global companies in late 2021 in agreement with 136 countries to compel large multinational enterprises to pay a minimum tax rate of 15 per cent in each of the countries they operate within. This year, a number of Gulf countries stated they will follow this policy in January of 2025.

Kuwait decided on Tuesday to move ahead with the tax in the new year, after a cabinet decision led by the country's prime minister. Bahrain still maintains a zero per cent corporate tax rate for most sectors in 2024, the principal exceptions being oil and gas. In contrast, Oman moved earlier, introducing a corporate tax rate that met the OECD minimum in 2017. Since Saudi Arabia, Qatar and Bahrain are part of the same OECD agreement, chances are that these Gulf nations will eventually raise corporate tax rates as well.

This means that Gulf states can no longer rely on solely competitive taxes as a big selling point to attract multinational companies and foreign investors. Instead, these countries are taking a nuanced approach to attract foreign investment by enhancing their packages with targeted subsidies, typically in the form of tax exemptions for certain investments.

For example, Saudi Arabia is offering a 30-year tax exemption to foreign companies setting up regional headquarters in the kingdom, with zero corporate tax and no withholding tax during that time.

Moreover, the UAE’s Finance Ministry has announced plans for corporate tax incentives, including one aimed at boosting research and development starting in 2026. The incentive would offer a refundable tax credit of 30 per cent to 50 per cent, depending on the company’s size and revenue within the UAE.

This recalibration is aimed at reinforcing the Gulf’s competitiveness in a global market where tax rates alone can no longer differentiate regions looking to lure foreign capital. While these changes represent a shift, they are not expected to deter committed investors or multinationals. For global businesses, the key is to integrate the new tax framework into a broader evaluation of the region’s offerings.

Competitiveness in the Gulf is shaped by much more than tax policy – it includes low energy costs, world-class infrastructure and a high quality of life. These factors collectively create a framework that remains attractive to many multinationals.

Big western names are making bold moves in the Gulf. Morgan Stanley is shifting its Middle East headquarters to Saudi capital Riyadh, while hedge fund Marshall Wace is setting up shop in Abu Dhabi to tap the region’s investor base.

Energy heavyweights like Shell, BP, TotalEnergies and Mitsui have backed a major new initiative to boost liquefied natural gas production in the Gulf, run by Adnoc.

In the consumer sector, US beauty brand Kosas recently entered the Gulf via Sephora, taking advantage of the region’s high-spending beauty market.

The Gulf has emerged as a hotspot for all sorts of companies seeking growth opportunities. But for businesses aiming to establish or expand operations here, understanding the Gulf’s long-term vision and aligning with it is critical for success.

Saudi Arabia has raised the stakes, requiring multinational companies to set up regional headquarters in the kingdom to bid on government contracts.

At the heart of this vision is a drive to attract foreign capital – not just for financial gain but for the talent, intellectual property and technology that often come with it.

These statistics highlight the region’s growing success in attracting global investment as part of its economic diversification push.

Diversification of revenues away from fossil fuels is an important driver of government strategies in the Gulf. The UAE and Saudi Arabia are driving ambitious plans like Saudi Vision 2030 and UAE Centennial 2071 to cut their reliance on oil and reshape their economies.

Both nations are steering toward a broader commercial base, with major investments in artificial intelligence, renewable energies and logistics. The shift away from oil and gas reflects a broader adaptation to the ongoing energy transition and an effort to assert the Gulf’s relevance in a competitive global economy.

Events like Abu Dhabi Finance Week underscore this ambition. ADFW 2024, held from December 9 to 12, brought together some 20,000 delegates, collectively representing more than $42.5 trillion in assets under management, to discuss topics ranging from economic and cultural capital to technological and environmental innovation.

For businesses looking to set up or expand in the Gulf, aligning with the region’s economic priorities is a necessity. Governments are backing companies that contribute to their long-term plans for economic diversification, innovation and localisation – hiring nationals and sourcing from local firms.

Those that align with this vision stand to gain the most – through incentives, partnerships and access to a market that rewards strategic collaboration. In an increasingly competitive global economy, the Gulf’s invitation is clear: do not just bring capital, but offer ideas, expertise and ambition.