The tariff measures announced by US President Donald Trump are expected to have a limited effect on the Gulf region after his threat to introduce taxes of up to 25 per cent on Mexico and Canada by February 1, according to analysts.
There is still a lot of policy uncertainty as Mr Trump takes office. However, the Gulf doesn’t seem to be an area yet affected, according to Scott Livermore, Oxford Economics' chief economist for the Middle East and North Africa.
“A handful of Middle Eastern countries, including Bahrain and Oman, benefit from comprehensive free trade agreements with the US and most countries run a trade deficit with the US,” he said.
“Nevertheless, President Trump’s proposed tariff plans are certain to reverberate through global supply chains and demand. The GCC stands to lose in a less globalised world as the set of trade opportunities and partners shrinks, also potentially discouraging foreign direct investment. Country growth impact across the region will echo overall export exposure.”
Mr Trump said he planned to enact tariffs of as much as 25 per cent on Mexico and Canada by February 1, after he claimed that the two countries are allowing the flow of undocumented migrants and drugs into the US.
Mr Trump also indicated he was still considering a universal tariff on all imports to the US, but said he was “not ready for that yet”.
“You’d put a universal tariff on anybody doing business in the US, because they’re coming in and they’re stealing our wealth,” he said, adding that the introduction of such a tariff could be “rapid”.
In a post on Truth Social in November, Mr Trump warned he’d impose 25 per cent tariffs on all Mexican and Canadian imports as “one of my many first executive orders” and said it “will remain in effect until such time as drugs, in particular fentanyl, and all illegal aliens stop this invasion of our country”.
Mr Livermore said that in the BRICs bloc, future tariffs could be imposed on China, which may offer opportunities for some countries. However, most Middle Eastern economies are unlikely to draw in manufacturers relocating from China given their small populations and high wages, he said.
Egypt and Turkey could bring in some due to their proximity to Europe. However, Egypt suffers from poor infrastructure and a high administrative burden, while Turkey would be constrained by a recent decline in competitiveness, Mr Livermore said.
The GCC stands to lose in a less globalised world as the set of trade opportunities and partners shrinks
Scott Livermore,
Oxford Economics' chief economist for the Middle East and North Africa
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said the main effect from any potential US tariffs on the region will probably be indirect, through their impact on global growth and energy demand.
“Tariffs on China will be particularly critical given its importance as an energy importer, while the weak demand backdrop in the eurozone would see further headwinds. Reduced global trade would also impact regional logistics activity,” she said.
“Nevertheless, we see the UAE’s global trade and economic integration continuing to rise and boosting its position as a trade and logistics hub, alongside attracting FDI.”
Another effect on the region will be through monetary policy, with higher import tariffs, tighter immigration policies and expansionary fiscal policies adding upside risks to the inflation outlook in the US, according to Ms Malik.
This will limit the pace of rate cuts by the Fed and thus the Gulf states – which mainly mirror US monetary policy moves, while the strong USD outlook will affect the external competitiveness of non-oil exports, she said.
“We remain positive on the region, particularly the UAE, given the trade and wider reforms. Greater investment activity and ongoing population growth are supportive of the outlook,” she added.
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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