Changes to the Executive Regulations to the Tax Law by KPMG Oman by OMAN AMERICAN BUSINESS CENTER

Changes to the Executive Regulations to the Tax Law 20 March 2019

© 2019 KPMG Lower Gulf Limited, operating in Oman and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Introduction

Ashok Hariharan Partner | Head of Tax ahariharan@kpmg.com

Meenakshi Sundaram Director | Tax msundaram@kpmg.com

Tax trends – a Renaissance Gradual introduction of VAT and selective excise (sin) tax —

Potential to far outrun direct taxes

New IFRS standards – revenues, provisions and leases —

Unintended tax implications and need for certainty

Impact of international tax initiatives of OECD and EU —

Competition for fair share of taxes

—

Sanctions: black/grey list

Tax function of the future —

Technology and data analytics

—

Reskilling and resourcing

Key amendments vide MD 14/2019 Withholding tax

Deductibility of expenses

Procedural

Small Tax payers

Managerial remuneration

Tax Card

Procedures

Interest

Donation

Compliance for public bodies

Threshold increase

Dividend

Bad debts

Tax inspection

Services

Antiavoidance

Tax exemption

Digitalization

Brief Overview of Withholding tax Specified payments to a foreign person except:

Foreign person has a permanent establishment (“PE”) in Oman

Payment not included in the gross income of the PE in Oman

Withholding tax @ 10% (subject to tax treaty, if any) on gross basis at the time of payment or credit whichever is earlier

Withholding tax Specified payment means

Income realized in Oman (subject to tax treaty*, if any) from:

Royalties

Use or right to use computer software

Research and development

Management fees

Provision of services

Interest

Dividend

Introduced vide RD 9/2017 Amendments introduced in MD 14/2019 Term “income realized in Oman” means whenever the source of such funds is from Oman

Reasonable interpretation is if payer is located in Oman

Provision of services – as it happened February 2017

Secretariat General of Taxation‘s (‘SGT’) stand after RD issuance

March 2018 – SGT’s revised stand

Service fees brought into WHT ambit by RD 9/2017

February 2019 - ER amendments Exclusions for “Seven categories of payments”:

FAQ’s issued - services rendered wholly from outside of Oman not subject to WHT

WHT applicable on service payments irrespective of place of rendition of service [by way of clarification letter issued to accounting firms];

Previously issued FAQ’s were withdrawn

Provision of services – Exclusions

Conferences, seminars or exhibitions

Transport / shipping of goods and insurance thereupon

Training

Airline tickets and cost of staying abroad;

Board meetings

Payments for re-insurance

Provision of services – Exclusions 7

Services rendered in relation to any activity or property located outside Oman

What is excluded: Any payment towards services obtained in relation to overseas branch, project, property or activity such as — Audit fees for overseas branch — Consultancy services for overseas project — Property management fees for overseas property Oman Co

Overseas

Intention is “NOT” to exclude services wholly rendered outside Oman from WHT net (if such service is related to Oman activity)

Interest Wider definition

• Means any amount received “because of loan” • Irrespective of type, advances, arrangements or financial facilities

Inclusion

• Includes income from bonds and sukuk

Exclusion

• Interest paid by banks in Oman on deposits • Returns on bonds and sukuk issued by Government or banks in Oman • Interest on inter-bank facilities for managing liquidity/finance – term of such facilities not to exceed five years

Dividend Coverage

— WHT applicable only on dividends distributed by: – Joint stock companies and – Investment funds (investment instruments)

Exclusion

— Distribution by LLCs not covered — Dividend paid to GCC citizens and GCC entities (Economic cooperation agreement)

ER amendments – retrospective vs. prospective ER published in official gazette on 10 February 2019

Applicable from next date i.e. 11 February

Certain exceptions, amongst others: – WHT provision “shall be applied on the due tax which shall be payable effective from the implementation date of this regulation” (unofficial translation)

General Anti Avoidance Rules introduced in relation to withholding tax

Tax Card Introduced by RD 9 / 2017, requiring every taxpayer to mention the Tax Card number on all correspondences, invoices, memoranda, contracts or other similar documents. Validity — 2 years — Renewal one month prior to expiry — No renewal in case of non compliance

Surrender within 14 days in case of closure of business

Tax Card

Form No. 11 SGT to issue and notify within one week

Details to be provided — Name — Tax Card Number — CR or License Number — Expiry Details — Any other details as specified by SGT

Smart Card or paper form? – Yet to be notified

One Tax Card for multiple permanent establishment of a foreign person in Oman © 2019 KPMG Lower Gulf Limited, operating in Oman and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Additional Compliance for ministries and other public bodies Responsible person

Ministries

Authorities

State administration units

Quarterly filing of Form 20 reporting contracting parties not providing the tax card

Semi annual filing of Form 19 providing details of contract executed and other specific information

Identification of non – compliant taxpayers

Public establishment/ juristic persons

Companies where the Sultanate owns more than 40%

and

Identification of taxpayer not disclosing correct income

Tax inspection related rules SGT’ right to examine at the Taxpayer’s premise was introduced in RD 9/2017. ER now provides detailed provisions.

Procedural Requirements (MD 14/2019) Prior notice to enter into the premise [Except in case suspicion of tax evasion]

Examine only during working hours

SGT may take documents/record

Return within 30days. SGT may keep copies.

Notice must contain the following Date and time of visit

Tax years under consideration

Documents, accounts and other items necessary for perusal

Tax exemption Post RD 9/2017 – exemption is available only for taxpayers engaged in industrial activity. Amendments made in the ER Accordingly. Two additional conditions introduced by the ER:

Investment in Fixed Assets ≥ OMR 1 Million

Omanization quotas to be achieved during last three years of exemption period. Omanization at different management levels.

Digitalization — Mandatory electronic filing of returns as per RD 9/2017. — Electronic filing of withholding tax statements also made mandatory effective 1 November 2018.

Online delivery through the portal to the taxpayer considered as a valid delivery of decision / notification.

Action points for taxpayers: — Ensure correct email id is mentioned on the portal.

— Proactively check online communications from the SGT

Deductibility of expenses – Managerial Remuneration A. Managerial Remuneration – Limit Increased Companies not practicing professional activities New limits (lower of)

Old limits

OMR 1500 per month per partner

OMR 1000

25% of taxable income

10%

Companies practicing professional activities New limits (lower of)

Old limits

OMR 3500 per month per partner

OMR 3000

35% of taxable income

30%

Effective from tax years beginning on or after 1 January 2018. © 2019 KPMG Lower Gulf Limited, operating in Oman and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Deductibility of expenses - Donations B. Donation

•

RD 9 / 2017 substitutes the word “donation” with “donation in cash or kind”.

•

ER provides provisions in relation to “donation in kind”.

•

Quantification of the value of donation, supporting documents, etc

•

However, No change in overall deduction for donation

Deductibility of expenses – Bad debts C. Bad Debts — Previously, legal proceedings required for bad debts in excess of RO 1,500 to claim deduction of bad debts — Mere legal proceedings not sufficient anymore

— Taxpayer to provide evidence to substantiate steps undertaken to recover debt after the outcome of the legal proceedings

More onerous requirements to claim deduction

Small Taxpayers (“STPs”) — RD 9/2017 introduced 3% or 0% tax for STPs subject to certain conditions — ER is now amended to provide

Procedures

Increased threshold

Procedural provisions

Eligible taxpayer to submit a request, to be taxed as a STP

Such choice to remain valid unless application for withdrawal filed by the taxpayer

SGT to determine the allowability of expenses subject to 95% of gross income

FRI to be filed in Form 17

STPs – Threshold limits Taxpayer will be considered as STP, where:

Threshold

New limit

Old limit

Capital (OMR)

60,000

50,000

Revenue (OMR)

150,000

100,000

Employees (nos.)

All conditions to be satisfied. If not, benefit of low tax regime will be withdrawn

STPs – Exemption from tax Conditions for exemption from tax

Owner or partner fully dedicated to management

Atleast two Omani persons working on full time basis for past 6 months

Thank you Partners

Directors

Senior Managers

Ashok Hariharan Partner and Head of tax ahariharan@kpmg.com

Meenakshi Sundaram Director, Tax msundaram@kpmg.com

Parvinder Singh Senior Manager, Tax ParvinderSingh@kpmg.com

Rakesh Jain Director, Tax rakeshjain1@kpmg.com

Sandeep Kumar Senior Manager, Tax sandeepkumar10@kpmg.com

Aabha Lekhak Director, Indirect tax alekhak2@kpmg.com

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© 2019 KPMG Lower Gulf Limited, operating in the Oman and a member firm of the KPMG network of independent member firms affil iated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Oman. The KPMG name and logo are registered trademarks or trademarks of KPMG International. The information contained herein is of a general nature and is not intended to address the circumstances of any particular indivi dual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the par ticular situation. © 2019 KPMG Lower Gulf Limited, operating in Oman and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.