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Principal Tax Contacts and Business Tax Services Leaders
Ahmed Amor Al Esry
Alkesh Joshi
+968 22-504-559
Email: ahmed.amor@om.ey.com
+968 22-504-559
Email: alkesh.joshi@om.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Alkesh Joshi
Amit Bhatnagar
+968 22-504-559
Email: alkesh.joshi@om.ey.com
+968 22-504-559
Email: amit.bhatnagar@om.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Alkesh Joshi
Amit Bhatnagar
Tax Policy and Controversy
Alkesh Joshi
Global Compliance and Reporting
Alkesh Joshi
Mohammed Raza
Private Client Services
Alkesh Joshi
Mohammed Raza
+968 22-504-559
Email: alkesh.joshi@om.ey.com
+968 22-504-559
Email: amit.bhatnagar@om.ey.com
+968 22-504-559
Email: alkesh.joshi@om.ey.com
+968 22-504-559
Email: alkesh.joshi@om.ey.com
+968 22-504-559
Email: mohammed.raza@om.ey.com
+968 22-504-559
Email: alkesh.joshi@om.ey.com
+968 22-504-559
Email: mohammed.raza@om.ey.com
The Income Tax Law (ITL), which is effective from the tax year beginning on 1 January 2010, was published in the Official Gazette on 1 June 2009. The Executive Regulations (ERs), which provide clarifications to certain provisions of the ITL, were issued on 28 January 2012 through Ministerial Decision (MD) 30/2012.
Royal Decree (RD) 9/2017 published in the Official Gazette on 26 February 2017 amended certain provisions of the ITL. In September 2020, the ITL was further amended by RD 118/2020.
• Consideration for research and development
• Fees for management or performance of services
• Consideration for the use of or right to use computer software
Entities in Oman, including permanent establishments, are responsible for deducting and remitting tax to the government. The tax is final. Nonresident persons do not have any further filing or other obligations with respect to such income.
If a nonresident person has a permanent establishment in Oman, but the permanent establishment in Oman is unconnected to the receipt of income that is subject to withholding tax, withholding tax applies to such payments.
A Royal Assent has suspended the application of the provisions of the ITL relating to withholding tax on dividends and interest for a period of three years from 6 May 2019. This suspension period was further increased to five years from the 2020 tax year (until 31 December 2024) under the Economic Stimulus Plan introduced by the Ministry of Finance. This suspension of withholding tax on dividend and interest has been extended indefinitely under a Royal Directive. Announcements and clarifications to clarify the period of such extension are awaited.
Further details regarding the withholding taxes are provided below.
Withholding tax on performance of services. The term “services” is not defined in the ITL or the regulations. However, ERs provide that the following are excluded from the applicability of withholding tax:
• Participation in organizations, conferences, seminars or exhibitions
• Training
• Transporting, shipping and insurance of goods
• Air tickets and accommodation expenses abroad
• Board meeting fees
• Reinsurance payments
• Any services related to an activity or property outside Oman
Withholding tax on royalties. Royalties include payments for the use of or right to use software, intellectual property rights, patents, trademarks, drawings, equipment rentals, consideration for information concerning industrial, commercial or scientific experience, and concessions involving minerals.
Withholding tax on dividends. Under RD 9/2017, dividends paid to foreign persons on publicly listed shares are subject to withholding tax at 10% of gross payments, effective from 27 February 2017. The amendments introduced by MD 14/2019 clarify that the term “dividends” includes dividends distributed by joint stock companies and distributions by investment funds.
Withholding tax on interest. Amendments introduced by MD 14/2019 define the term “interest” for withholding tax purposes and clarify the treatment of returns generated by certain Islamic Finance products. MD 14/2019 excludes certain payments from withholding tax, including the following:
• Interest paid on amounts deposited in banks located in Oman
• Returns on bonds and sukuk issued by the government or banks located in Oman
• The benefits of transactions and facilities between banks for the purpose of providing and managing liquidity or financing, if the term for repayment of the debt does not exceed five years
Other. The applicability of withholding tax on interest and payments for services is an evolving issue for which taxpayers should seek advice before making decisions. Effective from 27 February 2017, responsibility to deduct withholding tax is extended to ministries, public establishments and other government administrative bodies.
Administration
General. A taxpayer is required to register with the OTA by filing a declaration of details related to the entity (Income Tax Forms Nos. 2 to 5) within a period of 60 days after the date of incorporation or commencement of activities, whichever is earlier. Any changes to the registration information must be communicated within 30 days by updating such information in the OTA’s portal.
Tax card. Under an amendment contained in RD 9/2017, a request for a tax card must be submitted to the OTA within two months after the date of incorporation or commencement of business or within one month after the date of any change in data of an entity. The allotted card number and date must be included in all the invoices, contracts and correspondence. The tax card system came into effect on 1 July 2020. Taxpayers are required to apply for renewal at least one month before the expiration of the tax card. Application and issuance of the tax card are processed through the OTA portal. Fines that may be imposed on taxpayers in case of noncompliance with this requirement have been stipulated.
Accounting period. The accounting period begins on the date of commencement of business for joint ventures and permanent establishments. For companies, the start date is the date of registration or incorporation. The first accounting period may be less than 12 months but cannot exceed 18 months. The accounting period may be changed with the approval of the OTA.
Books of accounts. Books of accounts are required to be maintained for a period of 10 years. Permission is required for maintaining books of accounts in a foreign currency. In such a case, income must be converted at exchange rates prevailing on the last day of the accounting year, as published by the Central Bank of Oman. The accrual method of accounting must be used.
Principal Officer. The term “Principal Officer” is defined for various entities. If a permanent establishment carries on an activity in Oman through a dependent agent, the agent is treated as Principal Officer. If a sole proprietor or owner of a permanent establishment is outside Oman, the individual or permanent establishment must designate a Principal Officer to comply with the obligations under the law. Such Principal Officer may not be absent from Oman for more than 90 days in a tax year.
Partners of joint ventures are jointly and severally liable for taxes of the joint venture.
Returns: The previous requirement to submit two tax returns (the provisional and final returns of income) has been replaced. An
income tax return is now required to be submitted within four months from the end of the relevant tax year or accounting period for which the return is prepared. This requirement is effective for tax years commencing on or after 1 January 2020.
Electronic filing of returns. Amendments contained in RD 9/2017 introduced a system of electronic filing of tax returns. Tax returns (both corporate income tax and withholding tax) are required to be filed electronically via the tax online portal.
Tax residency. RD 118/2020 introduced a new concept of tax residency as follows:
• A natural person is a resident if he or she spends 183 days or more (consecutive or intermittent) in Oman during the tax year.
• A legal person is a tax resident if it has been established in accordance with the laws and RDs in force in Oman, or if its head office or headquarters is in Oman.
The reference to foreign persons in the charging section for withholding tax in the ITL has been amended to apply to nonresident persons (that is, a person not fulfilling the above criteria).
Financial institutions and other businesses operating in Oman. On 14 September 2020, Oman ratified the automatic exchange of information (AEOI) through RD 118/2020 to support the implementation of the Common Reporting Standard and Country-byCountry Reporting Standards developed by the Organisation for Economic Co-operation and Development (OECD). The Chairman of the OTA has also issued announcements related to relevant administrative rules. Reporting financial institutions and other multinational businesses should assess their compliance requirements, if any, under the AEOI regime.
Assessments. Assessments must be issued within three years from the end of the year in which tax returns are filed. If no assessment is issued within a period of three years, such assessments are deemed to have been issued (that is, tax returns are accepted as filed).
Rectification, revision or additional assessment may be carried out by the OTA within three years after the date of the original assessment. However, in a case of fraud or deception, the statutory timeline for assessment is extended up to five years. If a tax return is not submitted for a tax year, the time limit for making an assessment is five years from the end of the tax year for which the tax return is due.
Assessed tax, reduced by tax already paid, must generally be paid within 30 days after the date of issuance of the assessment. A delay results in a fine of 1% per month on taxes due for the period of delay. If excess tax is paid for a particular year, a refund must be claimed within five years from the end of the year in which such refund is due. The excess tax paid for a particular year may also be used as a setoff against future tax payable.
Assessments are made with respect to withholding tax. Under an amendment contained in RD 9/2017, assessments can be issued in cases in which withholding tax is not paid by the taxpayer.
RD 9/2017 introduced a system of sample basis selection for investigation before the issuance of an assessment. However,
• Provisions for unexpired risks, unsettled claims and contributions to contingency funds are deductible for tax purposes for insurance companies.
To claim a deduction for bad debts written off, taxpayers are required to prove that legal steps and other required recovery procedures, including court proceedings, were carried out before writing off such debt.
Tax depreciation. Buildings, ships, aircraft, quays, jetties, pipelines, road, railways and intangible assets are depreciated using the straight-line method. All other assets must be calculated using the pooling (or block) of assets method where each pool’s asset base is calculated with reference to the written-down value plus additions minus sale proceeds from disposals.
The following annual depreciation rates are set out under the tax law.
Tractors, cranes and other heavy equipment
Computers, vehicles, self-propelling machines
and fixtures (including computer
* These assets are depreciated using the straight-line method.
Intangible assets are depreciated equally over the productive life of the asset as determined by the OTA.
Relief for losses. Losses may be carried forward for five years. Losses of an earlier year must be set off first before using losses of a later year.
Companies that are exempt from tax because they carry on activities set out in Section B may carry forward net losses incurred during the first five years of exemption for an indefinite period.
No carryback of losses is permitted.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature
Valued-added tax (VAT); applicable to the supply of goods and services; the Law and Executive Regulations have clarified key matters such as VAT registration requirements and supplies that are exempt or zero-rated, such as basic food items Standard rate
Nature of tax
Excise tax; on carbonated drinks, energy drinks, tobacco-related products, pork products and alcohol under MD 34/2020; the excise tax has subsequently been expanded to include a wider range of products, such as sugary drinks 50% and 100% Social security contributions, on “monthly wage” of Omani employees only; “monthly wage” is defined as “all amounts paid to the insured in cash or in kind or periodically or regularly for his work whatever the method used for its determination, or is the sum of basic wages plus allowances, which shall be determined by a decision of the Minister after the approval of the Board of Directors”; the amount (wage) is capped at OMR3,000 per month
End-of-service benefit; payable to expatriate staff on the termination of service 15 days of basic salary for each of the first three years and 30 days’ basic salary for years of service in excess of three years
E. Miscellaneous matters
Anti-avoidance legislation. If a company carries out a transaction with a related party that is intended to reduce the company’s taxable income, income arising from such transaction is deemed to be the income that would have arisen had the parties been dealing at arm’s length.
For transactions between related parties that are not at arm’s length, certain arrangements and terms may be ignored by the OTA if such arrangements or terms result in lower taxable income or greater losses.
The OTA may make adjustments if the principal purpose of a transaction is to avoid taxation even if the transaction is between unrelated parties.
Thin-capitalization rules. Under the ITL, interest payable by Omani companies other than banks and insurance companies may be deducted from taxable income, subject to the satisfaction of certain conditions prescribed by the ERs.
(a) Some treaties provide for a lower tax rate if the beneficial owner of the dividends holds a specified percentage of shares or capital in the company paying the dividends. Under some treaties, a reduced tax rate is based on a specified percentage of the voting power/shares of the payer. If dividends are paid to the government of the other contracting state, an exemption is available under some treaties.
(b) Some treaties provide a reduced withholding tax rate for interest payments. Under some treaties, interest is taxable only in the other contracting state. Other treaties provide an exemption if interest is paid to the government of the other contracting state.
(c) The reduced withholding tax rate on royalties is applicable only to specific payments that are covered by the definition of royalties under the treaty. While most of the treaties generally follow the definition of royalties under the OECD Model Tax Convention, there are certain treaties that provide specific exceptions.
(d) Depending on the terms of the treaty, specific conditions and exceptions may apply with respect to dividends, interest and royalties. Accordingly, each provision of the treaty should be carefully analyzed before considering the possibility of obtaining tax relief against withholding tax on these payments.
Certain double tax treaties are not yet in force, including treaties with Austria, Bangladesh, Belgium, Bulgaria, the Czech Republic, Egypt, Estonia, Germany, Ireland, Kyrgyzstan, Libya, Lithuania, Malta, Nepal, Serbia and Sweden.
The applicability of reduced tax rates under the provisions of a double tax treaty is not automatic. Companies must apply to obtain the benefit of reduced treaty tax rates. Withholding tax relief is available under double tax treaties with certain jurisdictions subject to satisfying certain conditions or requirements.
Oman has also entered into treaties with some jurisdictions, including the Netherlands, Singapore and Sri Lanka, with respect to the avoidance of double taxation on income generated from international air transport.