For any company or person conducting or proposing to conduct business in the Sultanate of Oman it is critical to have an undertaking of applicable tax laws.
The Omani tax regime is governed by taxation laws published in the Official Gazette in June 2009 which came into effect on January 1, 2010 (Royal Decree No 28/2009 as amended, the ‘Tax Law’) and executive regulations issued in January 2012 (the ‘Executive Regulations’).
Whilst, there is no personal income tax in Oman, companies, which include Omani companies, partnerships, joint ventures, sole proprietorships, and permanent establishments of foreign companies as defined in the Tax Law, are subject to Omani income tax. A flat rate of 12 per cent on taxable income exceeding RO30,000 is levied annually on all companies registered in Oman irrespective of the extent of foreign participation, branches and permanent establishments of foreign companies. Foreign businesses which provide periodic consultancy or other services in Oman either through their own employees or designated agents need to be aware that aggregate periods of 90 days or more spent in Oman in any 12-month period will create a permanent establishment for the purpose of liability to corporate tax. Branches of foreign companies and other foreign-owned entities operating in Oman are subject to tax only on income arising in Oman. Income from the sale of petroleum is subject to a special provisional rate of 55 per cent.
There is no specific capital gains tax or special tax treatment of gains such those derived from the sale of fixed assets. Such gains are taxed at the same rates as ordinary income. Consequently, any capital gains arising on the sale of business, including restructuring, could be subject to tax in Oman.
Companies are required to file a provisional tax return and pay the estimated tax within three months of the end of their financial year. The final annual income tax return must be filed within six months of the end of the company’s financial year accompanied by audited financial statements and payment of all tax due.
Tax holidays are available to companies, including those incorporated under Oman’s foreign capital investment law, engaged in manufacturing, mining, exports, operating of hotels and tourist villages, agriculture, livestock farming and animal product processing, fishing and fish processing, higher education, private schools and nurseries, private hospitals, teaching and training institutions in education and medical care fields. The Minister of Finance has the discretion upon receiving an application to that effect to renew the exemption for a further period up to a maximum of five years.
However, the Executive Regulations provide that a renewal will not be available to any company which, during the initial five year exemption period, earned net profit equivalent to more than 50 per cent of the capital paid up at the beginning of the exemption period.
Foreign shipping and aviation companies are exempt from paying tax in Oman if Omani shipping and aviation companies enjoy reciprocal treatment in the respective foreign country. Omani companies and sole proprietorships engaged in shipping are exempt from tax.
In addition to the above, any dividends or gains made from sale or disposal of securities listed on the MSM are exempt from tax. Income realised by investment funds established in Oman under the Capital Market Authority Law or established overseas for dealing in shares and securities listed on MSM is also exempt from income tax. These exemptions are for indefinite periods. Dividends received from foreign companies are taxable in Oman.
Any income is subject to tax irrespective of whether the source of income arose in or outside Oman. However, the tax authorities may grant, on a case-by-case basis, a foreign tax credit for certain taxes paid overseas by Omani companies and sole proprietors. The credit may be granted up to the amount of the Oman’s 12 per cent tax rate irrespective of whether Oman has concluded a tax treaty with the source country.
Customs duty or indirect taxes in Oman
Most imported goods attract a customs duty of five per cent levied on the cost insurance and freight value of goods imported. There is no sales tax in Oman. There is also no inheritance or gift tax in Oman. There is no VAT at present although proposals to introduce a flat rate applicable to the Gulf countries are said to be in the pipeline.
Withholding tax at a rate of 10 per cent is imposed on certain payments to foreign companies that do not have a permanent establishment in Oman. The tax relates to payments for:
- Consideration for research and development
- Management fees
- Consideration for the use of or right to use computer software
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.
There are various examples of administrative charges in relation to documents which are required to be registered; in particular there is a local municipality tax payable on property leases which are calculated by reference to the amount of the rent payable. There is no stamp duty or other similar tax of general applicability.
International Tax Treaties
There are a number of tax and investment protection treaties in force in Oman although some are relatively limited in scope. An avoidance of double taxation treaty has been in force for some time with a number of countries including France, Lebanon, South Africa, Italy and the United Kingdom. An avoidance of double taxation treaty with the United States of America is under negotiation.
Failure to present a declaration of income to the Office of the Director of Taxation may lead to an arbitrary assessment and penalties. Delay in the payment of income tax normally results in additional tax calculated at 1 per cent per month on the outstanding amount. The Director of Taxation may impose other penalties in the event of non-compliance, including an additional assessment of up to 50 per cent of the value of the tax payable by the corporation.
In case of a taxpayer’s failure to declare the actual income in an income declaration for a tax year, the taxation department may impose a fine not exceeding 25 per cent of the difference between the value of the tax actually payable and the value of the tax declared. Additionally, there are criminal penalties (including imprisonment) which may be imposed on company officers who deliberately fail to comply with tax regulations.