Oman Tax System PDF

HISTORY OF TAX IN SULTANATE OF OMAN  Tax System in Oman The Income Tax Law was first issued in the Sultanate of Oman in 1971. In 1981, the Income Tax Law for Companies was issued by Royal Decree No 47/81 to replace the Income Tax Law of 1971. Income Tax Law for Compani...

HISTORY OF TAX IN SULTANATE OF OMAN  Tax System in Oman The Income Tax Law was first issued in the Sultanate of Oman in 1971. In 1981, the Income Tax Law for Companies was issued by Royal Decree No 47/81 to replace the Income Tax Law of 1971. Income Tax Law for Companies contained fourteen chapters and four schedules. Tax System in Oman It is considered more organized than the previous Law for the details contained thereto as regarding incomes subject to tax, exemptions, methods of tax assessment, collection, etc. The new Income Tax Law was promulgated by the Royal Decree No. 28/2009 Royal Decree No. 42/2020 issuing the Tax Authority System and approving its organizational structure.  Tax System in Oman The new Income Tax Law consists of various tax benefits aimed at aimed at boosting the investment climate and diversifying the national income resources in the country. The most important features of the New Law are: Adhere to the policy of foreign capital investment promotion. Parity of tax rates to Omani Establishments and companies and their foreign counterparts. Simplify tax procedures, especially for the small Omani Establishments and companies to reduce the tax burden thereupon. Provide clarity by issuing rules so as to limit the tax disputes. Identify the rights and obligations of both the tax authority and taxpayers in specific and clear manner. Taxable Entities Taxable entities are tax payers that consist of an enterprise, an establishment or an Omani company or a permanent establishment. Enterprise: The individual institution owned by a natural Omani person or the Omani company (General partnership, or Limited partnership, limited liability) which are exercising commercial, industrial, vocational or service activities and exclude air and sea transport business activities, banking and insurance business, financial institutions businesses, extraction of natural resources, public utility franchises and other activities excluded with approval of council of ministers Taxable Entities Omani Establishment: Article (1)(27) An establishment solely owned by a natural person, either an Omani or a foreigner, which independently carries on in the Sultanate a commercial , industrial or professional activity. The owner of the establishment shall be determined from the commercial or the industrial registers or other of fiscal records or documents. Omani establishment is registered with the approval of Ministry of Commerce and Industry. Taxable Entities Omani Company: Article (1)(24) Any person established in Oman as a company under the legislations of Oman, whether it is a commercial, civil or any other company, and whatsoever be the legal form of the company, the nationality of its partners, the purpose of its incorporation or the nature of its activity Taxable Entities Permanent Establishment: Article (2) A permanent establishment means a fixed place of business through which a business is wholly or partly carried on in Oman by a foreign person either directly or indirectly through a dependent agent The permanent establishment also includes any foreign person, which renders consultancy services or other services in the Sultanate for a period or periods of not less than 90 days in the aggregate within any 12 months. Accounting period & Tax year: The accounting period and tax year is the calendar year. Assessments can be made on the basis of a year-end other than 31 December, provided permission is granted in advance by the OTA and the company then adheres to the year-end on a consistent basis. The first period may be less than a period of 12 months or extend to more than 12 months to a maximum period of 18 months. The subsequent accounting period generally ends on expiry of 12 months, unless, before the expiry of this period, the business of the Omani proprietorship or a permanent establishment is ceased or in case of an Omani company, it is liquidated. Returns / Due dates Corporate income tax (CIT) due dates CIT return due date Within four months from the end of accounting period. Along with the final tax return (i.e. within four months of CIT final payment due date the end of the accounting period). CIT estimated payment due No estimated tax payments (i.e. single tax return and dates single payment due date). Taxable income: Taxable income is the gross income realized by a taxpayer from any sources inside or outside the Sultanate including profits or gains from business, capital gains and any incidental income less the deductible expenses and losses under the Law and any income exempted by the Law or other Laws. Taxable income: Tax shall be charged for each taxable year upon the taxable income of any company which accrues or arises in Oman, or is deemed by the Secretary General to so accrue, or arise in respect of – Profits or gains from any business; or from any right granted to any person for the use of occupation of any property; Interest, discounts, royalties; Rentals or Royalty income of equipment, machinery and devices. Fees in return for management and amounts in return for transfer of technical knowhow or research and development. Any amount deemed to be income under this Law like including gains on transfers of other assets are taxable as ordinary income; Foreign-source dividends are taxable at the same rates as corporate income. Any income from any other source Deductible Expenses: The deductible expenses are those incurred for the purpose of producing the gross income, whether paid or not. In deducting expenses from the gross taxable income for any tax year, the following conditions shall be fulfilled: The expenses shall be real and shall have actually been incurred. The expenses shall be related to the taxpayer's activity.  Deductible Expenses: Expenses shall not be deducted unless so much as is attributable to the purpose of the production of gross income. The expenses shall be entered in the accounting records and books required by law to be kept by the taxpayer and shall be proved by supporting documents, except those expenses that are not customarily proven with documents issued by the person dealing with the taxpayer. Deductible Expenses: In the cases where expenses represent a value of services rendered to the taxpayer, such expenses shall be proportional to the value of services rendered- as shall be decided by the Secretariat General. The expenses shall not be any of those disallowed by the Law to be deducted from the gross income. Non-Deductible Expenses: If the expenses not meeting any of the condition mentioned under deductible expenses are considered non-deductible expenses. The following expenses may not be deducted: Expenses not related to the production of the gross income. Reserves and provisions in respect of bad debts, stock obsolescence, warranties, and similar types of contingencies other than the provision for loan losses in the case of banks and financial institutions licensed to practice banking businesses in Oman and certain technical provisions of insurance companies. Capital expenditures, except those deductible under the Law. Expenses related to the production of the exempted income under the Law or any other Law. The income tax payable or paid in the Sultanate or in any other country. Costs or losses, if such costs were recovered or compensated under a contract, an insurance policy, a judicial ruling, etc. Non-Deductible Expenses: A loss resulted from the disposal of securities listed in Muscat Stock Exchange. Any expense or costs that have been incurred to generate income exempted from tax are not allowed as a deduction from taxable income. Illegal payments such as Payments of bribes or kickbacks, and other illegal payments, are not deductible. Fines and penalties such as Civil fines and penalties are not deductible. Amounts paid as tax consultancy or advisory fees are disallowed. Unrealised exchange gains are not taxable. Similarly, any unrealised loss is not deductible from the total taxable income. Any amounts considered by the Secretariat General for Taxation as not reasonable by reference to the value of the services rendered or other consideration related to such services. Donations Allowed under the Law: Donations paid by the taxpayer to: Ministries, government units, municipalities, public organizations or other units of the State Administrative Apparatus, on the occasion of the National Day, Eid or religious events, or as contributions to charitable actions or projects, or to public utility projects, or to the construction or maintenance of mosques supervised by the Ministry of Endowments and Religious Affairs or to other purposes dully approved. or to non-governmental charitable organizations as well as to the societies recognized under the Non- Governmental Societies Law. or to private bodies working in the sports field, recognized under the Law of Private Bodies Working in the Sports Field. Donations Allowed under the Law: Donations paid to approved entities subject to 5% of the gross income In all cases, the aggregate amount of donations exceeding 5% of the gross income of the taxpayer for the relevant tax year shall not be allowed as deduction. Income Exempted from Tax: Dividends received by an establishment, an Omani Company or a permanent Establishment from its shares or contributions to the capital of any Omani Company. Profits or gains from disposal of the securities listed in Muscat Stock Exchange. Income Exempted from Tax: Previously, the Oman tax law allowed for tax exemptions for a maximum period of 10 years on income realized from: Industry (manufacturing) Mining Exports of locally manufactured or processed goods Operation of hotels and tourist villages Agricultural and animal produce, including processing such produce Fishing and fish processing, farming and breeding Education provided by specified institutions Medical care provided by private hospitals Income Exempted from Tax: The amended tax law now restricts this exemption to industry (manufacturing) and the period of exemption has been limited to five years. This amendment is effective from 27 February 2017. It will not affect exemptions already granted. Tax exemptions for mining, export of locally manufactured goods, hotels and tourist villages, agriculture, animal produce, fishing, education and medical care have been removed. Further, companies registered with the Special Economic Zones and Free zones in Oman may be able to avail 25 to 30 years of tax exemptions, subject to meeting certain conditions. Tax Rates and Taxpayers Tax Rate Taxpayers Small and Medium Enterprises (SME’s) and Limited 3% Liability Company (LLC) Permanent Establishment, Omani Companies and 15% Omani Proprietorship (establishments’) 55% Companies engaged in Petroleum Exploration SME’s and LLC 3% tax rate has been introduced to SME’s and LLC if they meet the following conditions: Omani sole proprietorship or an Omani partnership or limited liability company (LLC) Registered capital of no more than OMR 50,000 at the start of a tax year Gross income does not exceed OMR100,000 for any tax year Average number of employees (regardless of the nature, type, place or duration of work assigned) during the tax year does not exceed 15 Not involved in air and sea transport; banking, insurance and financial institutions; the extraction of natural resources; public utility concessions; or any other activities decided by the Minister of Finance following approval by the Council of Ministers. Carry forward and Set-off losses Net operating losses can be carried forward and set off against subsequent profits for five years. Companies for which preferential rates of taxation apply can indefinitely carry forward their losses (beyond the exempted period of five years) and deduct it in subsequent years until losses are fully absorbed. Carry forward and Set-off losses However, for Permanent Establishments (pe) the new tax requires that when a foreign entity carries on businesses through more than one pe, the loss of any pe for any tax year is allowed to carry forward only after being reduced by the taxable income for that tax year of other pe owned by that foreign entity. Withholding tax: Withholding taxes have been introduced on foreign companies which have no permanent establishment in Oman and receive the following incomes:  Royalties includes consideration received on rental income from industrial, commercial, scientific equipment and Intellectual Property or for granting rights to exploit mining or other natural resources.  Consideration for Research and development Consideration for Use or right to use computer software Management fees Provision of services Dividends received from Omani Joint stock companies and not LLC’s Withholding tax: Tax at the rate of 10% of the gross income shall be deducted at source. The obligation to deduct this tax shall rest with the company or the permanent establishment which pays the above amount to the tax department within 14 days of the end of the month in which tax is deducted or payments are due or made to the foreign company. Consumption taxes Apart from value-added tax (VAT) in Oman the other consumption taxes include the following:  Municipal taxes are payable in the Muscat and Salalah municipalities. The taxes charged in the Muscat municipality are as follows: Rate Hotel income 5% Property rents 5% Leisure and cinema income 10% Tax on home owners using the drainage system 10% Depreciation and Amortization Rates: Depreciation is deductible on the basis of straight-line method at rates prescribed below: Rate Permanent buildings 4% Prefabricated buildings 15% Bridges, platforms, pipelines, permanent way and railway lines 10% Heavy machinery and equipment 33.33% Vehicles 33.33% Furniture and Furnishings 33.33% Computer software installations, computer software and  Stock/Inventory Valuation: : Oman tax regulations do not specifically establish which methods of inventory valuation must be used, nor how inventory flows be determined. At present, Inventory should be valued using a method that complies with International Accounting Standards.i.e. FIFO or Average cost method are deemed to represent the ‘actual cost’ required by tax rules. Reserves and provisions for inventory shortages and obsolescence are not acceptable as a deductible expense for tax purposes but actual losses and write offs are Social security premium: A 17.5% social security contribution is applicable to employees who are Omani nationals, but not to expatriate employees. The employee pays a contribution of 7% of salary, and the employer pays the balance of 10.5%. The employer is also required to contribute for insurance for work related injuries in the amount of 1% of the salary of the employee. This brings the total monthly social security and insurance contributions to be made by the employer to 11.5%. From January 2021, employers and Omani employees are each required to make a monthly salary contribution at the rate of OMR 1 per OMR 100 of monthly salary (or 1% of payment) as part of the job security scheme implemented. This brings the total social security contribution to 20.5% of which the employee pays a contribution of 8% and the employer pays the balance of 12.5%