Taxes and customs in Oman are governed by the Income Tax Law (Sultani Decree 28/2009, as amended by Sultani Decree 9/2017) and Sultani Decree 118/2020, as well as certain parts of the Commercial Companies Law (Sultani Decree 18/2019), the Social Security Law (Sultani Decree 72/1991, as amended), and the Unified Customs Law of the Gulf Cooperation Council Countries.
Oman has signed double-taxation treaties (DTTs) with more than 30 countries. These treaties free Omani taxpayers from some tax obligations in those countries. Even though most DTTs are based on the standards of the Organization for Economic Cooperation and Development (OECD), each DTT has its own features. It’s important to carefully look at each DTT to figure out if it applies to each taxpayer and the transaction in question. Also, it’s important to note that there are no DTTs in place with Gulf Cooperation Council members (GCC). However, companies or people who live in GCC countries can take advantage of some of the benefits set out in the Economic Agreement of 2001 (EA), which gives citizens of GCC member states the same rights as Omanis. For example, since dividends paid to Omani citizens or companies are not subject to withholding tax (WHT), neither are dividends paid to GCC citizens or companies.
Taxation authorities
The Oman Tax Authority (OTA) is part of the Council of Ministers and is in charge of making sure that tax laws are followed in Oman.
Business vehicles
Most businesses in Oman are run through limited liability companies (LLC) and sole proprietor companies (SPC), a new type of company created by the Commercial Companies Law promulgated by Sultani Decree 18/2019 (Commercial Companies Law). An LLC must have at least two owners, while an SPC only needs one owner.
Through a foreign company branch, a foreign company can also do business in Oman. For the first time, the Commercial Companies Law’s (MD 146/2021) Executive Regulations explain in detail how to register a branch of a foreign company. Before, a foreign company had to have a contract with the government of Oman or a quasi-government company. However, the Executive Regulations of the Commercial Companies Law got rid of this rule.
Financing a corporate subsidiary
Equity or debt can be used to fund a business. At the moment, companies don’t have to pay income tax on dividends they get from shares they own in the capital of another company registered in Oman. WHT applies to dividends paid to foreign investors by Omani joint stock companies and mutual funds (subject to any double-taxation treaty relief – see below).
When a business borrows money from a bank, the interest paid on that loan is tax-deductible. There are limits on how much interest can be paid on loans from partners or members. WHT applies to any interest paid to shareholders who live outside of the EU (subject to any double-taxation treaty relief – see below). Bond and Islamic sukuk income will also be subject to WHT, unless the bonds or sukuk were issued by the government or banks in Oman.
Thin capitalization
In the case of related-party debt, a company’s debt-to-equity ratio can’t be more than 2:1. If it is, the interest on the extra debt won’t be tax-deductible.
Corporate income tax
The main tax in Oman is a tax on business income for corporations.
Corporate tax must be paid by the following groups:
- Companies and enterprises established in Oman
- Branches
- Foreign companies that do business in Oman.
At 15% of profits, both Omani companies and foreign companies with a permanent establishment in Oman have to pay corporate tax. There’s no tax-free amount. If the taxpayer meets all of the following requirements, the corporate tax rate will be 3%:
- Is an Omani business organisation
- Has less than or equal to OMR 50,000 in registered share capital
- Employs 15 employees or less
- has an income of less than OMR 100,000 per year
- Does not take part in activities related to banking, insurance, financial institutions, public utility concessions, air and sea transportation, or the extraction of natural resources, unless the Council of Ministers says otherwise.
Tax exemptions may be given to businesses whose main business is in the industrial sector. 55% of the money made from the sale of oil and gas that comes from Oman is taxed. But under the terms of its Exploration and Production Sharing Agreement, the government of Oman would usually pay the taxes for the oil company that made such a profit, even though it was still considered a taxpayer in Oman.
Foreign tax credit
Any Omani taxpayer who pays taxes in a foreign country on income that is also taxed in Oman can apply to the TA for a tax credit for the foreign taxes paid, regardless of whether or not Oman has a DTT with that foreign country. The credit is only worth as much as the tax paid in Oman.
Income tax reporting
You can’t file a consolidated tax return. Within three months of the end of the financial year, each company must file its own provisional tax return and pay the estimated tax. Then, an annual tax return must be filed with audited financial statements within six months of the end of the financial year. Any tax due must also be paid at the same time. If you don’t send in your tax returns by the due date, you could be fined up to OMR 2,000.
It is also required that accounting records be kept for at least 10 years. Small taxpayers who pay the 3% corporate income tax rate only have to fill out a simple tax form by hand within three months of the end of the financial year.
Cross-border payments
Transfer pricing
In Oman, there are no rules about transfer pricing, but Article 125 of the Income Tax Law talks about how related parties can avoid tax. The tax authorities are allowed to use laws that stop people from avoiding taxes. Article 18(5) of the Implementing Regulations of the Income Tax Law (Ministerial Decision 30/2012 as amended) says that the cost of services must be reasonable in relation to the value of the services provided.
Withholding tax (WHT)
WHT applies to the payment of royalties, fees for management, dividends, interest, and fees for services. WHT is charged at a rate of 10% on gross amounts paid to foreigners who don’t have a permanent home in Oman. WHT is usually taken out of the payment made by the Omani company to the foreign person at the source.
At the moment, only dividends given to foreign shareholders by Omani joint stock companies are subject to WHT. Profits given to foreign shareholders by Omani LLCs and SPCs are not. Service fees are subject to WHT, no matter where the services are performed. It also doesn’t matter if the recipient lives in the GCC or not.
Disclosure obligations
The QTA is allowed to use anti-avoidance laws when they are needed. Pricing between companies that are related must be fair and must be shown on tax returns. But there isn’t any clear information about how to figure out an “arm’s length” price. If the TA decides that an adjustment to a taxpayer’s tax liability is needed, the QTA’s Assessment Order will say when any extra tax must be paid. When an adjustment is made because of an assessment, the QTA will tell you how long you have to pay any extra tax.
Multilateral Instrument
On July 7, 2020, Oman sent the Organisation for Economic Co-operation and Development its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). On November 1, 2020, the MLI became law. Oman put down 35 treaties that it wants to be included in the MLI. Sixteen of those treaties are already included.
Payroll taxes
Social and Job Security Fund payments
The law in Oman says that employers must give 11.5% of an Omani employee’s gross monthly salary to the Public Authority for Social Insurance (PASI) and 1% to the Job Security Fund. Omani employees must pay 7% of their gross monthly pay into the PASI and 1% of their gross monthly pay into the Job Security Fund.
Expatriate employees are exempt.
Indirect taxes
Value-added tax (VAT)
In April 2021, Oman started charging VAT, based on Royal Decree 121/2020 (the VAT Law) and Tax Authority Decision 53/2021, which made the VAT Law’s rules official. The amount of VAT is 5%. Businesses have to sign up as VAT vendors if the value of their annual sales is more than OMR 38,500, which is the mandatory registration threshold.
Excise tax
The Excise Tax Law was passed on March 13, 2019, and Royal Decree 23/2019 made it official. Under the Excise Tax Law, certain goods, like tobacco and its products, energy drinks, carbonated drinks, alcoholic drinks, and pork and its products, are taxed.
Custom duties
The UCL controls what can be brought into and taken out of Oman. This is done by the Royal Oman Police through the Directorate General of Customs. The UCL and the unified customs system create a single point of entry and exit into and out of the GCC. This lets goods made in the GCC move freely without having to pay a customs tariff, while most foreign imports have to pay a one-time 5% External Common Custom Tariff.
Transfer duty
Oman does not have a law about personal income tax (PIT) yet. But the OTA and the Ministry of Finance are looking into a PIT system because it’s in the Medium Term Fiscal Plan for 2020–2024.
Transfer duty is charged at 3% of the value of the property when it is sold or given away.
Tags: Company Formation in Oman, Oman Company Registration, Company Incorporation in Oman