Global Tax Guide For Business in Oman

Tally Solutions | Updated on: May 19, 2023

Oman is a country that has attracted a lot of interest in the global business market. To do business in Oman, one must understand how the taxation structure works in the country. Foreign investment in the country has seen a surge since the Foreign Capital Investment Law replaced the old business laws with Royal Decree 50/2019, which was implemented on January 1, 2020.  While the older FCIL required a minimum share capital and a limit on the percentage that a foreigner could own in an Omani company, the new FCIL does not require a minimum share capital requirement. It does not limit the ownership percentage of an Omani company by foreigners. This has naturally opened the country up further to more expansive foreign investments. The activities in which foreign investment is allowed are specified by the Minister of Commerce and Industry and the process, approvals, and licenses will be governed by the Executive Regulations for investment under the New FCIL. The government has not released any Executive Regulations since the promulgation of the New FCIL.

Oman’s legal system

The Omani legal system combines civil code principles and the Islamic Shari’a Law. The law that governs the customs levies and taxes in Oman are the following:

• Income Tax Law (promulgated by Sultani Decree 28/2009, as amended by Sultani Decree 9/2017)
• Social Securities Law (Sultani Decree 72/1991)
• Commercial Companies Law
• Unified Customs Law of the Gulf Cooperation Council Countries (Sultani Decree 67/2003) (UCL)

Oman is also party to double-taxation treaties (DTTs) with over 30 countries. This provides Omani citizens with certain levies in those countries. Though most of the DTTs are under the Organization for Economic Cooperation and Development (OECD), each DTT is unique in its own way. So, each transaction with one of the DTT countries must be analyzed as per the provisions of that DTT and the agreed-upon rules applied. Oman has no DTTs with the Gulf Cooperation Council (GCC) members. However, the Economic Agreement of 2001 (EA) provides rules that ensure equitable treatment to the Omanis by the GCC member states. So, under the agreement, when there is no withholding tax applicable to the dividends paid to Omanis or Omani companies, the GCC companies or nationals will also be exempted.

Taxation authorities: The Omani taxation laws are the responsibility of the Tax Authority (TA), a Council of Ministers branch.

Business entities: Generally, business entities in Oman with foreign investments are one of the following:

• Joint-stock company
• Limited Liability Company (LLC)
• A Company Branch
• A Commercial Agency
• Commercial Representative Office

The most common business entity is the LLC or limited liability company, which needs a registered share capital and a minimum of two shareholders. Non-Omani companies can also do business through a company branch if they have a contract with either the Omani government or an entity with significant government interest.

Financing a corporate subsidiary

A company in Oman can be financed by debt or equity in the company. The government does not charge an income tax on the:

• Dividends of sole proprietary commercial establishments
• Receipt of dividends by companies from shares of another company that is registered in Oman

Withholding tax (WHT) is applicable (depending on the relevant DTT) to foreign inventors who receive dividends from Omani joint-stock companies and Omani mutual funds. However, the profit distribution of an LLC to foreign shareholders does not come under the purview of WHT as it is not seen as a dividend.

If a business entity has borrowed money from a bank for a business and is paying interest, the interest amount is deductible. When loans are taken from members of the company or business partners, they are allowed only in a restricted manner. Oman follows a thin capitalization where for loans from related parties, the debt to equity ratio of a company should not be more than 2:1. If it is more than 2:1, the extra debt does not qualify for any tax relief. WHT is applicable (subject to the DTT) on interest paid to a foreign shareholder and also on income from Islamic Sukuk and bonds except those issued by banks in Oman or the Government.

Corporate income tax

The primary tax in Oman is the corporate tax. Oman does not have a tax-free threshold. The corporate tax of 15% of profits applies to :

• Companies and business entities established in Oman and their branches
• Foreign business entities doing business in Oman.

If the following conditions are satisfied, the tax will be 3%:

• An Omani business entity with a share capital equal to or less than OMR 50,000
• 15 or fewer employees
• Total annual revenue equal to or less than OMR 100,000
• Not a business that is involved in insurance, banking, finance, natural resources extraction, sea transport, air transport, public utility concessions, or any other category that the Council of Ministers declares

A tax exemption may be granted to the industrial sector while oil and natural gas sale is taxed at 55 percent. It must be noted here that the government of Oman pays the tax obligations in such a case as per the terms of its Exploration and Production Sharing Agreement.

Foreign tax credit: In certain cases, an Omani may have paid a foreign tax as well as Omani tax for an income, in which case the taxpayer can apply for a tax credit. This is allowed regardless of the DTT status of the foreign country where the tax was paid. The credit, however, is only limited to the tax amount paid in Oman.

Income tax reporting: Oman requires that a company’s provisional tax return be filed within three months before the financial year ends, along with the payment of the estimated tax amount. Oman does not follow the system of consolidated tax returns. The annual tax return is to be filed within six months of the financial year ending, along with the company’s audited financial statements and tax due. When a company fails to submit its tax returns before the prescribed date, the maximum applicable penalty is OMR 2,000. However, the taxpayers who come under the 3% bracket must submit a simple manual tax declaration. A company should keep a record of its transactions for ten years.

Cross-border payments

Transfer pricing: There is no specific tax rule that applies to transfer pricing, but Article 125 of the Income Tax Law addresses avoidance of tax between related parties and authorizes the tax authorities to implement the applicable anti-avoidance provisions. Article 18(5) of the Implementing Regulations of the Income Tax Law (Ministerial Decision 30/2012 amended) states that the cost of the services provided compared to the value of the services given should be reasonable when compared.

Withholding tax (WHT): WHT applies to management fees, royalty payments, charges for research and development, computer software use, dividend payments, service fees, and interest. A foreign person who does not have a permanent Omani presence is subject to a 10% WHT which the paying company generally withholds before making the payment. The profit distribution payments from LLCs to their foreign shareholders are not taxed, while the dividends that Omani joint-stock companies pay are subject to WHT. The GCC resident status of the foreign person is not relevant to the taxation.

Disclosure obligations: Oman requires all related entities to use the arm’s length method for pricing and completely disclose all the details in their tax return filings. If there has been avoidance, the TA can enforce the relevant anti-avoidance provisions. If the TA requires that the company must pay additional tax, the TA will also specify the date by which it must be paid.

Multilateral Instrument: The Omani instrument of ratification was submitted to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on 7 July 2020 to the Organization for Economic Co-operation and Development. It included the 35 treaties that Oman wished to be under the ambit of the MLI.

Payroll taxes

Social Security Fund payments: One of the major components of the payroll taxes is the deduction made for the Social Security Fund. An Omani employee would pay 7% of their monthly salary towards this fund while their employers pay 11.5%. Expatriate employees are exempted from this payroll deduction.

Indirect taxes

Value-added tax (VAT): The Omani VAT system was implemented in April 2021 in line with the Royal Decree 121/2020 (VAT Law) and Tax Authority Decision 53/2021 announcing the VAT Law executive regulations.  Oman applies VAT at 5%.  The registration threshold for businesses is an annual supply value in excess of OMR 38,500.

Excise tax: The Royal Decree 23/2019 is an excise law that came into effect on 13 March 2019. It levies excise on certain goods such as energy drinks, carbonated beverages, alcoholic beverages, tobacco, tobacco derivatives, pork, and pork derivatives.

Custom duties: The UCL governs imports and exports with the Royal Oman Police through the Directorate General of Customs through a unified customs system. GCC manufactured items have free movement. Most other foreign imports attract a levy of a one-time External Common Custom Tariff of 5%.

Stamp or transfer duty: Individuals are not subjected to any income tax, but property transfers are taxed at 5% of property value.

Accounting and taxation software in Oman

It is easy for Omani businesses to generate invoices, bills, and payroll in accordance with the Omani regulations when they use TallyPrime. Being an advanced business and accounting software solution is designed for implementation in Oman to ensure that Omani businesses, big and small, are compliant with their taxes and other government obligations.