Input tax deduction on Goods & services purchased before VAT registration

Yarab A | Updated on: March 29, 2022

All businesses that have a place of residence in Oman and whose value of supplies in the previous 11 months and the current month have exceeded 38,500 OMR should mandatorily register under Oman VAT. Also, suppose the businesses anticipate that the total value of supplies in the current month and the next 11 months exceeds the mandatory registration threshold of OMR 38,500. In that case, they too have to register under Oman VAT.

Input VAT Deduction in Oman

Expenses on which Input VAT Deduction is Blocked

In any case, if the value of supplies is less than the registration threshold limit, they will not be allowed to register. In future, if the value of supplies or expenses exceeds the registration threshold, they can apply for VAT registration.

This results in a situation in which businesses were not registered on the 16th April, 2021, the date on which VAT was implemented, but over time, they have exceeded the defined threshold and have been registered under Oman VAT.

For such businesses, there are two phases -Pre-Registration and Post-registration. In the pre-VAT registration phase, they had to pay VAT on their purchase/expenses but could not recover Input VAT. This is because only the registered businesses were allowed to recover input VAT. In the post-registration phase, they can collect 5% VAT on taxable supplies and recover the input VAT paid on purchases/expenses.

While the post-registration phase is clear, what happens to VAT paid on purchases or expenses paid during the pre-registration phase. Will businesses be allowed to recover the VAT paid before VAT registration?

The answer is Yes. The Oman VAT law allows the recovery of input tax paid on goods, services and imported goods before VAT registration. However, there are certain conditions that businesses need to meet in claiming input VAT deduction on such purchases or expenses.

Let’s understand the conditions to recover input VAT on goods and services purchased before VAT registration.

Input tax deduction on goods purchased before VAT registration

The businesses can deduct the input tax incurred on goods supplied to the taxable person or imported by the taxable person before the effective date of registration, as per the following conditions:

The goods are supplied to or imported by the business within a period not exceeding 3 years, counting back from the effective date of registration and are still available for use on the effective date of registration
Businesses have the right to deduct input tax on these goods as per the law and regulations. One of the key rules is that goods and services are used to make taxable or consumed for conducting business activities.

Input tax deduction on services purchased before VAT registration

A Taxable Person may deduct the input tax incurred on services supplied to the Taxable Person before the effective date of registration as per the following conditions:

The services are supplied to the taxable person within a period not exceeding 6 months prior to the effective date of registration
The person has the right to deduct input tax on these services is in accordance with all the provisions of the law and regulations

Procedure to claim an input tax deduction on goods and services purchased before vat registration

Businesses who wish to deduct input tax incurred on goods and services before the effective registration date must submit a ‘Pre-registration Input Tax’ application to the authority. This must be done within 30 days of the effective registration date by furnishing the details in the application form prepared for such purpose.

Following details and documents should be submitted by businesses:

Description of the goods and services for which input tax is claimed.
Purchase invoice numbers and dates for each good and service.
Amount of tax paid on each invoice.
Total amount of input tax claimed.
Name and address of the Supplier for each good and service.
Tax identification number of each supplier of goods and services.
Inventory list of all goods in the claim as of the day prior to the effective date of registration. If the value of these goods exceeds fifty thousand (50,000) Omani Rial, it must be audited by an auditor recognized in the Sultanate.
The documents set out in Article (55) of these Regulations as relevant.
Any other details and documents determined by the authority.

The authority will decide on the application within 30 days of receiving the details and documents, and the approved value of deductible tax will be communicated to the business.

Read more on Oman VAT