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In most cases, the responsibility to levy, collect and pay tax to the government is on the person who makes taxable supplies i.e., on the supplier. If a VAT registered supplier is making a taxable supply, he needs to charge VAT and remit the same to the government. In short, this is known as a forward charge mechanism.
Barring few supplies, VAT will be levied on all the taxable supplies based on the forward charge mechanism. For few notified supplies, VAT registered businesses are required to charge VAT on a reverse charge mechanism. In this article, let’s understand more about the reverse charge mechanism and its calculation.
Reverse charge mechanism is a concept under which the recipient or buyer of services has to pay tax to the government unlike the forward charge, where the supplier has to pay the tax. For example, on importing services, the recipient of the service has to pay VAT to the government. Reverse charge mechanism is also called RCM
Example -1: Purchase of Goods
A-One Spare Ltd, a registered dealer in spare parts and accessories in Oman, imported spare parts worth OMR 5500 from Speed Motors Ltd, located in India. Here, A-One Spare Ltd, being a registered importer, is required to pay VAT @ 5% on OMR 5500 i.e. OMR 275 to the government.
Example – 2: Purchase of services
Max Enterprises availed consultation services from A-1 Consultations, located in India for OMR 50,000. Here, Max Enterprises being a registered importer, is required to charge VAT on RCM basis and remit it to the government.
The Oman VAT Law and Executive Regulations notify certain type of supplies on which VAT need to be charged on reverse charge mechanism. The following are the supplies liable for reverse charge VAT in Oman.
Receiving goods or services by a VAT registered recipient from a Supplier who has no Place of residence in the sultanate or any GCC states and is not subject to tax in the Sultanate. In short, all import of goods or services, one need to pay VAT on reverse charge basis.
In the case of goods, VAT liability needs to be paid at the customs port or at the time of filing VAT return if a deferred payment scheme is been opted. For import of services, businesses need to calculate the VAT and remit it at the time of filing VAT returns.
If the taxable person receives goods or services from a Supplier who has a place of residence in any of the GCC states, such supply will be subject to VAT in accordance with the reverse calculation (charge) mechanism.
The taxable value in respect of the reverse charge mechanism (RCM) will be the value as per the invoice. In case no invoice is issued, the value will be the fair market value of the supply in accordance with the guidelines mentioned in the regulations.
Read more about Oman VAT: