VAT on Free Zones and Special Economic in Oman

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Yarab A | Updated on: September 16, 2021

In Oman VAT, free zones and special economic zones are classified as ‘Special Zones’ and accordingly the VAT law and regulation stipulates the conditions that businesses need to comply with. To define, Special zones refer to an area in which the supply of goods and services from, to or within the zones will be treated as zero-rate subject to the conditions prescribed by the authorities and the regulations.

VAT rate on free zones (special zones)

The VAT rate on free zones and special economic zones referred to as special zones will be levied at a zero rate. This will apply to most of the supplies made to or from the businesses operating in the zones. The table below details the VAT applicability on supplies made from/to the special zones.

Form

To

Tax Rate

Special Zone

Special Zone

Zero-rate

Mainland

Special Zone

Zero-rate

Special Zone

GCC countries

Zero-rate

Special Zone

Oversea (Outside GCC)

Zero-rate

Oversea/GCC countries

Designated Zone

Zero-rate

This comes with the defined conditions that a zone itself must meet and as well as businesses located in the zone. Not all supplies will be zero rates, subject to the fulfilment of conditions, some types of supplies will be taxable at 5% VAT.

Read Exempt Supplies in Oman VAT on which tax at 5% is levied even when supplied from or to special zones.

List of free zones and special economic zones considered as special zones.

The following zones are currently classified as special zones for the purpose of VAT.

  • Special Economic Zone at Duqm ( SEZAD )
  • Salalah Free Zone(SFZ)
  • Sohar Free Zone
  • Al-Mazyunah Free Zone

Conditions for free zone known as a special zone

Following are the conditions that a zone needs to fulfil to be considered as a special zone.

  • The zone must be a free zone or a special economic zone designated in Oman in accordance with the laws prevailing in the state
  • The zone should have procedures in place to monitor the movement of goods and their supply to the zone
  • The zone is supervised and regulated by a responsible operating authority that is authorized by the laws prevailing in Oman
  • Any other conditions determined by the authority.

Conditions for supply of goods at zero rate

The supply or movement of goods to or within free zones will be taxable at a zero rate on fulfilment of the following conditions:

  • The customer or recipient must be a taxable person.
  • The customer or recipient must be registered with and licensed by the operating and supervising authority of the special zone to carry out his activity within it.
  • The goods are received by the customer or recipient for the purpose of its activity within the
  • Special Zone.
  • The goods supplied must not be excluded from the right to deduct Input Tax. In other words, these goods should not be one on which input tax deduction is restricted by the law and regulations.

Conditions for supply of services at zero rate

The supply of services to special zones are taxable at zero rate subject to meeting the following conditions:

  • The customer must be a taxable person
  • The customer must be registered with and licensed by the zone operating and supervising authority
  • The customer has received the services for the purposes of the activity in the special zone.
  • The services supplied should not include those related to restaurant and hotel services, provision of food and beverages, cultural, artistic, sport, educational and recreational services
  • The services should not be classified as exempted services that deny the input vat deduction.

Want to know the supplies that are not subject to zero rate, even when supplied from or to special zones? Read Exempt Supplies in Oman VAT.

Frequently asked questions

What does free zone mean?

In Oman VAT, free zones and special economic zones are classified as ‘Special Zones’ and accordingly the VAT law and regulation stipulates the conditions that businesses need to comply with.

What is the purpose of free zone?

The primary purpose of a free-trade zone is to remove from a seaport, airport, or border those hindrances to trade caused by high tariffs and complex customs regulations.

How many free zones are there in Oman?

Three free zones. These industrial estates are located in key locations of Oman such as Rusayl, Salalah, Sohar, Sur, Nizwa and Buraimi.

Are free zone companies VAT exempt?

For the purpose of VAT, a Designated Zone will be treated as being outside the state and any supplies between Designated Zones will not attract VAT at 5%.

Know more about Oman VAT

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