Brief background
His Majesty Sultan Haitham bin Tarek, presiding over a meeting of the Council of Ministers on 9 March 2021, announced an economic stimulus plan (ESP) to support the Sultanate’s efforts to counter Covid-19’s effects on the economy.
The ESP is aimed at supporting efforts for Oman’s economic recovery. The ESP falls within the framework of Oman’s Fiscal Sustainability Plan (2020-2024), also known as the medium-term fiscal plan (MTFP).
The ESP is based on the following five key pillars:
- Incentives relating to taxes and fees
- Incentives for improving the investment and business environment
- Incentives to support small and medium enterprises (SMEs)
- Incentives for the labour market and employment
- Banking incentives
This tax alert primarily focuses on the incentives pertaining to taxes and fees, only.
A. Income tax exemption announced for new businesses involved in economic diversification:
- A five-year tax exemption has been announced for new businesses whose main activities would be to engage in the economic diversification sectors.
- The main activities should commence between 1 January 2021 and 31 December 2022 and tax exemption shall begin from the date of registration in the commercial registration certificate.
- Rules and conditions relating to the above tax exemption would be announced by the Oman tax authorities.
Please note that the economic diversification sectors have not been explicitly defined in the ESP. Based on the Oman Vision 2040 document, this is expected to cover manufacturing, agriculture, fishing, mining, tourism and logistics and service sectors.
B. Income tax exemption to hotel establishments in Oman for tax years 2020 and 2021
An income tax exemption for two tax years for hotel establishments has been introduced. The term ‘hotel establishment,’ while not defined for the purpose of tax exemption, should derive its meaning from the definition as provided by the Ministry of Tourism.
C. Installment based tax payments without levy of additional tax allowed during the year 2021
Taxpayers have been permitted to make tax payments in installments for tax due during the year 2021, without levy of additional tax, which is leviable at 1% per month. An installment-based tax payment plan was also provided last year as a relief measure to taxpayers. Taxpayers would be required to agree to the terms of the installment-based tax payments with the tax authority separately.
D. Tax rebate of 1% announced for tax year 2021
E. Suspension of withholding tax on dividends and interest for an additional period of five years from tax year 2020
The withholding tax (WHT) on dividends and interest has been suspended for a period of five years starting from tax year 2020 until tax year 2024.
Please note that WHT on both dividends and interest was already under suspension for a period of three years with effect from 6 May 2019 until 5 May 2022 through a Royal Directive issued by late His Majesty Sultan Qaboos bin Said.
F. Unlimited carry forward of losses allowed for tax losses incurred for tax year 2020
Companies and establishments have been allowed to carry forward their tax loss incurred for tax year 2020 for an unlimited period to be adjusted against future taxable income. Under the current income tax law, tax losses are allowed to be carried forward for a period of five years from the year of its incurrence.
G. Tax rate for small and medium enterprises (SMEs) reduced to 12% (from 15%) for the tax years 2020 and 2021
Tax rate has been reduced to 12% for the tax years 2020 and 2021 for SMEs as per the classification of SMEs Development Authority (Riyada). The rate cut is extended to similar enterprises which are not registered with Riyada but registered with the Ministry of Commerce, Industry and Investment Promotion (MOCIIP).
H. Tourist establishments exempted from both tourism and municipal tax levy till end of 2021
Tourism establishments have been exempted from levy of tourism tax (currently at 4%) and municipal tax (currently at 5%) until the end of 2021, as per the new incentives announced. Similar exemption was provided last year, as well.
Other incentives included:
- Preliminary license for certain type of business (subject to certain terms and conditions) is sufficient to carry out commercial and investment activities without waiting for issuance of the final license.
- A permit to hire three expatriates is granted to companies having foreign investment immediately upon its establishment following issuance of commercial registration.
- Companies registered as per the Foreign Capital Investment Law and undertaking activities in ‘economic diversification sectors’ to be treated at par with Omani-owned companies for the purpose of the commercial registration fees.
- MOCIIP shall enter into a service agreement for ‘strategic investment projects’ valued at more than OMR 1 million. The service agreement is expected to provide certain privileges/relaxation to investors during the period of investment.
The incentives announced aim to help businesses in Oman recover from the unprecedented impact of the ongoing Covid-19 pandemic. For more information, please contact your tax advisor or one of the tax specialists below.
