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Oman: Updates about withholding tax, specialized zones, excise tax

Oman: Withholding tax, specialized zones, excise tax

In Oman, recent developments concern withholding tax, incentives for specialized zones, and excise tax on certain products.

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Withholding tax

  • Suspension of withholding tax on dividends and interest: This suspension of withholding tax on dividends and interest is effective 6 May 2019, and is valid for a period of three years (subject to extension if required). The suspension of withholding tax on interest and dividends will specifically apply for joint stock companies (other forms of companies were not subjected to dividend withholding tax).

  • Withholding tax clarification for interest payments prior to 11 February 2019: Under Omani tax laws, interest paid to foreign persons was subject to withholding tax at a rate of 10%, effective 27 February 2017. However, absent detailed executive regulations, some taxpayers had applied for clarification of the withholding tax on interest payments. In response, the Omani tax authorities issued instructions to delay payment of withholding tax on interest payments until such regulations were issued. Ministerial Decision 14/2019 was issued to clarify applicability of withholding tax on various payments. The amended executive regulations are effective 11 February 2019, and exempt from withholding tax, certain interest payments by banks and the government. However, the rule for withholding tax on interest payments held for the period 27 February 2017 through 10 February 2019 is unclear. Formal clarification may need to be requested.

    The tax authorities recently clarified for certain taxpayers (other than banks) that withholding tax on interest payments remains applicable from 27 February 2017. Therefore, amounts of withholding tax that were not remitted will need to be turned over to the government.
     
  • Interest rate swaps: The tax authorities have clarified that payments for interest-rate swap arrangements (in the nature of hedging transactions) are not subject to withholding tax. Taxpayers seeking to rely on this clarification need to consider obtaining a specific written clarification to their specific facts and position.

  • Other payments: The tax authorities have expressed their views on a case-by-case basis regarding applicability of withholding tax on various other payments including cost sharing arrangements, subscription charges, and transaction charges.

  • Reminder on timely compliance: The tax authorities reminded taxpayers to make timely remittances of withholding tax and to file timely returns to avoid application of penalties.

Introduction of scientific and other specialized zones

Royal Decree 27/2019 was published 28 April 2019 with regard to the establishment of scholarly zones, scientific zones, and other specialized zones subject to the approval of the Council of Ministers. There are intentions to offer incentives for entities operating in these zones, such as exemption from tax for a five-year period (renewable twice for a period of five year each), import duty exemptions, waiver of minimum capital requirement, and benefits relating to usufruct of land. Such incentives are subject to licensing and other conditions. However, entities including banks, financial institutions, insurance, re-insurance, communications or land transport services companies are excluded from this regime. It is expected that establishment of such zones will happen in the near future.

Excise tax update

Royal Decree No. 23/2019 published in the official gazette in March 2019, to allow for the introduction of excise tax in Oman 90 days after the date of publication (13 March 2019). Excise tax rules, therefore, are effective in Oman from 15 June 2019. The executive regulations under the excise tax regime have not yet been published (the regulations can be published within six months of 13 March 2019). The new measures do not specify which goods will be subject to excise tax or what will be the excise tax rate. According to media reports, it is expected that the following excise tax rates will apply:

  • 50% on carbonated drinks
  • 100% on alcohol, energy drinks, tobacco products and pork products

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