Thinking Beyond Borders
The existence of a representative of a foreign entity in relation to a business or contract in Oman may trigger the taxable presence of the entity in Oman for corporate income tax purposes.
There are currently no personal income tax in Oman.
Oman operates an income tax regime that applies to companies and a wide range of other commercial activities, including general partnerships, limited partnerships, joint venture arrangements and permanent establishments of foreign entities. An individual is subject to income tax to the extent that they carry on commercial, industrial or professional activities as a ‘proprietorship’.
There may be corporate tax implications where a representative/employee of a foreign entity is present in Oman for 90 or more days in any 12-month period. Furthermore, foreign persons including individuals could be subject to withholding tax at rate of 10 percent if payments representing income is realized in Oman to foreign persons not carrying on activities in Oman through a PE. The term “income realized in Oman”, fundamental to trigger withholding tax provisions in the Sultanate, is defined. This is discussed below in detail.
There is no personal tax in Oman. However, corporate tax is applicable to companies and other commercial activities as described above. Furthermore, withholding tax applies on specified payments made to foreign persons.
The Income Tax Law applies a flat 15 percent rate of income tax to all domestic and foreign companies and commercial operations. This rate shall apply to an individual who earns taxable income from carrying on commercial, industrial or professional activities as a ‘proprietorship’. Omani sole proprietorship or an Omani partnership or Limited Liability Company satisfying prescribed conditions are required to pay tax at the lower rate of 3 percent/Nil. For companies engaged in petroleum operations, the rate of tax is 55 percent.
As there is no personal income tax in Oman, personal income tax rates are not applicable. However, as mentioned above, foreign persons including individuals could be subject to withholding tax at a rate of 10 percent if payments representing income is realized in Oman to foreign persons not carrying on activities in Oman through a PE. These payments include the following:
The term “income realized in Oman”, fundamental to trigger withholding tax provisions in the Sultanate, is now defined. As per the new definition, income would be considered as realized in Oman “whenever the source of such funds is from Oman”.
A list of “seven categories of payments” excluded from “fee in consideration of rendering services” for withholding tax purposes includes:
In regard to dividends, it has now been clarified in the amended ERs that withholding tax is applicable only on “dividends distributed by joint stock companies and investment funds in relation to investment instruments” and not by LLCs.
The term “interest”, for the purpose of withholding taxes, has now been defined to mean any amount received “because of loan” and includes income generated from bonds and sukuk (except those issued by government or Oman-based banks). The following payments have been specifically excluded from the definition of “interest” and have, therefore, in principle relaxed their withholding tax obligation in Oman:
Recently, following a Royal Directive, the Capital Market Authority Oman (CMA) announced on 15 May 2019 that His Majesty Sultan Qaboos bin Said has approved the suspension of WHT on dividends and interest. This suspension, as per the announcement, begins from 6 May 2019, is valid for a period of 3 years and can be extended for further periods if required. The WHT suspension on interest will potentially benefit all payers and, on dividends, will benefit joint stock companies as other forms of companies were not subjected to dividend WHT. The above Royal Directive is prospective in nature. Consequently, WHT on dividends and interest prior to 6 May 2019 would continue to apply based on the applicable law.
Social security contributions are applicable in Oman only for Omani nationals. If Omani nationals are employed, then both the employer and the employee will be required to make social security contributions to the Public Authority for Social Insurance (PASI). A payment of 11.5 percent by the employer (including a payment of 1 percent for insurance against work related injuries and illness) and 7 percent by the employee are due for Omani nationals to the PASI.
Employer and employee contributions are calculated on the aggregate of basic salary and allowances paid in cash and in-kind. The gross salary to be included in the calculation is limited to a monthly gross salary amount of 3,000 Omani rials (OMR). Employers will need to assign a monetary value to the allowances paid in kind.
The employer of an expatriate or an expatriate employee is not required to make any social security contributions in the Oman.
There are no compliance obligations for employees in Oman in the absence of personal tax.
There are no compliance obligations for employers in Oman in respect of personal tax.
Any foreign national intending to visit Oman must obtain a visa. Such visa specifies the period for which an individual is allowed to stay in Oman. A visitor’s entry visa does not permit a foreign national to work in Oman. Visit visas can be obtained at the port of entry by citizens of some countries/territories. Citizens of other countries/territories can obtain visit visas by applying for the same at Oman’s diplomatic missions in their respective country/territory or online through the website of Royal Oman Police. Visit visas are usually single-entry visas and period of visa varies based on the type of trip.
Foreign nationals coming to Oman for the purpose of employment must obtain an employment visa (prior to departure from home country/territory) sponsored by the company that will act as their employer. For certain nationalities, the foreign nationals seeking employment have to undergo medical tests and obtain a medical report from their home country/territory prior to employment visas being issued.
Oman currently has 35 effective double taxation treaties (comprehensive and limited) with other countries/territories to prevent double taxation and allow cooperation between Oman and overseas tax authorities in enforcing their respective tax laws.
Oman’s network of effective double tax treaties currently includes tax treaties with Algeria, Belarus, Brunei, Canada, China (People's Rep.), Croatia, France, Hungary, India, Iran, Italy, Japan, Korea (Rep.), Lebanon, Mauritius, Moldova, Morocco, Netherlands, Pakistan, Portugal, Seychelles, Singapore, South Africa, Sri Lanka, Sudan, Switzerland, Syria, Spain, Thailand, Tunisia, Turkey, United Kingdom, Uzbekistan, Vietnam and Yemen.
There is a likelihood that there could be permanent establishment’ (PE) exposure for the overseas company in Oman (due to the presence of secondees in Oman) and this may need a separate examination from a corporate tax perspective.
Amongst others, PE has been defined to include foreign companies providing services in Oman, where the presence of the company’s employees in Oman (or other individuals under the company’s control) exceeds 90 days in any 12-month period.
In accordance with the Common Customs duty regime in place across the states of the Gulf Cooperation Council (GCC), Oman imposes customs duty at a flat rate of 5 percent on the majority of goods entering the GCC. Customs duty is levied at the first point of entry into the GCC. Subsequent movements of the same duty paid goods within the GCC are free of customs duties.
On 13 March 2019, a Royal Decree was issued approving the selective/excise tax Law in Oman which was implemented and made effective from 15 June 2019. The Executive Regulations to the Excise Tax Law are still awaited and will be published within 6 months from 15 June 2019. According to the Ministerial Decision on the determination of type, value and tax rate applicable to excisable goods, excise tax is applicable on carbonated drinks at 50 percent and alcohol, energy drinks, pork products and tobacco products at 100 percent.
The Ministry of Finance has subsequently confirmed a temporary reduction in the rate of excise tax on alcohol to 50 percent by updating the standard list price of excise goods with the revised excise tax rates. However, the Ministerial Decision has not been amended to reflect the reduction.
While Oman does not have VAT regime in place at the moment, it has expressed its intention to implement VAT in line with other GCC countries/territories. In a recent interview with Bloomberg at the World Economic Forum 2020 in Davos, His Excellency Ali bin Masoud Al Sunaid, Minister of Commerce and Industry in Oman, confirmed that Oman would introduce Value Added Tax (VAT) “sometime during the beginning of 2021”. The Oman Tax Authority continues with its preparations in order to be ready to implement VAT within this timeframe.
Currently, there are no exchange controls in force in Oman.
All information contained in this publication is summarized by KPMG Tax, the Oman member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Income Tax Law No. 28/2009, which became effective on 1 January 2010 and the Executive Regulations to the Income Tax Law which came into force on 29 January 2012. Changes were made to the Oman’s Tax Law and to the executive regulations by Royal Decree 9/2017 issued on 19 February 2017 and Ministerial Decision No. 14/2019 respectively.
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