Oman – FAQs on withholding tax and electronic filing - KPMG Global
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Oman – FAQs on withholding tax, electronic filing and other developments

Oman – FAQs on withholding tax and electronic filing

KPMG in Oman summarizes new guidance from the Oman tax authorities on the country’s withholding tax (WHT) and provides updates on electronic filing requirements, taxation of Islamic finance transactions.


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Withholding tax guidance

The Oman tax authorities issued a new set of answers to frequently asked questions (FAQ) addressing WHT on dividends on shares, interest and consideration for provision of services.  Highlights of this guidance are as follows.

  • Income from services: Income from services rendered wholly from outside of Oman is not considered to be realized in Oman and is thus outside the scope of the WHT. However, WHT would apply if the services are rendered fully or partly in Oman. As this criterion does not apply to software support services, such services attract WHT even if they are provided entirely from outside of Oman.
  • Foreign insurance premiums: Insurance premium payments to foreign insurance service providers attract WHT. However, reinsurance premiums and brokerage fee payments do not attract WHT when provided completely from outside of Oman.
  • Engineering, procurement and construction (EPC) contracts: The Oman tax authorities do not consider EPC contracts to be pure service agreements. Rather, they are considered long-term arrangements that create a permanent establishment and therefore attract corporate tax in Oman.
  • Payments to GCC nationals and companies: WHT applies to specified payments made to GCC nationals and companies except for dividends, which are exempt for Omani nationals and companies.
  • Consortium lending arrangements: For these arrangements, WHT applies only to the portion of interest paid to the foreign lenders.
  • Treaty-based claims: In order to claim tax treaty benefits, residents of countries that have signed a tax treaty with Oman must provide:
    • a certificate from a foreign tax authority (attested by the Ministry of Foreign Affairs or Oman embassy in that foreign country) to confirm that the recipient is a resident of the foreign country for purposes of the treaty
    • confirmation that the foreign entity is the beneficial owner of the income under consideration (the issuing authority of this beneficial ownership certificate has not yet been specified).

Tax portal and electronic filing of tax returns

As another step toward the Omani government’s commitment to simplify tax compliance procedures, a requirement to electronically file tax returns has been introduced in Oman’s income tax law1.  The Oman tax authority’s electronic portal is now operational and taxpayers have started registering to use it.

Although this requirement has been in effect 27 February 2017, teething problems and operational issues faced by taxpayers in registering and using the portal caused the tax authorities to ease requirements for filings of provisional income tax returns for 2016 (due 31 March 2017) as well as final returns for that year (due 30 June 2017). To ensure that procedural issues do not cause late filings, these returns could be filed either electronically or manually in paper format. 

Once fully operational, the portal is expected to be user friendly, providing key services such as:

  • registration with the tax authorities
  • submission of taxpayer details
  • tax exemption requests
  • tax objections
  • withholding tax return filings
  • ability to check details of tax claims, penalties and payments due
  • reminders of important due dates under the tax law. 

These features will go a long way toward ensuring taxpayers have easy and direct access to the tax department for their compliance and correspondence requirements. 

Taxing Islamic finance transactions

Oman recently issued licenses for the establishment of fully-fledged Islamic banks and Takaful (Islamic insurance). These institutions carry out Islamic finance transactions (IFT) in accordance with Islamic sharia law, which differ from conventional financial transactions (CFT). Omani regulatory authorities allow IFTs to follow the Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), which differ from International Financial Reporting Standards (IFRS). 

These differences have caused Oman to introduce specific tax provisions for IFTs for the first time in the history of its tax laws. The IFT provisions aim to level the playing field by ensuring that the tax liability on profits earned from an IFT is equal to the tax liability on interest earned under a similar CFT. KPMG in Oman assisted the Ministry of Finance in drafting the IFT tax provisions. 

It remains to be seen how the tax authorities will treat the tax returns of Islamic financial institutions that were prepared and submitted before IFT tax provisions were introduced. 

1 Royal Decree 2017/9.

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