Oman's new tax law removes ambiguity

Muscat The new income tax law being implemented this year in Oman has created a level playing field and removed any ambiguity, say tax analysts in the country.

"In a broader sense, the new income tax law proposed last year by the Government of Oman has brought in what we all know — a level playing field — for the foreign companies along with that the Omani companies," tax analyst in Oman, P. Chandrasekhr, a Group General Manager for the Jawad Sultan Group of Companies, told Gulf News on Sunday.

The discrimination in the tax rates between the branches of foreign companies and Omani companies/establishments has been eliminated and a unified rate of 12 per cent has been made applicable to all establishments, companies established in Oman, and the branches of foreign companies, whether owned by Omani or other Gulf Cooperation Council (GCC) nationals or by foreign persons.

The new tax law retains the present exemption limit or threshold of 30,000 Omani riyals.

The government has also clarified the definition of foreign company under which a foreign company in order to be treated on the above footing should have done business in Oman for a period of 90 days within a 12-month period.

"The above step will put to rest any ambiguity and also it is welcome since it is done with a view to spur foreign investment," says Chandrasekhr.

"Oman is the only country in the Gulf region which taxes all companies and businesses, irrespective of their nationality. The uniformity of tax rates confirms Oman's intention to adhere to its commitments given under various international agreements — for example commitments given to World Trade Organisation and commitments made in the US-Oman Free Trade Agreement," Ashok Hariharan, partner and head of tax for KPMG in Oman and UAE, told Gulf News.

Significance

"The reduction in tax rates would be of significance to companies operating in Oman as foreign branches.

"These include some international banks and various international companies providing services to the oil and gas sector," believes the senior tax expert in Oman.

Hariharan pointed out that the reduction in tax rates, the amendment to the term "permanent establishment" along with the free trade agreements being concluded by Oman/ GCC, would encourage foreign companies to operate through a branch rather than through a locally incorporated company, which generally requires a minimum Omani ownership of 30 per cent.

"Under the US Free Trade Agreement, US companies can register a limited liability company with 100 per cent foreign ownership but this is not applicable to other countries with which Oman does not have a free trade agreement," he added.

"The new tax law is another feather in the cap for the Oman Government in the course of progressive tax administration," says Antony Isaac, Managing Partner at the Morison Muscat.

Another major change introduced by the Oman tax law is a shift from a territorial system of tax to a global system of tax.

Under the territorial system, a country taxes only those profits which are generated on its territory.

in a nutshell: What the law says

- Oman began implementing new income tax law for corporate under which a uniform tax rate of 12 per cent on the taxable income after granting a basic exemption of 30,000 Omani riyals to all entities carrying on business in Oman irrespective of their status, residence, nationality or mode of operation.

- Foreign branches who were previously taxed at 30 per cent on profits in excess of 100,000 riyals would now pay tax at 12 per cent on profits in excess of 30,000 riyals.

- The new tax law confirms that foreign companies who are operating in Oman through a dependent agent would be considered as having a permanent establishment in Oman.

- The new tax law provides that a service permanent establishment would be constituted only if the services in Oman are for a period totalling not less than 90 days during the period of 12 months.

- The new tax law confirms the exemption available on all local dividends and capital gains arising on investments in the Muscat Securities Market.

- Dividends received from overseas would be subject to tax.