Exemptions Under The New Oman Tax Law
From the last three decades, corporate taxation in Oman was governed by the Law of Income Tax on Companies No.47/1981 and its amendments, and the Law of Profit Tax on Establishments No.77/1989. The new Oman Tax Law promulgated by Royal Decree 28/2009 is effective from the tax year 2010 onwards. Unlike the old Tax Law, in which branches of foreign companies were taxed at substantially higher tax rates than the tax rates on Omani companies, under the new Tax Law the disparity between Omani companies and branches of foreign companies has been removed, and all companies, i.e. Omani companies, GCC companies and branches of foreign companies, are liable to a uniform flat tax rate of 12% on taxable income exceeding OMR 30,000/-. This is expected to accelerate the economic growth in the Sultanate of Oman, as it will now be more attractive for the foreign companies to invest in Oman.
The new Tax Law provides for important Tax Exemptions for certain “Categories of Income” for all tax payers, as well as for “Income of specified Activities”.
Categories of Tax Exempt Income
Article 115 of the new Tax Law provides that the following two “Categories of Income” would be fully exempt from taxation in Oman for all tax payers:
- Dividends received on shares held by the tax payer in the capital of any Omani company.
- Profits or gains from disposal of securities listed in the Muscat Securities Market (MSM).
Categories of Tax Exempt Activities
Article 116 of the new Tax Law states that income accruing to an Omani company/ establishment from carrying on its activity in the field of shipping shall be exempt from tax. Further, the income from shipping/air transport activities accruing to a foreign company in Oman shall be exempt from tax, provided similar treatment is accorded on a reciprocal basis in the country in which the foreign company is incorporated or where its effective management and control is exercised.
As per Article 117 of the new Oman Tax Law, income accruing to an investment fund setup in Oman under the Capital Market Law or to an investment fund setup outside Oman to the deal in Omani securities listed on the Muscat Securities Market (MSM) shall be exempt from tax.
Priority Sector activities
Article 118 of the new Oman Tax Law provides that income accruing to Omani companies/ establishments from the following specified activities carried on as their main business (except management contracts and project execution contracts) shall be exempt from taxation in Oman:
- Industry in accordance with the Law for Unified Industrial Organization of Gulf Cooperation Council Countries.
- Mining in accordance with the Law of Mining.
- The export of locally manufactured or processed products.
- The operation of hotels and tourist villages.
- Farming and processing of farm products, including animals and the processing or manufacturing of animal products and the agricultural industries.
- Fishing and fish processing, farming and breeding.
- University education, college or higher institutes, private schools, nurseries or training colleges and institutes.
- Medical care by establishing private hospitals.
The exemption provided under this Article shall be for a period of five years beginning from the date of production or commencement of the business, as applicable. Such tax exemption may be renewed for a further period not exceeding five years provided various criteria on exports, dividends, Omanisation, investment in fixed assets, etc., are fulfilled, and the renewal is approved by the Minister in accordance with the regulations issued by the Financial Affairs and Energy Resources Council. The Executive Regulations governing the procedures for tax exemption and its renewal are expected to be issued in due course.
(This write-up is contributed by the Oman member firm of PKF International Ltd.)