Tax Depreciation Under The New Oman Tax Law
A. Buildings, Ships/ Aircraft And Intangible Assets
|a)||Asset||Depreciation % per annum|
|1.||Buildings constructed with selected materials||4|
|2.||Quays, Jetties, Pipelines, Roads and Railways||10|
|3.||Prefabricated buildings or buildings constructed with other than the selected materials||15|
|4.||Buildings used as hospitals or educational institutions (In this case, tax payer may choose depreciation rate of 100% or the rates given in points 1 and 3 above)||100|
|5.||Ship or aircraft||15|
|6.||Intangible assets (other than computer software and intellectual property rights) should be depreciated over the productive life in years of the assets at the discretion of the Secretariat General.||As stated|
b) The depreciation rates stated in aforesaid points 1, 2 and 3 shall be doubled if buildings are used for industrial purposes. These purposes shall not include the use of buildings for the purposes of storage, office, accommodation for workers or for other commercial purposes.c)As previously, the tax depreciation would continue to be computed on the Straight Line Method (SLM) on the original cost of the assets at the aforesaid depreciation rates.d)The depreciation for any accounting period should be increased or decreased, if the accounting period is more or less than one year or if the business is carried on during only a part of that accounting year.e)As previously, the net profit/loss as per the financial statements should be suitably adjusted for profit/loss on disposal of buildings etc., (calculated as per the accounting depreciation rates) and profits/loss on disposal on buildings etc., (calculated as per tax depreciation rates) to arrive at the taxable income each year in the Tax Computation Sheet and Tax return. Thus, in respect of “Civil Works” (i.e. buildings, etc.), the balancing allowance (i.e. loss on disposal of assets) would be allowed as a deductible expense in the year of disposal of the asset. Conversely, the balancing charge (i.e. profit on disposal of assets) would be considered as taxable income in the year of disposal of assets.
B. Other Assets
|a)||Pool||Depreciation % per annum|
|1.||Tractors, cranes and other heavy machinery and plant similar in nature and use, computers, vehicles and self-propelling machines, fixtures, fittings, and furniture. Also, computer software and intellectual property rights.||33.33|
|3.||Other assets, viz equipment, normal plant and machinery etc., that are not included in aforesaid pools 1 and 2||15|
b) Unlike in the old Tax Law, where depreciation was to be calculated on the Straight Line Method (SLM) on the original cost of the assets, in the new Law, the modified version of the Written-Down Value/Diminishing Balance method is to be used to calculate depreciation for a pool of assets for the accounting period, by applying the tax depreciation rates per (B)(a) above on the “Depreciation Base” of that pool as computed hereunder:
c) Depreciation Base
- Opening depreciation base (viz. closing tax depreciation base of previous year less tax depreciation charge of previous year)
- Plus: Cost of the assets acquired in the current year
- Less: Disposal/Sale value (not cost of assets disposed of or sold) of assets disposed during the current year
- Depreciation base = (i) + (ii) – (iii)
d) The opening depreciation base for the first tax year 2010 would be the closing tax written-down value of the assets in that pool at the end of the tax year 2009.
Depreciation will be allowed in respect of a pool for any accounting period, if that accounting period is not the period in which the business has ceased, or is not the accounting period at the end of which none of the assets in that pool is remaining. The amount of the depreciation shall be proportionately increased or reduced if the accounting period is more or less than a year, or the business has been carried on for only part of that accounting period.
f) As previously, the accounting depreciation would continue to be provided in the financial statements at the existing accounting depreciation rates on the SLM basis on the original cost of the assets.
g) In the Tax Computation Sheet and the Tax return, the net profit as per the financial statements should be suitably adjusted only for accounting profit/loss on disposal/sale of these assets as per the financial statements to arrive at the taxable income in each year of sale/ disposal. However, unlike previously, since the disposal/ sale value of these assets is already reduced to arrive at the ‘Depreciation Base’ as stated in para (B)(b) above, the profit or loss on disposal/sale of B category of assets as per the tax depreciation rates is not required to be computed and adjusted in the Tax Computation Sheet and Tax return each year.
h) In computing the taxable income for the accounting period of the company, during which the business has ceased, or at the end of which none of the assets in the pool is remaining, if the depreciation base of that pool is positive, then such depreciation base amount shall be the balancing allowance (tax deductible expense), and if the depreciation base is negative then the depreciation base amount shall be considered as a balancing charge (i.e. taxable income) in the Tax Computation Sheet and Tax Returns. Thereafter, the depreciation base of that pool of assets shall be considered as nil.
(This write-up is contributed by the Oman member firm of the PKF International Ltd. network)