Renewal Of Income Tax Exemption
Article 118 of the new Oman Tax Law provides that income accruing to Omani companies/ establishments which carry out the following specified priority sector activities as their main business (except management contract and project execution contracts) shall be exempt from taxation in Oman:
- Industry in accordance with the Law for Unified Industrial Organization of GCC 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 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.
Ministerial Decision no.46/2005 specifies the Rules and Procedures for exemption from the Income-tax on Companies and Profit Tax on the establishments and their renewal. The special conditions for the renewal of income-tax exemption for the next five years period are:
- The minimum investment by the company or establishment in the fixed assets shall be RO.750,000/-.
- The average percentage of exports of the company or establishment’s production shall not be less than 40% in the last two years of the initial exemption period. These provisions are in respect of sectors which export their production.
- The average percentage of Omani employees to the total number of the employees of the company or establishment must be more than the percentage specified for the sector during the two years referred to in the foregoing paragraph, provided that this percentage shall be evenly distributed between the different management levels in the company such as the top management, engineering and professional jobs, and supporting jobs.
- The total profits or dividends paid to the partners or shareholders during the initial exemption period must not be more than 10% of the company’s share capital after deduction is made for the losses as per the accounts prepared for the same period and certified by the auditors.
- Products in respect of industrial companies registered under the Law of Organisation and Promotion of Industry, must be included in the lists of important strategic goods which are issued by the Ministry of Commerce & Industry after approval by the Ministry of Finance.
To be eligible for renewal of income tax exemption for a second five year term, it is essential that contribution by the main activity in realization of company’s gross income must not be less than 90%.
(This write-up is contributed by the Oman member firm of the PKF International Ltd. network)