AMENDMENTS TO OMAN TAX LAW
Royal Decree 9/2017 has been promulgated, by which a number of significant changes have been made to the Income Tax Law. The aim of the said Decree is to improve the efficiency and effectiveness of the present tax system, enhance tax revenues, and to simplify the procedures for tax payers to carry out their obligations. The key amendments are as under:
- Basic deduction (Tax-free threshold) of OMR.30, 000 has been removed.
- The tax rate has been increased from 12% to 15% on entire taxable income.
- 3% tax on declared taxable income has been introduced for small tax payers meeting specific criterias. (viz. registered capital not more than OMR.50,000, gross annual income not exceeding OMR.100,000, Average number of employees not exceeding 15, etc.).
- Tax provisions for taxation of Islamic financial transactions has been introduced, which will be in line with the taxation of normal banking incomes.
- The definition of â€˜Permanent Establishmentâ€™ has been amended to include â€˜building siteâ€™, â€˜place of constructionâ€™, or an â€˜assembly projectâ€™ only if it exists for a period exceeding ninety days in aggregate in any twelve months.
- Earlier donation to be eligible as a deductible expense subject to maximum of 5% of gross income, had to be given only in cash to specific organizations. Now, as per this amendment, donation given in kind to specific organizations would also be eligible for deduction, subject to fulfillment of certain conditions.
The ambit of withholding tax has been increased to include the following:
- Payments made to foreign person (natural or legal person) for â€˜Provision of Servicesâ€™ will attract withholding tax at the rate of 10% of gross amount. Since withholding tax on â€˜Provision of Servicesâ€™ would cover all matters other than supply of goods, this is a critical change that will have significant impact on the companies. However, it would be possible for the foreign person to claim tax relief from double taxation where Oman has Avoidance of Double Tax Treaty with that country, or countries has unilateral tax relief provision in its tax law.
- Interest and dividends paid to foreign person (natural or legal person) will attract withholding tax at the rate of 10% of gross amount. The withholding tax on dividends will apply to dividends on shares of joint stock companies. Foreign person in countries with which Oman has Avoidance of Double Tax Treaty can claim specific relief as per Treaty agreement.
- As stated above, withholding tax of 10% on the gross amount is now also applicable on payments made to a foreign person (natural or legal person) for â€œProvision of Servicesâ€, â€œInterestâ€ and â€œDividendsâ€. Presently, Oman has signed Double Tax Avoidance Treaties with about 35 countries of which in few cases it awaits ratification from the respective governments. In case of specified payments made to foreign persons in countries with which Avoidance of Double Tax Treaty is enteredinto by Sultanate of Oman the withholding tax rate of 10% as per Oman Tax Law can be reduced to the withholding tax rate specified for that payment in the applicable Avoidance of Double Tax Agreement, for which â€˜Tax Residency Certificateâ€™, â€˜Beneficial Ownership Proofâ€™, and other relevant documentation of foreign person would be required.
- â€¢ Withholding tax exemption for specified payments made by Ministries and Government Institutions has been removed, who will now be required to deduct withholding tax on specified payments.
- Presently, under article 118 of Oman Tax Law, Companies engaged in mining, agriculture, fishing, medical care, education, export of locally manufactured goods, private schools, hotels and tourist villages, universities and nurseries were exempted from tax. This exemption is now cancelled, and exemption will be restricted only to manufacturing companies for a non-renewable period of five years, only on fulfillment of specified conditions. The amendment will not affect tax exemptions already granted to the companies.
Entities should develop and implement programme for combating money laundering and terrorism financing, including policies, procedures, internal regulation and controls to ensure the following:
- The amendment introduces a new concept of â€˜Tax Cardâ€™ which will be valid for a specified period, and has to be mentioned on all Invoices, contracts, Correspondences, etc. A copy of the Tax Card has to be submitted to all ministries and government body/company before conducting any transaction.
- A self-assessment system has been introduced whereby the annual tax returns shall be inspected by the tax department on a selective basis for small assesses, for which further rules and conditions will be issued.
- Stricter penalties and punishments, including imprisonment, has been specified for various tax offences and non-compliance with the tax provisions, as under:
- Maximum penalty of OMR.2,000 for not filing tax return by the due date, against penalty of OMR.1,000 levied earlier.
- A penalty of not less than 1% and not more than 25% of the difference between the actual assessed income and the taxable income declared in the annual return of income.
- Maximum penalty for not furnishing information and documents called for by the tax department or not attending tax hearing , increased from OMR .2,500 to OMR .5,000
- Principal officer refraining intentionally to file tax returns or submit information/documents called for would result in imprisonment ranging between 1 to 6 months and/or a fine ranging from OMR.500 to OMR.20,000.
- Principal officer intentionally furnishing tax returns with incorrect tax liability or incorrect actual income, or intentionally destroying / concealing records and documents called for by the tax department would result in imprisonment between six months to three years and/or a fine ranging from OMR.5,000 toOMR.50,000.
- Small taxpayers meeting the specified criteria are required to submit a simple return, supported by an unaudited income statement prepared on cash basis within three months of the end of the tax year.
- The Tax Registration has to be done by a new taxpayer within sixty days from the date of incorporation or commencement of business (whichever is earlier), and any changes in â€˜Particularsâ€™ must be notified within thirty days.
- Financial statements submitted along with the annual tax returns must comply with International Financial Reporting Standards (IFRS), or similar such standard to IFRS as may be approved by the Secretary General.
- Tax returns are to be filed â€˜electronicallyâ€™, and revised returns are to be filed within thirty days of an error or omission being found in the original return.
- The tax department is empowered to conduct inspection of documents and records at taxpayersâ€™ premises.
- The time limit for the tax department to assess the annual tax return has been reduced from five years to three years from the end of the tax year in which the annual tax return is filed. Also, the time limit for assessing cases involving deception or fraud or non-submission of tax returns has been reduced from ten years to five
Maintenance of Records
- Amendments to the tax rates shall be effective from the financial year starting from 1 January 2017 onwards.
- Withholding tax and tax exemption provisions shall be effective from the date of publication of Royal Decree 9/2017 in the official gazette, viz.26th February 2017.
[Note: The note above is a limited extract based on a preliminary review of an unofficial English translation of the tax law amendments, and should not be construed as conclusive tax advice. Professional tax advice should be taken before acting on the above note.]
(This article is compiled by the Tax Team of PKF L.L.C., the PKF member firm in the Sultanate of Oman.)