OUTLINES ON NEW INCOME TAX LAW OF OMAN

Introduction

* articles are divided into parts and each part is sub divided into chapters and, the chapters are divided into sections.

Income tax rates

There are only three rates applicable as per the new tax law

Taxable entities are:

• Omani proprietorships
• Omani companies
• Permanent Establishments(PE)

Highlights on the areas of amendments:

Taxability:

• Companies are liable to tax on their incomes wherever earned.
• Capital gains are taxable wherever earned.
• Foreign dividends are taxable.
• The scope of income subject to withholding tax is expanded. Withholding tax is to be applied on royalties, consideration for research and development, payments for the use of or right to use software and management fees. Further, the term "Royalty" has been substantially expanded to include equipment rentals and consideration paid for information concerning industrial, commercial or scientific experience, payments for the use of or right to use computer programs, intellectual property rights, patents, trademarks, drawings and formulae.
• Foreign companies are liable to corporate tax (other than WHT) if they have created a Permanent Establishment(PE) in Oman.The new tax law has introduced a threshold limit of 90 aggregate days in period of 12 months to be exceeded before a PE is deemed to be created. It also clarifies that a PE can be created for a foreign company through a dependent agent.

Exemptions:

• No change in the basic exemption limit of RO 30,000.
• Five year exemption on infrastructural sector(Public Utility Projects) is no longer available.
• Higher education institutions, private hospitals, schools which previously enjoyed indefinite period of exemption are now eligible for a maximum period of 10 years.
• Incomes arising to certain investment funds, dividends received from Omani companies and gains from disposal of securities listed in the MSM are all tax exempt.

Deductions:

• Pooling of assets concept is introduced, in addition to the existing straight line method, under which assets coming within the specified categories are considered as a block and depreciation will be applied on the written down value.Computers and software can be depreciated at a higher rate of 33.33% and drilling rigs at a lower rate of 10%. Assets like buildings, ships and aircrafts would continue to be depreciated on straight line basis.
• Provisions for unexpired risks, unsettled claims and contribution to emergency funds are tax deductible for insurance companies.
• Provision for loan losses is tax deductible in the case of banks and financial institutions regulated under the banking law.
• Head office overheads in case of a PE, is deductible as per the rules specified by Executive regulation. Any charges allocated by the afficilates will also now form part of the head office costs.
• Foreign taxes paid by Omani Proprietorships and Omani companies are eligible for a tax credit up to maximum of the Oman tax that would otherwise be payable on such income. Such relief is available, irrespective of the existence of double taxation avoidance treaties with other countries.

Assessments:

• All the tax returns submitted are subject to assessment within 5 years from the end of the tax year during which final return is submitted.
• The new tax law limits the period to complete the assessment relating to entities who fail to file tax returns within 10 years from the end of tax year.

Conclusion:

The new income tax law of Oman is the codification & consolidation of the legal interpretations applied from the existing law, by providing clarity on several provisions.