Wednesday, June 25, 2008

The Oman Law Digest 2009 - TAXATION

Personal income is not subject to tax in Oman. Tax is payable by companies and establishments if they have permanent establishment in Oman. Tax is charged on income, from all sources, which is realised or has arisen in Oman. All allowable deductions, such as business costs or depreciation, are defined in Law of Income Tax on Commercial Companies [RD 47/81 as amended] (“Tax Law”). Permitted depreciation rates are set out in the Tax Law. In practice, tax is charged on what is substantially a profit calculation. The tax regime is administered by the Secretariat General of Taxation under the Ministry of Finance.

Tax rates depend upon the legal status of the entity. All companies registered in Oman, wholly Omani owned or with up to 70% foreign participation, and branches of wholly GCC owned companies are subject to a uniform rate of 12% on taxable income over RO 30,000. Other entities, including branches of foreign companies, are taxed as follows:


Taxable Income

Tax Rate


0 – 5,000

Nil


5,001 – 18,000

5%


18,001 – 35,000

10%


35,001 – 55,000

15%


55,001 – 75,000

20%


75,001 – 100,000

25%

100,001 – and above

30%



For branches of foreign companies, allowable deductions include corporate headquarters expenses that are attributable to a branch.

TAX EXEMPTIONS
Companies may apply for tax exemption under the Tax Law or FCIL. Generally, exemptions are obtainable for an initial period of five years, extendable for a further five years. Exemptions are granted if: (i) income is realised from carrying out exportation of locally manufactured or processed products; and (ii) the main activity is an activity specified for exemption in the Tax Law or FCIL such as manufacturing, agriculture, fishery, tourism, public utility or infrastructure project. It is not permissible for a company to benefit from more than one exemption where there might be several applicable exemptions. Loss incurred during the exempted period may be carried forward until it is set off against taxable income.

Withholding tax is payable by foreign companies which do not have permanent establishment in Oman (and are not, therefore, subject to income tax law) but which derive income in Oman from: (i) royalties (as one-off or series of payments); (ii) management fees; (iii) lease of machinery or equipment; (iv) payment for transfer of technical expertise; and (v) payments for research and development [RD 89/96]. A uniform rate of 10% is charged on gross amounts paid to an offshore company that does not have permanent establishment in Oman. A local business entity making payment is responsible for deducting withholding tax and paying it to the Tax Department. This must be done within 14 days of the end of the month in which the tax is deducted or payment is due or is made to the foreign entity.

CUSTOMS DUTY
The Unified Economic Agreement by Gulf Cooperation Council States and Doha Declaration issued by the GCC Supreme Council for establishment of Customs Union of AGCC States, among GCC States, provides for: (i) unified customs tariff for non-GCC goods; (ii) unified customs union; and (iii) similar customs regulations and procedures.

Customs duty exemptions may be granted on application under FCIL for import of plant and machinery for public utility or infrastructure projects.

Customs duty of 5% is chargeable on most products except tobacco, alcohol, etc.

DOUBLE TAXATION TREATY
Oman has double taxation treaties with many countries including Canada, China, Egypt, France, India, Italy, Lebanon, Mauritius, Pakistan, Singapore, South Africa, Thailand, Tunisia, Turkey, United Kingdom and Yemen. In 2008, double taxation treaties were entered with Moldova, Bangladesh, Vietnam, Brunei Darussalam and Belgium.