Oman Introduces Witholding Tax for Foreign Investors

The recent amendments to the Omani Income Tax Law that were announced under Sultani Decree 9 of 2017 (“SD 9/2017”) – issued on 19 February 2017 and published in the Official Gazette on 26 February 2017 – made significant changes to the previous law; among these was a change to the former withholding tax structure by expanding the scope of withholding tax to include dividends.

SD 9/2017 introduced a withholding tax of 10% on dividends and interest on shares paid to foreign shareholders in Omani entities. This amount (10%) will be withheld by the Omani entity and shall be remitted to the tax authorities. A Capital Market Authority Circular – CMA Circular 3 of 2017 – was issued shortly after SD 9/2017 and specified the type of Omani entity which will be subject to the 10% dividend and interest withholding tax; the Circular stated that “the entity to which the withholding tax on dividends and interest will be applied to will be Omani joint-stock companies.” Thus, 10% of dividends and interest paid out to foreign shareholders of Omani joint-stock companies will be withheld for remittance to the Omani tax authorities. The CMA Circular further noted that the dividend withholding tax applies to foreign shareholders in both their natural and legal capacities -meaning that foreign business entities that are shareholders in Omani joint stock companies will be subject to the dividend withholding tax, too.

In addition, the CMA Circular addressed the issue of whether non-Omani GCC nationals would be treated as foreigners or as Omanis with respect to the recent amendments to the income tax law. The Circular cites Chapter II (Article 3) of the Economic Agreement between the GCC States – which was adopted by the GCC Supreme Council on 31 December 2001 in Muscat – which declared that, “GCC natural and legal citizens shall be accorded, in any Member State, the same treatment accorded to its own citizens, without differentiation or discrimination, in all economic activities, especially the following: movement and residence, work in private and government jobs, pension and social security, engagement in all professions and crafts, engagement in all economic, investment and service activities, real estate ownership, capital movement, tax treatment, stock ownership, formation of corporations, education, health and social services.” Therefore, non-Omani GCC nationals – whether they are natural or legal persons – will be treated as Omanis for tax purposes, and thus will not be subject to the foreign dividend withholding tax.

Investors and companies operating in Oman should carefully consider these amendments to the Omani Income Tax Law under SD 9/2017 along with their other obligations to the tax authorities, as the restructuring of the withholding tax to include dividends and interest may apply to them differently than it did in the past.