Wednesday, July 1, 2009

New Law Alert: Taxation

A new income tax law for Oman was issued on 25 May 2009. The new law will apply to a company’s accounting periods which begin on or after 1 January, 2010.

The main highlights of the new income tax law are:

  • • The replacement of a territorial basis for taxation with a global system – this means that Omani tax authorities will tax overseas income but relief will be granted for taxes paid overseas. Such relief will be available even if Oman does not have a double tax avoidance treaty with the relevant country where tax has been paid.
  • • There will be a uniform tax rate of 12% for all branches (including branches of foreign companies) with an initial tax-free exemption of RO 30,000. Previously, foreign branches (other than GCC companies) were taxed at a rate of up to 30%. Oman will now have the lowest tax rate in the region when compared with other countries which impose taxes.
  • • A 90-day threshold in any period of twelve months has been introduced for triggering the requirement for a permanent establishment of a foreign company in Oman – this will create certainty for foreign companies who visit on a limited basis as to whether a permanent establishment is required.
  • • A statute of limitations of ten years has been introduced; previously, the tax authorities could pursue a company without any limitation of time.
  • • There will now be penalties for late filing of tax returns as well as for incorrect tax filings.
The new tax law includes modifications that are generally favorable to companies doing business in Oman. Companies likely will be particularly interested in the tax reduction for branches of foreign companies, as this was previously a significant drawback for companies in deciding whether to form a branch in the Sultanate.