Sunday, September 6, 2015

Procedural Requirements for Obtaining Income Tax Exemption Status

The Income Tax Law establishes requirements for income tax exemption. If eligible, a company has to follow the rules and procedures set down by Ministerial Decision No. 46 of 2005, and set forth below, to claim that exemption.

There are a number of companies in Oman whose commercial operations commenced prior to 17 January 2012 and who have had issues with regard to their applications for income tax exemption.

The  Income Tax Law issued by Royal Decree 47 of 1981 (as amended) (“ITL”) was repealed and replaced by Royal Decree No. 28 of 2009 (as amended), and Ministerial Decision No. 46 of 2005 (“MD 46 of 2005”) was repealed and replaced by Ministerial Decision 30 of 2012.  Ministerial Decision 30 of 2012 sets out the new procedure that a company whose commercial operations commenced after 17 January 2012 must follow when applying for tax exemption status.  We will discuss the procedure set out under the new tax laws in a future article.

However, for companies whose commercial operations commenced before 17 January 2012, they will still need to rely on MD 46 of 2005 in respect of the procedure required to obtain income tax exemption.

Accordingly, this article sets out the rules and procedures for exemption from corporate income tax and corporate profit tax in Oman as provided for by the ITL and MD 46 of 2005.

To be eligible to be granted income tax exemption status under Article 51 (bis) of the ITL:

  1. the company must be incorporated in Oman as per the Commercial Companies Law or any other law;
  3. the company must be registered with the Ministry of Commerce and Industry or other concerned ministries and organizations as per the prevailing laws and regulations and its principal place of management must be based in Oman;
  5. the principal business carried on by the company must be in any of the areas mentioned in Article 51 bis (paragraph 1) of the ITL; 
  7. the company must not benefit from the exemption stipulated in articles 8 and 8 bis of the Foreign Capital Investment Law or in any other law;
  9. the company must maintain regular accounts (incorporating independent accounts of the principal business) approved by an auditor authorised legally to carry on the profession of accountancy and auditing;  and 
  11. the company must provide, annually, to the General Secretariat of Taxation at the Ministry of Finance a copy of the accounts and financial statements immediately after their approval.
If eligible, the company will need to follow steps 1 to 3 outlined below when making a request for income tax exemption:
  1. The application must be submitted by a legal representative of the company to the competent ministry responsible for the sector to which the company belongs.
  2. This application should comprise the following:
    1. particulars of the company as recorded in the commercial register and other official records and documents;
    3. official documents of the company that indicate compliance with the rules required to be followed legally for the exemption;  and
    5. reasons for granting income tax exemption status to the company and the date on which the exemption is proposed to commence.
  3. Such application seeking exemption along with its enclosures must be submitted by the company within three months from the proposed commencement date of the exemption.
It is very important that a company seeking income tax exemption status under the ITL complies with all the requirements stated under Article 5 of MD 46 of 2005.

Once the application is submitted, the competent ministry will review the application and send a memorandum to the Ministry of Finance containing its advice with regard to the:
  1. area mentioned in Article 51 bis (paragraph 1) of the ITL in which the company is carrying on its principal business;
  3. extent of compliance by the company with the mandatory conditions; and
  5. proposed date on which the period of exemption would start.
Once the General Secretariat of Taxation at the Ministry of Finance has reviewed the application and confirmed that the relevant rules have been complied with, the documents are then forwarded to the Minister supervising the Ministry of Finance, who will issue a decision on the application for income tax exemption.