Income Tax Law Update

Following the extensive amendments to the Income Tax Law of 2017, the Ministry of Finance recently issued Ministerial Decision 14/2019, published in the Official Gazette of 10 February 2019, which sets out amendments to the Executive Regulations of the Income Tax Law and provides clarifications on a number of tax-related matters.  Most provisions of MD 14/2019 enter into force on the day following publication in the Official Gazette.  Please find below a summary of some of the main provisions:

Remuneration of company members

The allowed deduction for payments made to a company’s partners in a commercial company has been amended to the least of (a) actual payments made, (b) 25% of the taxable income before deduction of such payments or (c) OMR 1500 per month for each partner.  For professional/consultancy companies, items (b) and (c) are fixed at 35% and OMR 3000, respectively. 

Tax exemptions

Tax exemptions are now restricted to companies carrying out manufacturing/industrial activities.  The initial five years’ tax exemption is confirmed but the provisions in relation to further renewals of such tax exemptions have been cancelled, effectively limiting the tax exemption period to five years.  Further requirements the business must satisfy in order to obtain tax exemption are (a) a minimum investment of OMR 1 million in fixed assets and (b) compliance with applicable Omanisation quotas over the tax exemption period.

Withholding tax

The new Ministerial Decision provides for withholding tax to apply to dividends, interest (interest payable to local banks is obviously excluded) and payments made in connection with services provided by foreign companies not having a commercial registration in Oman.

Withholding tax applies only to dividends distributed to foreign investors by joint stock companies and investment funds, whilst dividends distributed by limited liability companies are exempt.  With respect to services, some categories of payments for services are not subject to withholding tax; these include, inter alia and in addition to services acquired in connection with activities carried out or properties located abroad, (a) training expenses, (b) reinsurance costs and (c) board of directors meetings. Withholding tax applies to all other services, subject to tax treaty benefits when applicable.

Bad debts 

The conditions taxpayers must comply with in order to deduct bad debts have become stricter as it is no longer sufficient to start legal proceedings.  The taxpayer must now demonstrate that it took action to recover the amount by enforcing a relevant court judgment.  This applies to bad debts of OMR 1,500 or more.

Small and medium enterprises (SMEs)

A lower tax rate of 3% applies to SMEs.  MD 14/2019 introduces a new option for SMEs to apply to the tax authorities for presumptive taxation.  It further amends some of the rules on the requirements a company must satisfy in order to qualify as a SME:  the Omani owner/partner must be actively and exclusively engaged in the business, and the business most employ at least two Omani nationals and be able to prove their employment for at least six months in the applicable tax year.