If planning to establish business operations in Oman, foreign firms and individual investors may do so in one of the following forms:
LIMITED LIABILITY COMPANY (LLC): Foreign companies and individuals are generally required to have an Omani partner who holds a minimum of 30% of shares in order to form an LLC. Minimum share capital of OR150,000 ($389,500) is required to register an LLC with foreign participation.
GCC companies that are 100% owned by GCC nationals – or GCC nationals themselves, as individual investors – may establish an LLC without a local partner for approved activities. An LLC is required to have at least two shareholders.
Pursuant to a free trade agreement (FTA) between the US and Oman, US companies may form a subsidiary in Oman without a local partner, provided that all ultimate shareholders of the US entity are also US persons. The minimum share capital for LLCs with local or GCC ownership, or for those qualifying under the US FTA, is OR20,000 ($51,900).
JOINT STOCK COMPANY: Joint stock companies that do not offer their shares for public subscription are known as limited joint stock companies (also called SAOCs). The minimum share capital required for an SAOC is OR500,000 ($1.3m).
Alternatively, joint stock companies that offer their shares to the public are called general joint stock companies (also known as SAOGs). The minimum share capital required for an SAOG is OR2m ($5.2m). Both forms of joint stock companies are required to have at least three shareholders.
The 30% local Omani shareholding requirement must also be observed in the establishment of a joint stock company. Ownership of stock in SAOGs is through trading on the Muscat Securities Market, and regulated by the Capital Market Authority. Foreign investment in banks and other financial institutions is regulated by the Central Bank of Oman.
BRANCH: A foreign company may register a branch in Oman only with the purpose of executing a contract with the government or a quasi-government body. The branch registration is limited to the duration of the underlying contract.
Special dispensation may be given to allow a foreign company to register a branch office without a government or semi-government contract if the activity is deemed to be of national importance by the Council of Ministers.
COMMERCIAL AGENCY: Foreign companies without commercial registration in Oman may do business in the country through commercial agents. Agency agreements are formally registered with the Ministry of Commerce and Industry (MoCI) under the Commercial Agency Law.
COMMERCIAL REPRESENTATIVE OFFICE: A foreign firm may also open a commercial representative office. A representative office is not allowed to sell products or services, or engage in other forms of commercial activity. However, such an office may sponsor and hire employees.
This concludes the options available to foreign companies and individual investors seeking to launch business operations in Oman.
INCOME TAX LAW: The income tax law was promulgated by Royal Decree No. 28 of 2009 and came into effect on January 1, 2010. It replaces earlier income tax laws promulgated by Royal Decrees No. 47 of 1981 and No. 77 of 1989.
In January 2012 the executive regulations accompanying the law were issued by the Ministry of Finance (MoF). These regulations apply to tax years commencing on or after January 1, 2012.
On February 26, 2017 broad changes were introduced to the income tax law via Royal Decree No. 9 of 2017. The new regulations aim to increase tax revenue for the government, improve tax administration and stimulate small business activities.
TAX RATES: The rate of tax is uniform across all types of business entities operating in the country, regardless of how they are configured and whether they are owned by Omani nationals, other GCC nationals or non-GCC nationals.
The income tax law seeks to tax the worldwide income of entities that are formed in Oman, as well as the Oman-source income of branches and other forms of permanent establishments.
The standard tax rate has been set at 15%, effective for tax years beginning on or after January 1, 2017. This represents an increase from the previous rate of 12%. Furthermore, the OR30,000 ($77,900) exemption threshold has been removed.
However, a 3% tax rate applies to Omani proprietorships (establishments) and LLCs that meet the following requirements:
• Registered capital does not exceed OR50,000 ($129,800) at the beginning of the tax year;
• Gross income is not in excess of OR100,000 ($259,700);
• The average number of employees during the tax year is not more than 15; and
• Taxpayer activities do not include air or sea transport, the extraction of natural resources, banking, insurance or financial services, public utility concessions or other activities to be decided by the MoF after approval by the Council of Ministers. The 3% tax rate is effective for years beginning on or after January 1, 2017 and is coupled with a requirement for small taxpayers to file income tax returns. These enterprises are not obligated to submit a provisional return of income, but the final return of income should be submitted electronically according to the prescribed form.
PETROLEUM INCOME TAX RATE: The tax rate for taxpayers engaged in petroleum exploration is 55% of the taxable income derived from the sale of petroleum. This rate is applied to income determined under the Exploration and Production Sharing Agreement concluded between the exploration company and the government.
Under these agreements, the government effectively pays the exploration company’s tax through amounts withheld from the government’s share of production value earned by the operations.
TAXPAYERS: The law defines the term “taxpayer” as an establishment, an Omani company or a permanent establishment. An “establishment” is a proprietorship registered with the MoCI that independently carries out commercial, industrial or professional activities in Oman.
The term “company” includes all commercial, civil and legal companies, regardless of the nationality of the owners, the purpose of incorporation or the nature of the business activities.
The term “permanent establishment” refers to a fixed place of business through which business is wholly or partly carried out in Oman by a foreign person, either directly or through a dependent agent. A permanent establishment especially includes:
• A place of sale, place of management, branch, office, factory or workshop;
• A mine, quarry or other location of the extraction of natural resources; or
• A building site, construction place or an assembly project where the activity carries on for more than 90 days. Additionally, a foreign person who provides “consultancy or other services” for a period or multiple periods totalling 90 days or more in any 12-month period will be considered as having a permanent establishment, whether or not the services are rendered through a fixed place of business.
The law, however, excludes a fixed place of business from becoming a permanent establishment if it is used solely for the purposes of:
• Storage, display or delivery of goods or merchandise belonging to the foreign person;
• Maintenance of a stock of goods belonging to the foreign person for the purpose of storage, display or delivery, or processing by another person;
• Purchase of goods, merchandise or collection of information for the business; or
• A combination of any of the activities mentioned above, provided that the overall activity of the fixed place of business resulting from the combination is of a preparatory or auxiliary character.
TAXABLE INCOME: Taxable income is any type of income, whether in cash or in-kind, particularly:
• Profit from any business;
• Consideration for carrying out research and development activities;
• Consideration for the use of or right to use computer software;
• Rent for the use of real estate, machinery or other moveable or immoveable property;
• Profit resulting from granting any person a usufruct or right to real estate, machinery or any other moveable or immoveable property;
• Dividends, interest or discounts received; and
• Royalties or management fees. This means that an Omani company is liable for tax on its worldwide income, although it is entitled to claim appropriate credit for taxes paid to foreign jurisdictions on income that is also taxed in Oman.
The law defines taxable income as income accrued after deducting any expenses and allowing for any deductions, offsets or exemptions. In determining taxable income for a given tax year, actual expenses incurred wholly and exclusively for generating gross income are allowed for tax purposes.
DEDUCTIBLE EXPENSES: Expenses are treated as deductible only if they are actually incurred, relate to the business of the taxpayer, are necessary for the production of gross income and are supported by documentary evidence. The following expenses are specifically allowed by the law:
• Expenditures incurred before the commencement of business or registration (subject to limitation);
• Amounts paid to fulfil the dues of employees in accordance with the labour law;
• Social insurance contributions paid to the Public Authority for Social Insurance;
• Approved pension fund contributions;
• Bad debts written off;
• Incidental costs incurred in the acquisition or disposal of tangible or intangible assets;
• Depreciation of capital assets;
• Audit fees;
• Sponsorship fees (for branches and other permanent establishments only): the maximum deduction allowed is 5% of taxable income, calculated before deducting the sponsorship fees and after deducting carried-forward losses; and
• Donations paid to approved organisations (limited to 5% of gross income). Additional deductions are allowed for the banking and insurance sectors. Banks can deduct provisions for loan losses on the basis of recommendations by the Central Bank of Oman.
The executive regulations specify rules for deduction of the following expenses:
• Remuneration paid to the chairman and board of directors of a joint stock company;
• Salaries and similar remuneration paid to a proprietor or a shareholder of an Omani company;
• Rent paid to a proprietor for the use of real property owned by him or her;
• Head office charges of a permanent establishment;
• Bad debts written off; and
• Sponsorship fees paid by a branch of a foreign company. The following expenses are not deductible:
• Any capital expenditure unless specifically allowed by the income tax law;
• Any expense incurred if considered not commensurate to services rendered or consideration given;
• Income tax paid or payable in Oman or elsewhere;
• Any loss where the cost was recovered or compensated (e.g., under an insurance policy);
• Loss from the disposal of securities listed on the Muscat Securities Market; and
• Expenses incurred in earning tax-exempt income.
TAX EXEMPTIONS: The following sources of income are exempted from tax:
• Dividends received by a taxpayer from shares, allotments or shareholdings in the capital of any Omani company; and
• Profits or gains from the disposal of securities listed on the Muscat Securities Market. Additionally, a number of income-generating activities may be exempted from tax:
• Income accruing to any establishment owned by an Omani individual or Omani company from conducting activity in the field of shipping;
• Income from air transport or shipping by non-Omani carriers, provided there is a reciprocal treatment in the foreign person’s home country for the same activity;
• Income accruing to investment funds set up in Oman under the Capital Market Law, or funds set up outside Oman to deal in Omani securities listed on the Muscat Securities Market; and
• Income that accrues to an establishment or Omani company from conducting its main activity in the fields of industry in accordance with the Law for Unified Industrial Organisation of GCC Countries, with the exception that project execution contracts shall be exempted from tax. Exemption from tax shall be granted for a non-renewable period of five years beginning from the date of commencement of production as outlined in the terms, conditions and procedures determined by a decision issued from the responsible minister, and upon approval from the Council of Financial Affairs and Energy Resources.
All establishments and Omani companies exempted from tax have to submit the return of income for the tax year immediately following the last year of the exemption period.
CARRY OVER OF TAX LOSSES: Tax losses may be carried forward by a taxpayer for a maximum of five years to offset future taxable income, but losses may not be carried back.
Net aggregate losses incurred during a tax-exempt period may be carried forward indefinitely for set off against future profits.
Losses incurred by a permanent establishment of a foreign company may be carried forward, but must be aggregated against income from any other permanent establishments operating in Oman that is owned by the same foreign company.
TAX DEPRECIATION: The method of depreciation for capital expenditures is divided into two main categories based on the type of long-term asset. Items are either assessed on a regular basis using the straight-line method or the written-down value method as outlined below.
Depreciation for buildings, ships, aircraft and intangible assets is calculated under the straight-line method at the following rates:
• Buildings constructed with specific material: 4%;
• Quays, jetties, pipelines, roads and railways: 10%;
• Temporary or prefabricated buildings: 15%;
• Ships or aircraft used for business purposes: 15%; and
• Buildings used as hospitals or educational institutions (the taxpayer can choose to depreciate any other buildings like above): 100%. The above rates applied to buildings may be doubled if the structure is used for industrial purposes, excluding buildings used for storage, offices, accommodation for workers or commercial purposes. Depreciation of intangible assets acquired and used in the business shall be calculated by dividing capital expenditure by the useful life of the asset as estimated by the Secretary General of Tax.
Depreciation of the below-listed asset classes is determined on a declining balance or written-down value method. A pooling concept also applies, whereby assets subject to the same rate of depreciation are considered together in calculating depreciation expense:
• Tractors, cranes and other heavy equipment, computers, vehicles, fixtures, fittings and furniture: 33.33%;
• Drilling rigs: 10%; and
• Other plant and machinery not included in the first two categories: 15%.
WITHHOLDING TAX: A 10% withholding tax at source applies to the following categories of income paid to foreign persons, provided the income is not attributed to a permanent establishment of the foreign person in Oman:
• Fees for management services or any other services;
• Consideration for research and development;
• Consideration for the use of or right to use computer software;
• Dividends from joint stock companies; and
• Interest. Companies and establishments that make such payments are required to deduct 10% of the invoice amount and remit it to the tax authorities within 14 days from the end of the month following the month in which the payment is made or credited to the account of the foreign person.
Any ministry, body, public establishment or other public legal person or unit of the administrative apparatus units of the other state that makes such payments should deduct the tax from the total amount paid and submit the same to the Secretariat General of Tax.
The term “royalty” for these purposes includes consideration for the use of intellectual property, including computer software, cinematographic films, tapes, discs or other media, patents, trademarks, drawings and the like. The term also includes consideration for the use of industrial, commercial or scientific equipment; consideration for information concerning industrial, commercial or scientific experience; and consideration for granting rights to exploit mining or other natural resources.
ISLAMIC FINANCIAL TRANSACTIONS: Royal Decree No. 9 of 2017 has introduced provisions to ensure that Islamic financial transactions are taxed in accordance with their fundamental substance in the same way as conventional financial transactions.
Islamic financial transactions include agreements or deals involving financial rights where the parties include a person licensed to practice Islamic financial business – whether banking or other – provided that such a deal or agreement complies in its conditions, effects and other elements with the provisions of sharia law, and does not involve carrying out any other financial transactions.
The following shall be taken into account when determining the taxable income:
• Any amounts received by the person in lieu of interest shall be treated as income;
• Any amounts spent by the person in lieu of interest shall be treated as an expense;
• Any donations that a person is committed to pay can be deducted, provided they meet certain conditions; and
• Provisions for credit losses created by the bank shall be dealt with according to the treatment prescribed for provisions of loan losses, i.e., provisions for loan losses will be treated in the same way as those for regular banks.
TAX YEAR: The tax year is the calendar year, unless permission is granted to use another year. However, a taxpayer’s initial year may be less than or more than 12 months, up to a maximum of 18 months.
TAX CARDS: A tax card system has been introduced where all taxpayers will be issued tax cards and new taxpayers must apply for a tax card at the time of commercial registration. The tax card number must appear on all contracts, invoices and tax authority correspondence. Failure to comply with tax card provisions will lead to a minimum fine of OR200 ($519) and a maximum fine of OR5000 ($13,000).
TAX RETURNS: A provisional return of income should be submitted in the prescribed form within three months of the end of the tax year. Any tax that is estimated to be due should be remitted with this return. An annual return of income must be submitted in the prescribed form within six months of the end of the tax year. The final return should be accompanied by a statement of income as per the form prepared by the Secretariat General.
Any unpaid balance of tax should be paid with the annual return. Failure to pay taxes by the due date attracts interest at the rate of 1% per month until the tax is actually paid. Taxpayers are subject to accuracy penalties ranging from 1% to 25% of the tax on any understated income.
Establishments and Omani companies for which decisions of exemption from submitting the return of income were issued before the publication of Royal Decree No. 9 of 2017 must submit the return of income for the tax year immediately following the year during which the validity of exemption expires.
Tax return forms require detailed information to be provided by the taxpayer at the time of filing, as applicable. The final return of income should be accompanied by original audited financial statements that are signed by an auditor licensed to practice in Oman.
The law requires accounts to be drawn up in accordance with international accounting standards. It specifically provides for accrual accounting unless prior permission of the Secretary General of Tax has been obtained. The accounts must be submitted in local currency unless prior approval of the Secretary General has been granted to submit them in another currency.
Failure to file provisional or final returns within the respective time period may attract a minimum fine of OR100 ($260) up to a maximum fine of OR2000 ($5200). Failure to file the provisional or final returns of income may result in an estimated profit assessment by the Secretary General.
Failure to submit audited financial statements as required under the law is deemed to result in an incomplete final return of income and may attract an estimated profit assessment.
ASSESSMENTS: Investigation of the final returns by the Secretary General shall be conducted via a sample. The Secretariat General of Tax shall furnish the assessment by estimation on any taxpayer for any tax year where:
• The final return submitted does not satisfy the conditions specified for filing returns or is submitted without attaching the accounts of the taxpayer;
• The final returns are not submitted within the time limit; or
• Investigation of the final return reveals non-inclusion of the actual taxable income. The Secretary General is also responsible for completing assessments in cases where a taxpayer submits an application for assessment.
The statutory deadline for assessment of a particular tax year is three years from the end of the tax year during which the final return for that tax year is submitted. In cases of fraud or deception, the time limit for assessment is extended to five years.
If no return is submitted, the time limit for conducting the assessment is five years from the end of the year for which the return is due.
OBJECTIONS & APPEALS: A taxpayer may object to any assessment that is issued by the Secretary General. The objection document must be prepared in writing and filed with the office of the Secretary General of Tax within 45 calendar days from the date of receipt of the assessment.
The Secretary General is required to decide the objection within five months (extendable by a further three months at the Secretary General’s discretion) from the date of receiving the objection.
Filing an objection shall not result in excusing payment of the disputed tax, which remains payable unless a decision to postpone its payment has been made by the Secretary General.
The taxpayer has the right to file a petition against the judgment of the Secretary General of Tax with the Tax Committee of the MoF within 45 days of the date of judgment. The petition should be drawn up and submitted in Arabic.
However, before filing the petition, the taxpayer must pay the tax demanded or include with the petition a request to be granted dispensation from paying the additional tax demanded in the judgment.
The Tax Committee may, when the taxpayer furnishes a bank guarantee, grant such dispensation. In practice, the Tax Committee takes one to two years to issue its judgment.
The taxpayer has the right to appeal against the judgment given by the Tax Committee within 45 days of the date of the judgment. The appeal is to be filed with the Court of First Instance. The appeal should again be in Arabic, and the taxpayer must be represented by an authorised lawyer. However, before filing the appeal, the taxpayer must pay a fee to the Secretariat of the Court.
The final judicial authority is the Supreme Court, and a petition can be filed with this court upon receiving a decision from the Court of First Instance. All proceedings in the above courts are in Arabic.
MAINTENANCE OF RECORDS: The law normally requires accounting records and supporting documentation to be maintained for 10 years from the end of the accounting period for which the income is subject to tax.
RELATED PARTIES & TRANSFER PRICING: The law does not provide detailed transfer pricing regulations or guidance on acceptable methods for determining an arm’s length price.
The law provides that where related persons enter into transactions that result in a lower taxable income or higher taxable loss than would have been the case had the transactions occurred between unrelated persons, the terms of such transactions shall be ignored in computing the taxable income and the tax authority may adjust the terms.
THIN CAPITALISATION: If the debt-to-equity ratio of a business exceeds 2:1 in the case of related-party debt, interest on the excess debt cannot be deducted for tax purposes. This rule does not apply to banks and insurance companies, permanent establishments of foreign companies or proprietary (Omani-owned) establishments operating in Oman.
DOUBLE TAXATION AGREEMENTS: Oman currently has in force or awaits ratification of double taxation agreements with approximately 35 countries, including Canada, France, India, Singapore, the UK, South Africa, China and Italy.
There is no clearly defined procedure for applying double taxation agreements. In practice, a taxpayer seeking to apply such an agreement must approach the Omani authorities for advanced permission. The authorities may then request a residency certificate from the foreign person, copies of underlying agreements and other necessary documentation before deciding on the request.
US-OMAN FTA: The US-Oman FTA came into force on January 1, 2009. Under the agreement, US investors and their investments in non-restricted sectors are granted “national treatment”, as well as “most-favoured-nation treatment” (MFNT) in Oman.
National treatment means that, in similar circumstances, US investors and their investments are afforded no less favourable treatment than that afforded to Omani nationals. MFNT means that, in similar circumstances, US investors and their investments are afforded no less favourable treatment than that afforded to nationals of any other country in Oman. In the case of companies incorporated in Oman, the application of national treatment under the FTA increases the allowed US shareholding to 100% and reduces the minimum capital requirement of the business to OR20,000 ($51,900).
GCC-SINGAPORE FTA: Singapore and the GCC have entered into an FTA that became active as of September 1, 2013. Under the FTA, goods originating from Singapore enjoy comprehensive Customs duty relief when entering GCC countries. Reciprocal treatment is also granted to goods originating from the GCC that enter into Singapore.
The FTA also gives preferential treatment to Singapore citizens, permanent residents and companies, or foreign companies based in Singapore conducting professional service activities such as legal, accounting and engineering services, as well as business services such as construction, distribution and hospital services.
Preferential treatment includes the allowance of 100% foreign ownership in businesses involved in the provision of designated services.
OTHER TAXES: Oman does not currently have value-added tax or sales tax. Other taxes applicable are Customs duties and the following:
• Municipal tax of 5% on hotel and restaurant bills;
• Tourism tax of 4% on hotel and restaurant bills;
• Municipal tax of 5% on property rental payable by the landlord; and
• Labour tax of OR301 ($782) per foreign employee per annum, payable bi-annually by the employer.
CUSTOM DUTIES: Customs duty of 5% of cost, insurance and freight value applies to most non-GCC-sourced goods. Exemptions apply for certain food items and medical supplies, and higher rates apply to certain goods such as wine and spirits.
STAMP DUTY: Stamp duty applies to transfers of land and real property at 5% of the transaction value.
SOCIAL SECURITY CONTRIBUTIONS: A social security contribution of 17.5% is applicable to employees who are Omani nationals, but not to foreign employees. The employee pays a contribution of 7% of his or her salary, and the employer pays the balance of 10.5%. The employer is also required to contribute to insurance for work-related injuries in the amount of 1% of the salary of the employee. This brings the total monthly social security and insurance contributions to be made by the employer to 11.5%. KNOWLEDGE OASIS MUSCAT (KOM) & SPECIAL ECONOMIC ZONES (SEZS): KOM is a business zone dedicated to and reserved for technology and knowledge-based businesses.
Businesses that may be registered to operate in KOM include design, development and application of telecommunications, IT, web, new media, e-learning, e-security, animation, environment, IT training, engineering, high-level technical support or consultancy, and call centre firms.
Enterprises that register with KOM may enjoy certain benefits, including 100% foreign ownership, minimum initial capital required to establish an entity (OR20,000, $51,900), a minimum Omanisation requirement for its workforce (25%) and highly competitive telecommunications rates.
Currently, Oman has three free zones in Sohar, Salalah and Al Mazunah, as well as an SEZ in Duqm.
CURRENCY EXCHANGE CONTROL: Oman’s currency, the rial, is freely traded and has been pegged to the dollar at a rate of OR1:$2.60 since 1986.
The government of Oman does not impose exchange controls, and investors are permitted to freely move rials in and out of the country.
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