1. Chapter-2 Federal Taxes and Levies In sultanate of Oman, income tax is not charged on the personal income of any individual. However, joint stock companies are liable for income tax as per the regulations of tax laws. The net taxable assessed income of a company is subject to the following tax rate structure: 1. Entities wholly owned by Omanis or where Omani shareholding in the capital of a company is 51% or more: The first RO 30,000 of the taxable income is exempt; Taxable income over RO. 30,000 is taxed at a flat rate of 12%; A rate of 12% will be applicable to General Joint Stock Companies irrespective of the extent of foreign shareholding Income earned by joint investment accounts/mutual funds registered in Oman under the capital market laws or established overseas for dealing in shares and securities listed on Muscat Securities Market is exempted from tax

2. The applicable tax rates for a branch of a foreign company from tax year 2001 is as follows Taxable Income Tax Rates 0 to 5,000 0% 5,001 to 18,000 5% 18,001 to 35,000 10% 35,001 to 55,000 15% 55,001 to 75,000 20% 75,001 to 100,000 25% Above 100,000 30% The entire taxable income is taxed at the percentage rate corresponding to the income bracket into which the total income falls. The company is however subject to a relief where the taxable profits fall marginally into a higher bracket.

3. Petroleum companies Special provisions are applicable to taxation of income derived from sale of petroleum. The tax rate is 55% since 1970. Oman LNG Company LLC is subject to a special tax rate of 15% as per provisions of Royal Decree No. 95/96. Companies carrying out the following specified activities will be exempted from tax only to the extent of the income arising from the specified activities: 1.Industry in accordance with the law of organizing and encouraging industry and mining; 2.Exportation of locally manufactured or processed products; 3.Promotion of tourism which may include setting up and operations of tourist hotels and villages with the exception of management contracts; 4.Dairy farm products and processing of the same which may include livestock breeding, processing or manufacture of livestock products and agricultural industries

4. Fishing and fish processing; Utilization and rendering of services like the public utility projects with the exception of management contracts and project execution contracts The exemption from tax for companies engaged in the above activities will be operative for a period of five years effective from the data that activity or production activity commences. This period of exemption may be further extended for a period not exceeding five years provided that a decision is issued to that effect by the Financial Affairs and Energy Resources Council. Companies engaged in the above activities are allowed to indefinitely carry forward their losses and deduct it in subsequent years until losses are fully absorbed. Income earned by establishments whose main activities are in areas of education, colleges, higher institute. University education, private schools kindergarten, training colleges, and private hospitals will be exempted from income tax.

5. Capital Gain: Capital gains are normally regarded as part of ordinary corporate income and the total income is taxed at applicable tax rates. With effect from January 1, 2003, profit made on sale of securities listed on Muscat Securities Market is exempt from tax. Also the loss, if any, will not be allowed as a deducible expenses. Branch Profits Tax: Branches of foreign companies are taxed in Oman on income realized or which has arisen in Oman. There is no separate Branch Profits Tax in Oman. Allowance for allocated head office expenditure is on restricted basis. Consumption taxes: Consumption taxes include the following: On annual rental of leased premises and cinema tickers : 3% Electricity bills in excess of RO 50 2% Hotels and restaurant bills 5%

6. Municipal taxes are payable in the Muscat and Salalah municipalities. The taxes charged in the Muscat municipality are as follows: Hotel income 5% Property rents 3% Leisure and cinema income 10% Tax on home owners using the drainage 10% Vocation training levy: Ministerial Decision 84/98 specifies the vocational training levy on employers at private sector at RO 100/ annually per expatriate employee. The decision is effective from 8 th March, 1998. Social security premium: Employers are required to pay a social security premium equal to 17% of the salaries of its Omani employees. Of this amount, 6.5% is receivable from the Omani employees.

7. Q. A foreign company along with the Omani stake, performs different activities. Activity in % 1. Local Manufacturing is 40% 2. Dairy product/processing10% 3. Other production (Taxable)50% The gross total income is RO 345,000 Find the taxable income, tax exemption & tax liability for the given year. Ans. Gross total incomeRO 345,000 Less: Exemptions 345,000 x 40/100RO138,000 345,000 x 10/100RO 34,500 172,500 RO 172,500

8. Tax Liability Taxable Income172,500 Upto RO 5,000 5,0000 167,500 5,000 to 18,000 (13,000 x 5%) 13,000650 154,500 18,000 to 35,000 (17,000 x 10%) 17,0001,700 137,500 35,000 to 55,000 (20,000 x 15%) 20,0003,000 117,500 55,000 to 75,000 (20,000 x 20%) 20,0004,000 97,500 75,000 to 100,000(25,000x25%) 25,0006,250 72,500 More than 100,000(72,500x30%) 72,500 21,750 0 Tax liability 37,350

9. Q. A company provides following detail from its books of assets: MachineryRO 12,200 Motor vehicles 9,000 Furniture & Fixtures 7,500 Building with solid structure 37,000 Old and less solid structure building 15,500 Calculate the allowable depreciation.

10. Answer: Calculation for Allowable Depreciation: Machinery12,200 x 33.33%RO 4,066 Motor vehicles9,000x 33.33% 3,666 Furniture & fixtures7,500 x 33.33% 2,499 Building with solid structure37,000x 2.5% 925 Old and less solid building15,500x15% 2,325 TOTAL ALLOWABLE DEPRECIATIONRO13,481

11. Q. From the books of foreign company, following detail are given: The gross total income for the financial year is RO 288,000 out of which 30% of its operations are from exporting of locally manufactured goods. The details of its assets : Equipments RO 13,500 Motor vehicles 9,000 Furniture & fixtures 4,800 Building with solid structure 40,000 Old & less solid structure 20,000 Calculate the: 1.Allowable depreciation 2.Tax liability of the company.

12. Gross total incomeRO 288,000 Less: Exemptions 288,000 x 30% 86,400 RO 201,600 Less: Deductions Equipments13,500 x 33.33% 4,499 Motor veh.9,000 x 33.33% 2,999 Furniture & Fix4,800 x 33.33% 1,599 Building solid struc. 40,000 x 2.5% 1,000 Old less solid 20,000 x 15% 3,000 Allowable Depreciation 13,097 Income after depreciation( Taxable Income) 188,503

13. Tax Liability Taxable Income188,503 Upto RO 5,000 5,0000 183,503 5,000 to 18,000(13,000 x 5%) 13,000650 170,503 18,000 to 35,000(17,000x10%) 17,0001.700 153,503 35,000 to 55,000(20,000x15%) 20,0003,000 133,503 55,000 to 75,000(20,000x20%) 20,0004,000

14. What are the Public( Government )Expenditures? The government needs money to pay public expenditures such as: 1.Construction of roads, rail and other public transport system. 2.Construction of bridges, airports, ports. 3.Education of people 4.Health services to its people 5.Housing facilities for the poor people 6.Defense 7.Development of industrial & agriculture sector 8.Water, electricity services, telephone and telecommunication 9.Municipality services 10.Maintenance if law and order.

15. Sources of Government Income: A governments main source of income is usually in the form of taxation on its various activities, such as- 1.Importing,& exporting, 2.Income tax, both personal and corporate. 3.Sales tax. 4.Charging for services, such as water. electricity, municipality services, public transport, medical services. 5.Borrowings/ loans, 6.Selling state owned assets, gold, & land. The government spends this money on a variety of items.

16. Aims of Taxation ( Uses of tax system):- 1.To raise ( collect ) money to pay for government spending :- government needs money for providing different goods & services to people such as education, medical, housing etc. Taxation is the main source of collecting money for such purpose. 2.To discourage people from buying harmful goods :- government look after the welfare of the people. Hence many countries impose taxes to discourage people from consuming those goods which are harmful to their health for example alcohol, cigarettes etc. 3.To influence the level of total demand in the economy :- when government wants to increase demand in the economy, it can reduce taxes, so the goods are cheaper and more goods are purchased. 4.To redistribute income from the rich to the poor :- when rich are taxed, this money is collected by the government and spend on services such as education, medical, housing etc. for the welfare of the general public of the counrty.

17. Reasons for Tax reforms in Oman :- The following are the reasons of Tax reforms in Oman : 1.Oman has become a member of the WTO and in a bid to fulfill WTO commitments and to encourage foreign investment the tax reforms had to be introduced. Oman wants to encourage trade relations with different countries. Oman also has plans of developing the non-oil sectors of the economy such as Gas, agriculture, fisheries, tourism etc. in order to diversify the economy. 2.The uniformity of tax rates between wholly foreign owned entities and wholly Omani owned entities is revolutionary and has been driven principally by the following two factors : (a) attract foreign investment; (b) removing different tax rates between different countries by signing double tax treaties. 3. Government wants to encourage capital market activities and encourage investment by companies in securities ( shares & bonds)

18. 4.Government wants to promote the non-traditional sectors of the economy such as education & health services. 5.Government wants to encourage more GCC nationals to invest in different sectors of the economy.