Presentation on Oman Tax Law Effective from 2010

Tax registration New tax payers are required to register with the Tax Department within 3 months from the date of incorporation or commencement of activities by filing “Declaration of Business Particulars”. Any modification to the above declaration will need to be communicated within 2 months from the date of change.

Provisional return of income (PRI) When to file returns? Final return of income (FRI) Provisional return of income (PRI) Within 6 months from the end of the Financial Year along with copy of the audited financial statements and payment of balance tax due Within 3 months from the end of the Financial Year along with payment of the tax due Eg: For 31 December year end, the ARI is due on 30 June Eg: For 31 December year end, the PRI is due on 31 March

What is tax year and who is a Tax payer? A tax year and accounting year should be the same and should be for 12 months except in the following cases: First financial year Last year of operations During transition period (maximum of 18 months is allowed) A Tax payer is an Omani Company or a Permanent Establishment.

Permanent establishment (PE) a place of sale, place of management, branch, office, factory or workshop. a mine, quarry or other place of extraction of natural resources. a building site, a place of construction or an assembly project. any foreign person that provides consultancy service or any other services in Oman for a period or periods of not less than ninety days in the aggregate in any twelve months whether directly or through employees. A PE is required to be registered with the SGT and file returns.

Is change in accounting year allowed? Year end other than 31 December is allowed. Change in year ending (Eg: from 31 December to 30 June) is permitted with a prior permission from the SGT obtained before the end of the existing year end.

Can returns be submitted in other currencies? Accounts are usually maintained in Rials Omani (OMR) but also may be maintained in other foreign currency, and ARIs can be filed in the same currency subject to the approval of the Secretary General for Taxation.

Exemption from filing returns The establishment or Omani Company that meets the following conditions is exempt from filing tax returns: The capital entered in the Commercial Register at the end of three months shall not exceed RO 20,000. The gross income of the establishment or Omani company shall not exceed RO 100,000, hundred thousand Omani Rials. The average number of employees during the period shall not exceed eight .

Penalties

Tax rates The Tax rates applicable are as follows: First RO 30,000: Nil tax Any excess of that: 12% Petroleum exploration: 55% Withholding tax: 10%

Illustration – 1 Particulars Amount (RO) Profit 100,000 Less: basic exemption (30,000) Taxable income 70,000 Tax payable @ 12% 8,400

Expenses allowed (deductible) Expenses incurred to generate gross taxable income; Expenses incurred before commencement of business or registration; Salaries and employee costs; Contributions to Public Authority for Social Insurance; Contributions to pension funds; Bad debts; Audit fees; Sponsorship fees; Donations to approved institutions

Expenses disallowed (not deductible) Expenses incurred for generating exempt income; Capital expenditure; Tax payable as per Oman Income Tax Law; Reimbursed costs; Any amounts considered by the SGT to be unreasonable with reference to the value of service rendered; Loss on disposal of securities listed in Muscat Securities Market (MSM).

Incomes exempt from Tax Dividend received from shares/ allotments in an Omani Company; Profits/ gains on disposal of securities listed in the MSM.

Activities exempt from Tax Industrial and mining activities Export of locally manufactured goods Hotels and tourism Farming and processing of farm products Fishing and related activities Education Medical care Exemption is for an initial period of 5 years which can be renewed for a further period of 5 years. In order to avail the exemption, a formal application is to be made and subsequently approved by the Ministry of Finance.

Tax depreciation

Illustration – 2 BUILDING DEPRECIATION – SLM Amount (RO) Cost 1,000 Opening accumulated depreciation 200 Depreciation charge @ 4% on cost 40 Closing accumulated depreciation 240 Closing net book value 760

Illustration – 3 FURNITURE – WDV Amount (RO) Cost 1,000 Opening accumulated depreciation 200 Opening net book value 800 Depreciation charge at 33% on NBV 264 Closing accumulated depreciation 464 Closing net book value 536

Tax assessment Queries from SGT Assessment order (AO) – w1ithin 5 years from filing Partly/ fully disputed items Disputed items Objection to be filed within 45 days Undisputed items Tax payment within 30 days AO accepted

Objections & appeals Objection filed Decision on objection within 5 months/ 10 months Decision refuted Disputed items Tax payment within 30 days and appeal to be filed within 45 days Undisputed items Tax payment within 30 days Decision accepted

Carry forward of losses Tax loss Exempt Company Initial exemption period Tax loss can be carried forward indefinitely until utilized Renewed exemption period Non exempt Company Tax loss can be carried forward for 5 years

Withholding tax (WHT) WHT shall be charged on the following categories: Royalties; Consideration for research and development; Consideration for the use or the right to use computer software; Management fees. This tax shall be charged on the gross amount. The tax payer is obliged to deduct tax from the gross amount paid or credited to the foreign person and shall remit the same to the SGT along with the prescribed form, not later than 14 days from the end of the month in which the amount has been paid or credited, whichever is earlier. Tax rate specified in the Law is 10%.

Other highlights Refunds Applications for refund of excess tax should be submitted within five years from the date of the final assessment. Time limit to preserve documents All accounting records and supporting documents are to be preserved for a period of ten years from the conclusion of the accounting period in which the income is taxable. Related party transactions Related party transactions are allowed as per Law only if the Company can demonstrate that the transactions were at arms’ length.

Chapter 1. Definitions and General Provisions Permanent Establishment Non – Omani Partnership Agreements The Principal Officer

The Principal Officer In relation to an Omani company: Principal officer of an establishment, Omani company, or permanent establishment shall mean: In relation to an establishment, the owner or the manager responsible for the establishment In relation to an Omani company: Partnership or limited partnership: the partner or the manager of the partnership or the limited partnership. 2. Joint venture: any partner or the manager of the joint venture. 3. Joint stock company: The chairman of the board of directors or the manager, authorized by the board. Limited liability company: The chairman of the board of directors or the person responsible for management. In cases of imposing receivership, liquidation or declaration of bankruptcy of the company: The receiver, liquidator or the bankruptcy manger.

The Principal Officer In relation to a permanent establishment: The owner or the manager. Where it carries on the business in Oman through an agent: The agent of the owner of the permanent establishment The foregoing sub-Clause (2) (e) of this Article shall apply in case of situations similar to those specified therein, with respect to the permanent establishment.   In cases of imposing receivership, liquidation or declaration of bankruptcy of the company: The receiver, liquidator or the bankruptcy manger with respect to the permanent establishment .