Chapter – 3 setoff and carry forward of losses Chapter outcomes: Meaning of set off and carry forward of losses; Meaning of net loss; Rules of set off and carry forward of losses; Transfer of ownership of capital assets; Exempted incomes; Avoidance of double taxation; Tax Returns; Payment of taxes Tax collection Practical exercises;

Meaning of set off and carry forward of losses Set off and carry forward of loss is the process in which the losses incurred for any tax year of the tax payer shall be carried forward to the following tax year and deducted from the taxable income for that year and the subsequent years until the entire loss is set off. In case the loss is incurred for more than one tax year, the deduction of loss shall commence from the earliest tax year.

Meaning of net loss For the purpose of income tax, net loss means the excess of the total amount of losses incurred during the first five years of the exemption period specified for any establishment or Oman company in accordance with Article 118 of Oman Income Tax Law. Loss or exempted income shall be computed in the same manner as the taxable income is computed

Rules of set off and carry forward of losses Where a foreign person carries on several businesses through permanent establishments, the loss which is incurred in any tax year from carrying on any business, may be carried forward and deducted from the net profit of other business during the same tax year; When the net result of the various business carried on by a tax payer is a loss, such a loss can be carried forward and set off from the net profit of subsequent years not more than 5 years; When the loss of any year is not set off with in the stipulated 5 years, such loss can be carried forward and set off during the subsequent years, with a special permission from the ministry of taxation

Provision concerning transfer of ownership of assets following the transfer of business When any capital assets are transferred by a foreign company to Omani Company, the following rules are applicable: The transferee company shall have the right to choose whether the provisions of this section or the other provision of this law to be applied to the assets or to the pool of assets; To exercise the option, the transferee shall sent a notification to the department of taxation with in a period of 6 months; The option once made cannot be revoked

Exemption for certain categories of income The following incomes are exempted from tax while computing the taxable income of a tax payer: Dividends received by the establishment, Omani company or permanent establishment from shares, allotments or shareholding it owns in the capital of any Omani company; Profits and gains from the disposal of securities listed in the Muscat Securities Market

Avoidance of double taxation The government of Oman may enter into agreements with the governments of any other countries for the purpose of avoiding double taxation in relation to income. According to the provision of double taxation, when any tax payer in Oman has paid any foreign tax in respect of the income which was charged to tax in the country with which Oman has concluded tax agreement, such tax paid will be deducted from the net tax payable in Oman by the tax payer.

Tax returns There are two kinds of tax returns application to the tax payers in Oman: Provisional return: The provisional return shall be prepared on the basis of the information available at the date of preparation of that return. If this information is not available, the taxable income shall be estimated on a reasonable basis. The tax due as per that return shall be computed as per that information 2. Final return: Final return for any tax year shall be filed before the expiry of a period of six months which begins from the ending date of that year, or the ending date of the accounting period for which the return is prepared or if there is more than one accounting period – with the ending date of the last accounting period

Payment of tax The following rules are application for the payment of tax: Tax payable as per the provisional return shall be paid on the date specified for filing this return; The tax payable as per the final return shall be paid on the date specified for filing the final return, after deducting the tax payable as per the provisional return; The tax payable as per the assessment for any tax year, shall be paid for that year, to the extent it exceeds the tax payable as per the final return for that year; The owner of an establishment or the owner of a permanent establishment or Oman company shall be liable to pay the tax to the Secretary General on the time fixed

Tax Collection The following rules are application for collection of tax: If the tax payable and due is not paid on the fixed date, it shall be forcibly collected by following the procedures stipulated for administrative enforcement under the system of collection of taxes; An additional tax shall be charged at 1% per month of the outstanding amount of the tax payable and due but not paid by the due date for payment for the period during which this tax remains unpaid; The government’s right to collect the tax shall lapse after seven years starting from the date on which it becomes due and payable in accordance with the provisions of this law.