At a recent tax seminar organized by KPMG in Oman, a senior government official offered insights into Omani income tax law and practices.
Before an audience of over 100 finance and tax professionals representing local and international companies in the Sultanate, His Excellency Saud bin Nasser bin Rashid Al Shukaily, the Secretary General for Taxation and Head of Tax in Oman discussed tax developments related to:
- the Gulf Cooperation Council’s (GCC) progress toward creating a common value-added tax (VAT) framework
- upcoming changes to tax laws and practices
- service improvements for taxpayers.
The Oman government and the other GCC countries are working to develop a common GCC framework for implementing VAT. GCC countries including Oman could implement VAT on their own, ahead of any agreement on a GCC common framework. In this context, His Excellency indicated that VAT could be implemented in Oman by 2016. The current proposals are for a simple VAT system, with a low 5 percent rate, limited exemptions and a high registration threshold.
With help from KPMG in Oman, the Sultanate’s Tax Department is currently looking into incorporating amendments to the Income Tax Law to accommodate Islamic Financing transactions.
Although Oman’s income tax penalty provisions have been in place for a long time, they have not been enforced in practice in order to give taxpayers time to adapt to the compliance process. But now, the Tax Department is taking steps to change this soft approach. His Excellency said the Tax Department likely will start enforcing the income tax penalty provisions in the near future.
For companies with 31 December year-ends, this new approach may apply to the 2012 tax returns that are due by 30 June 2013.
Among steps being taken to improve services to taxpayers, Oman’s Tax Department set up a unit last year to speed the assessments of large taxpayers. His Excellency said that, this year, the Tax Department is implementing a new Tax Management System to enable improved services to taxpayers.
Further, in order to avoid inconsistencies in application, His Excellency reported that the Tax Department has issued departmental guidelines on how tax inspectors should interpret certain Income Tax Law provisions.
Changing tax inspectors for large taxpayers
Due to changes involving tax inspectors at Oman’s Large Taxpayer Unit, many taxpayers will have a fresh pair of eyes looking at their tax returns. The outcome of a change in tax inspectors could be significant because Oman has no concept of self-assessment and the tax authorities audit most returns.
Withholding taxes – Tax Department tightens its grip on software payments
Oman’s Tax Department is closely scrutinizing payments to foreign companies that do not have a permanent establishment in Oman. The Tax Department takes the position that consideration for the use or right to use computer software includes payments made to acquire perpetual licenses of software. Under this position, such payments are subject to a 10 percent withholding tax rate if they are made to companies that do not have a permanent establishment in Oman.
Oman-France tax treaty – WHT applicable on royalties paid to French residents
Due to changes to the Oman-France tax treaty,1 royalty payments made on or after 1 January 2014 will be subject to withholding tax at the rate of 7 percent (previously nil) if the beneficial recipient of the royalties is a resident of France and does not have a permanent establishment in Oman.
1 This change was effected in Article 4 of a new protocol to the Oman-France tax treaty, which was signed on 8 April 2012 and ratified by Oman via Royal Decree no. 44/2012.