The Omani tax regime has been considered to be both reasonable and pragmatic in its dealing with taxpayers. The tax system has undergone important changes reflecting the government policy of opening up the economy to foreign investment, and more changes are forthcoming. By and large, taxation is moderate because many of the government’s revenues are oil revenues. Therefore, Oman levies no personal income tax, estate tax or gift tax. All entities, both foreign and locally owned, are taxable in Oman.The most important tax in Oman is the tax on business income, which is based upon the Corporate Income Tax Law of 1981 and subsequent Royal and Ministerial Decrees. Taxable entities are entities that have a permanent establishment in the country, so that any entity that has personnel present in Oman is taxed. Taxable income includes business profit, interest, royalties and capital gains, and is computed on the net income arising in Oman or deemed to have risen in Oman after deducting all ordinary expenses, such as expenditure incurred in producing the gross revenue, bad debts, auditors’ fees, depreciation, head office expenses, sponsorship fees and certain donations. Losses may be carried forward for up to five years.
Beginning in 1999, the government no longer required minority foreign-owned joint ventures to include a publicly traded joint stock company listed on the national stock exchange.
The tax rates vary in accordance with the amount of taxable income and the percentage of Omani ownership. Tax holidays granted under the investment incentives laws also provide a reprieve.
Minority foreign-owned joint ventures are taxed at the national corporate rate of 12 percent. Majority foreign-owned joint ventures with Omani participation are taxed at a maximum 25 percent. And wholly foreign-owned companies are taxed at maximum of 50 percent.The government offers foreign investors various incentives, including a five-year tax holiday for companies engaged in industry, mining, tourism, fishing, agriculture, and public utilities; national tax treatment and an income tax reduction for joint ventures with at least 51% Omani ownership.
In October 1996, by Royal Decree 87/96, the Law of Income Tax on Companies was amended by Royal Decree 87/96, and the Law of Profits on Tax on Commercial and Industrial Establishments (applicable to Omani companies in which there are foreign participants) was amended by Royal Decree 89/96. These amendments, among other things, substantially reduced the tax rates applicable to Omani mixed public joint stock companies, as follows:
To qualify for these reduced tax rates, at least 51 percent of the share capital of the mixed entity must be held by Omani nationals, and at least 40 percent of the share capital must have been offered to the public. The amendments provide that the shareholdings of foreign companies’ branches are to be included in the calculation of Omani shareholding, thus encouraging foreign companies to hold shares in Omani public joint stock companies.
In entities other than public joint stock companies in which there is foreign participation of not more than 90 percent, the amendments provide the following tax rates shall apply:
Omani companies having foreign participation exceeding 90 percent are subject to the prevailing tax rates prior to the enactment of the amendments.
Royal Decree 89/96 amended the Profits Tax on Commercial and Industrial Establishments Law that is applicable to Omani companies in which there is no foreign participation. The amendment provides that, under certain circumstances, those tax rates will continue to apply to the entity even if some of the shares are held by a branch of a foreign company, a foreign company or a mixed Omani company established under the Foreign Business and Capital Investment Law.
The amendment also grants a tax exemption to entities owned or used by Omani nationals. To qualify for the exemption, the entity must be engaged in certain sectors of business activity or organized under the Law on the Organization and Encouragement of Industry, and the exemption is valid for five years from the date production commences unless renewed for an additional period of not more than five years.As of the 1996 tax year, certain payments made by Omani businesses to foreign companies that do not have a permanent establishment in Oman are subject to a withholding tax, introduced by Royal Decree 87/96. The withholding tax applies to payments such as royalties, management fees, machinery and equipment rentals, payments for the transfer of technical expertise or for research and development. The withholding tax is levied at a rate of 10 percent of the gross payments made. Foreign investment projects are exempt from tax on profits for a period of five years, effective from the date of establishment. An additional five-year income tax exemption may be granted. Moreover, foreign investment projects may be exempt from customs duties on imports of machinery and equipment required for their establishment. Raw materials required for the production of products unavailable in Oman are also exempt from customs duties. The exemption from customs duties on such products is given for five years from the production date and may be renewed once more for another period of five years.
The above exemptions are also applicable to new extensions in projects. The Capital Investment Law defines “extensions” as the increase in capital which is utilized for adding new fixed capital assets which results in increase in the production capacity of the project and which aims at producing or providing new activities or services.Oman imposes other taxes as well. These include:
Labor Levy: This levy is applicable to all business entities. Rates up to 6 percent of Gross Employees’ salaries.
Social Security Levy: This levy is applicable to all business entities employing Omani nationals. The employers contribute 9 percent of gross employees salaries, the employees contribute 5 percent of gross employees’ salaries.
Customs Duties: These duties apply to all importers. Mostly, they are of 5 percent of CIF value charged for most goods. Certain essential goods are exempt (e.g. gold, silver bullion, seeds, live plants, refined petroleum products, books, various foodstuffs). Special 100 percent duties apply to alcoholic beverages, tobacco and pork products. With a few exceptions, goods produced in GCC states enter Oman duty-free.