Published in the March 2009 issue of Business Today
http://www.businesstoday.co.om/disCon.aspx?Cval=396
Taimur Malik
| Whilst it is correct that there is no tax on personal income in Oman, businesses have been subject to taxation for some time now. Nonetheless, the legal regime relating to taxation is still very favourable for businesses in the present global context and provides various incentives for new businesses and foreign investment in the sultanate.The two important laws in this respect are Royal Decree (RD) 47/81 (the ‘Law of Income Tax on Companies’) and RD 77/89 (the “Law of Profit Tax on Commercial and Industrial Establishments”).
Law of Income Tax on Companies
According to the Law of Income Tax on Companies, tax is to be charged for every tax year on the taxable income of any company which has been realised in Oman or has arisen in Oman…in relation to(i) profits of or gains from (a) any business, (b) any right granted to any individual to benefit from or utilise any land; (ii) interest and liabilities; (iii) royalties; (iv) rent from plant, machinery and equipment; (v) management fees and fees collected for transfer of technical expertise or for research and development; (vi) any money considered as income under the Law of Income Tax on Companies; and (vii) income from any other source. As an exception to the above, tax is not applicable on dividends that a company receives against its stocks, shares or contributions in shareholding of any other company and the profits or gains that a company generates from the sale of securities registered on the Muscat Securities Market.
Income chargeable to tax has been defined as the gross sum of revenues less allowable deductions. A very wide definition of the term ‘company’ has been provided in the Law of Income Tax on Companies and in addition to commercial companies it extends to ‘any establishment of a permanent nature in Oman’ such as a place of sale or management and branch offices. All allowable deductions, such as business costs or depreciation and the permitted depreciation rates are set out in the Law of Income Tax on Companies.
For non-resident parties dealing with Oman, particular care is needed in relation to supply and installation contracts, to agreements for know-how and management services and to leasing agreements for plant and equipment, so as to minimise the risk that a commercial activity may be deemed to be carried on in Oman. Law of Profit Tax on Commercial and Industrial Establishments
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| Withholding Tax Withholding tax is payable by foreign companies which do not have a permanent establishment in Oman (and are not, therefore, subject to the Law of Income Tax on Companies) but which derive income in Oman from (a) royalties (as a one-off or a series of payments); (b) management fees; (c) lease of machinery or equipment; (d) payment for transfer of technical expertise; and (e) payments for research and development. A uniform rate of ten per cent is charged on gross amounts paid to such companies.The local business entity making the payment is responsible for deducting withholding tax and paying it to the Tax Department. This must be done within 14 days of the end of the month in which the tax is deducted or payment is due or is made to the foreign entity. Legal Reserve & Social Security
Joint stock companies and LLCs must set aside ten per cent of their net profits as a legal reserve annually until the reserve reaches one-third of the company’s share capital and this reserve is not available for distribution. The Social Insurance Law (Royal Decree 72/1991) is applicable to Omani employees working in the private sector and falling within the 15 to 59 age group. This Law also authorises the constitution of the Public Authority for Social Insurance (PASI). The employer, employee and the Treasury are required to contribute eight per cent, five per cent and eight per cent respectively of the basic salary earned by the employee. Every employer must pay a further one per cent of the total basic salary of the employees every month to PASI as security against occupational injuries and diseases.
Double Taxation Treaties
Another aspect which should be considered by businesses and individuals is the existence of any relevant avoidance of double taxation treaty. The sultanate has entered into such treaties with many countries including Egypt, Turkey, France, Singapore, India, Pakistan, the United Kingdom, Tunisia, China, Italy, Mauritius, Thailand, Yemen, Lebanon and Canada. |