Muscat, Feb 16 - New Executive Regulations issued by the Ministry of Finance last week, pursuant to amendments introduced to the Omani Income Tax Law, now expand the ambit of Withholding Tax to include a range of payments, according to tax experts. Withholding Tax is a tax levied on certain types of income that are realized in the Sultanate for any foreign person or entity that does not have a permanent local establishment. The tax typically applies to such payments as (i) Royalties (ii) Consideration for conduct of research and development (iii) Consideration for the use or the right to use computer software (iv) Fees for management or performance of services, and (v) Dividends on shares or interests.
According to the Secretariat General of Taxation, any taxpayer or any ministry, organisation, public institution or other public legal entity or other administrative government unit shall pay or credit in the account any amounts of income referred to above, shall deduct at the rate of 10 per cent of the total amount paid or credited and shall submit to the Secretariat General within a period not exceeding fourteen days from the end of the month in which the payment or the account was made, on the form prepared for this purpose. However, amendments to the Income Tax Law, introduced via Royal Decree 9/2017 dated February 27, 2017, have effectively widened the categories of payments subject to Withholding Tax to include dividends, interest and fee for services.
“The amendments provided definition of dividends and interest and confirm the position already being followed by the Oman tax authorities in practice,” said PwC, leading audit, tax and consultancy services provider, in an explanatory note on the Executive Regulations issued by the Ministry of Finance vide Ministerial Decision 14/2019 last week. “Under the amended Executive Regulations, Withholding Tax on dividends distributions will apply only to joint stock companies and mutual funds. Therefore, Withholding Tax is not applicable to dividends distributed by limited liability companies. Interest has been defined to include any amounts obtained through debt, advances or any arrangement of financial nature, with or without guarantee or profit share and includes income accrued from bonds, instruments and amounts obtained as compensation on interest,” PwC stated.
Significantly, the Executive Regulations offer clarity with regard to certain types of service permits that are not subject to withholding tax. These payments include: (i) Participation in organisations, seminars, conferences, or exhibitions; (ii) Training (iii) Freight charges and insurance on it (iv) Air tickets and reimbursement (v) Board of director meetings (vi) Reinsurance payments, and (vii) Any services related to an activity or property outside Oman.
According to global professional services firm EY, the Executive Regulations clarify the treatment of returns generated by certain Islamic Finance products, while excluding certain payments from Withholding Tax. Excluded from the scope of the tax are: Interest paid on amounts deposited in banks located in Oman, and proceeds of bonds and sukuk issued by the government or banks located in Oman. Also omitted are the “benefits of transactions and facilities between banks for the purpose of providing and managing liquidity or financing, where the term for repayment of the debt does not exceed five years”, said EY.
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