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Residential rentals VAT-exempt in Oman


Rentals earned on residential properties in the Sultanate will not be subject to Value Added Tax (VAT) when the new levy becomes effective from April 16, 2021, tax experts have clarified.

According to professional business advisory services firm MMJS Consulting, residential rentals will be VAT-exempt subject to two key provisos: firstly, the rental contract should be registered with the competent authority concerned (Muscat Municipality, for example, if the residential rented property is located in the capital region), and secondly, the rental contract should be for a period of not less than three months.

The impact of VAT on real estate was the theme of a webinar hosted by MMJS Consulting with the support of Tibiaan Properties, a leading Omani real estate company, on Sunday.

Under the VAT Law, real estate is broadly divided into two categories: Bare land – any undeveloped property bereft of any manmade or engineering structure, such as piping, building, cabin and so on; and Developed Land – any property that has some engineering structure on it.

“VAT rates differ for these categories,” said Jay Duseja, Senior Manager. “Bare land is VAT exempt when leased or sold, but developed land attracts 5 per cent VAT when leased or sold.”

Commercial properties when sold or rented are subject to five per cent VAT, according to the tax expert. In fact, VAT becomes a recurring feature whenever the commercial property is rented or sold regardless of the number of times it has changed hands. “It means the landlord has to charge 5 per cent VAT to the tenant on commercial properties,” Duseja noted.

Exempt from VAT however are rentals on residential properties. These are defined as any building or part of a building designed and intended for use as a permanent place residence.

Not covered in this category of VAT-exempt properties are, for example, hotels or hotel apartments, tourist compounds, bed & breakfast style outlets, hospitals, tourist holiday homes, and Airbnb style lodgings, he said.

Significantly, the first sale of residential property is subject to five per cent VAT provided such properties are constructed by professional real estate developers. The same property, if sold onward to another buyer, and so on, will not be subject to VAT again.

VAT on residential property sale is applied only when the transaction is organised by a professional developer. However, if a landowner builds a home for his own use, but later decides to sell it, the sale is VAT exempt, said the tax expert.

The expert urged individuals and businesses that are covered by the definition of the VAT Law to register themselves with the Tax Authority. Non-compliance within the stipulated deadlines can attract penalties ranging from RO 5000 to RO 20,000 with the possibility of penal terms as well. Besides, landlords are required to issue tax invoices to commercial tenants, file their returns on a quarterly basis, and maintain their records for a minimum period of 15 years, he added.

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