The year 2021 was a momentous and remarkable milestone for the tax regime in the Sultanate of Oman, with the introduction of Value Added Tax (VAT) from April 16, 2021. The completion of one year since the implementation of VAT has been marked by several key developments for businesses and individuals alike, as we see that guidance on the law continues to evolve.
In its first year, VAT and other taxes contributed to raise the government revenue by 29.6 per cent as of February 2022, when compared to 2021. Further, taxpayers in Oman have witnessed various key developments.
• The Tax Authority (TA) staggered the mandatory VAT registrations in four phases for smooth implementation across the country. Starting with businesses having annual supplies greater than RO 1 million that were mandatorily required to register from April 16, 2021, the last phase of registration required businesses having annual supplies of more than RO 38,500 to register before February 28, 2022 and implement VAT from April 1, 2022 mandatorily.
• VAT Registration and Compliance were also required to be done by individuals, government entities, ministries and Non-Profit Organisations, having annual taxable supplies like commercial rental income, sale of goods, etc., exceeding the mandatory threshold of RO 38,500 per annum.
• The list of food items subject to VAT at 0 per cent was increased from 93 basic food items to an extensive list of 513 food products, which is by far the highest in GCC and kept in best interest of the residents. The Consumer Protection Authority (CPA) has also issued directives for the labelling of such products with 0 per cent VAT for greater transparency to consumers.
• Four free zones within the Sultanate of Oman were classified as ‘Special Zones’ for VAT, wherein supplies made to these zones would be subject to 0 per cent VAT based on certain conditions, to promote foreign investment and the companies in the said special zones.
• Supply of oil, oil derivatives and natural gas was classified under zero-rating of VAT including the procurements made by the operators for upstream and midstream sectors.
• A facility for the postponement of Import VAT was introduced for Taxpayers, benefiting Importers by mitigating the cash-flow due to VAT and administrative challenges faced during import of goods in Oman.
• The Tax Authority (TA) provided blanket approval to all taxpayers for the issuance of ‘Simplified Tax Invoices’ for all supplies below RO 500 by mere submission of intimation and samples with TA.
• Sector-wise guidelines have been issued by the TA for the benefit of businesses in the Oil & Gas, Real Estate, Education and Logistics sectors and various awareness sessions are organised in various governorates.
As we enter the second year of Oman’s VAT journey, it will be increasingly important for businesses to remain proactive and play an active role in ensuring compliance with VAT requirements. Based on our experience across the GCC, here are some of our key takeaways for businesses as we move forward:
• Entities, especially SMEs and Individuals to analyse the applicability of VAT on various types of income and expenses and register if the mandatory threshold is crossed, to prevent late registration and non-compliance.
• Issue valid tax invoices with all the required details to customers. Your tax invoices impact your brand value in the market.
• Ensuring that the ERP is optimised from a VAT perspective to apply the correct VAT rate (5 per cent, 0 per cent, Exempt, Out of Scope) and to enable the generation of compliant tax documents and reports.
Speaking about the importance of tax compliance, Surandar Jesrani — Group Managing Partner & CEO of MMJS Consulting encourages companies to take the benefit of learnings of VAT implementation in other GCC member states, build robust tax policy and processes and to make the best use of technology. Further, he suggests the principal officers/responsible persons of the company to conduct a VAT health check on regular intervals to ensure that the various compliances are done correctly by their company.
Nasser al Khamisi, Country Partner at Morison Muscat, suggests that taxpayers must make sure to receive and retain valid tax invoices from their suppliers while paying 5 per cent VAT on their procurements for claiming Input tax where eligible.
In case 0 per cent VAT is charged on export of goods and services or any other type of supplies, companies must maintain sufficient evidence and must ensure all conditions of zero-rating are fulfilled. Otherwise, 5 per cent VAT becomes applicable as local supplies along with additional tax of 1 per cent per month at the time of VAT assessments.
Companies which are export oriented or dealing majorly in zero-rated supplies need to evaluate the option of Import VAT postponement for better cash-flow management.
If any Oman-based entity has paid 5 per cent VAT in the UAE, they may explore the UAE VAT Refund scheme to save 5 per cent cost of UAE VAT on their procurements.
VAT-registered persons must file VAT returns and make payment of VAT due in time and maintain records for a minimum of 10 years /15 years as applicable with reconciliation of VAT returns and financial statements for VAT audits.
Businesses will have to gather voluminous data behind every return, structure it for the purpose of audit, maintain reconciliations, document trails etc. It is imperative that businesses review their tax positions and suo-moto rectify mistakes prior to starting the audit.
• Track regular updates in VAT laws and regulations and implement the same efficiently and seek guidance or clarification in case of ambiguity in interpretation of the law;
• Implement maker-checker processes before sign-off to strengthen internal control systems and procedures;
• Conduct regular VAT training sessions to update the internal teams on the latest VAT developments. (Jay Duseja is Senior Manager — Tax at MMJS Consulting team)
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