TAX EXEMPTIONS TO MANUFACTURERS FOR 5 YEARS
By Conrad Prabhu — MUSCAT: Feb 26 – Tax payers in the Sultanate will be required to obtain a tax card from the authorities bearing a unique number that shall be cited on all contracts, invoices and official correspondence. The measure is mandated under the amended Income Tax Law promulgated by Royal Decree 9/2017 last week and published in the Official Gazette yesterday. It is part of a raft of sweeping changes to the tax code with significant ramifications for many aspects of business life in the Sultanate, according to a leading Muscat-based tax consultants.
According to Ashok Hariharan, Head of Tax — KPMG Lower Gulf, the amended tax law provides a tax card to be obtained by a tax payer, which will be valid for a specified period and would need to be renewed thereafter. An application for a tax card has to be submitted when the tax payer initiates the procedures for registering his commercial activity with the relevant authorities.
“The tax card number has to be mentioned on all contracts, invoices and correspondence of the tax payer. Ministries, Government bodies, other units of state owned apparatus and companies owned by the government to the extent of at least 40 per cent are required to ensure that a copy of the tax card is obtained by them before dealing with any tax payer. Further all documents relating to transactions by that person with the Government entity should be accompanied by a copy of the tax card. The government entity is obliged to notify the tax authority of the non-compliance of this provision within the time to be stipulated in the Executive Regulations,” the tax expert said.
Additionally, the revised tax code significantly enlarges the tax base by taxing any foreign person (natural or legal person) who is not carrying on any activity in Oman through a permanent establishment in respect of dividends on shares of joint stock companies, interest and fees from provision of services. According to KPMG’s Hariharan, the Oman income tax law previously imposed a 10-per cent tax on foreign persons not carrying on activities in Oman through a permanent establishment on income realised in Oman from the following: Royalties including rental income from industrial, commercial and scientific equipment; research and development; use or right to use computer software; and fees for management.
Royal Decree 9/2017 now extends this tax to income realised from the following: Fees for provision of services; dividends from shares of joint stock companies and interest, he said.
“The tax is 10 per cent on the gross amount and is to be deducted at source by the tax payer in Oman and remitted to the tax authority; this obligation to deduct and remit tax has now been extended to ministries, government bodies and other units of the state administrative apparatus,” the tax consultant noted.
Also, as indicated earlier, the revised law scraps the tax free threshold of RO 30,000 ($78,000) previously available to tax payers who carry on activities in Oman through an establishment, Omani company or permanent establishment of a foreign person. It raises the tax rate on such persons from 12 per cent to 15 per cent but provides a significantly lower rate of 3 per cent to very small tax payers who meet specified conditions. This change is effective for all financial years beginning on or after January 1, 2017, said Hariharan.
Furthermore, the amended tax code lifts tax exemptions previously available to income arising from mining, export of locally manufactured goods, operation of hotels and tourist villages, agriculture, animal produce, fishing, education and medical care. Exemptions to manufacturing companies are now available only for a period of five years, he stated.
Giving his take on the broader implications of the amended tax code, Hariharan added: “The amendments should enhance revenues from taxes but will increase the cost of doing business in Oman. Taxes on dividends and interest earned by foreign tax payers will reduce their return on investment and could increase the cost of borrowing.
There is also a thrust on greater compliance with stricter penalty provisions being introduced. The move towards a self-assessment system is a sign of trust on the part of the Government in tax payers who comply with the tax laws.”