Oman Tax Update

Implications of the
recently-issued
Executive Regulations

Executive Regulations of the Income Tax Law

The long-expected Executive Regulations which form
part of the New Income Tax Law of Oman (Royal Decree
No 28/2009) effective from tax year 2010, have been
recently issued. The New Regulations come into force
from the tax year 2012 and will apply to all accounting
years ending after January 1, 2012. The provisions
dealing with payment and collection of taxes due,
notification of tax payers data to the Secretariat General
for Taxation (SGT) and tax exemptions shall, however,
apply from January 29, 2012.
These Executive Regulations shall be considered as an
inseparable part of the Income Tax Law and they
provide clarifications and specify guidelines and rules in
relation to the provisions of the Income Tax Law.

The New Regulations come into force

from the tax year 2012 and will apply
to all accounting years ending after
January 1, 2012
However, in the implementation of the Executive
Regulations, the previously issued Ministerial Decisions
No. 9/83, 91/84, 92/84, 43/86, 23/89, 70/97, 51/98,
93/2000, 13/2005 and 46/2005 are now repealed along
with any provision which contradicts these Regulations
and are replaced by the Executive Regulations.
The Executive Regulations are divided into Eight
Chapters; each Chapter contains sub articles detailing
various requirements. The Executive Regulations are
likely to have a significant effect on the tax payers
obligations relating to tax registration, tax filing

2 Oman Tax Update

requirements, tax assessments and dealings with the tax

authorities. A brief summary of the various chapters of
the Executive Regulations is provided below.
Highlights of changes and new provisions
introduced
Specific conditions issued for a dependent agent of
a foreign company;
Introduced a list of professional activities requiring
tax registration;
Clarification on deduction of expenses i.e. only those
expenses which are incurred and necessary for the
purpose of productions of gross income; conditions
laid down for claiming bad debts expenses;
Head office overheads deduction based on average
of past years deleted;
Restrictions on sponsorship fees deduction
conditions laid down for claiming sponsorship fees;
Detailed guidelines issued on deduction of interest
expenses, limits interest expenses only to borrowings
used as working capital and not for financing or
increasing capital;
Capitalization rules introduced for deduction of
interest expenses on related party borrowings (i.e.
Debt: Equity = 2 : 1);
Clarification on accounting and tax treatment of leases
to be consistent in accordance with IAS and IFRS;
Clarifications issued on criteria and process of
obtaining tax exemptions (Note The new process
remains in line with the existing process), however,
there are restrictions on renewal of exemptions;
Introduced new tax filing requirements, exemptions
from tax filing and submission of financial statements;
Introduced additional information requirements in the
returns; and
Introduced strict rules in assessment proceedings
including provisions of onsite inspections at tax
payers locations.

Chapter 1 General definitions and rules

In implementation of the provisions of the Executive
Regulations, the key words and terms will have the same
definition as prescribed in the Income Tax Law. Further,
this chapter also provides for tax treatment of citizens of
GCC countries in accordance with the Economic Treaty
signed by the GCC Supreme Council in 2001.

medical analysis, accounting and auditing, veterinary,

engineering with all its branches, architectural advisors,
advocacy and legal consultancy, administrative and
economic consultancy, know-how before the courts and
before administrative authorities or other unites i.e. field
experts, painting, photography, sculpture and
translation.

Chapter 2 Tax Payers

This chapter defines Tax Payer and provides for rules
determining who is covered by the definition.

Those ministries and government bodies which are

authorized to issue licenses for carrying out above
mentioned professional activities and register such
professional activities shall provide details of a list of
licenses issued, renewed, expired, canceled or
suspended to the Secretary General for Taxation (SGT).

Part I of this Chapter covers tax payers which include an

Omani establishment, an Omani company and a
permanent establishment.
Foreign person A foreign person realizing income in
Oman, in the nature of royalties; consideration for
research and development; consideration for the use of
or right to use computer software; and management
fees, without a permanent establishment, shall be liable
to tax.

Chapter 3 Rules determining registration of

tax payers
Part I of this Chapter lays down the registration
requirements of tax payers with the SGT. The Executive
Regulations provide that the tax payers are required to
register with the SGT within three months from the
commencement of business or services, whichever is
first.

Agent A dependent agent of a foreign person should

meet the following requirements in determining
permanent establishment of the foreign person in
Oman. The requirements are:
The agent should be affiliated to the foreign person
and economically and legally dependent;
Habitually exercising the authority to act and conclude
a contract in Oman on behalf of the foreign person;
In respect of foreign insurance companies operating in
Oman, the dependent agent shall undertake to collect
premiums or practice risk insurance activity.
Part II of this chapter deals with Professional Activities
carried on by the foreign person in Oman which require
registration. The professional activities referred to by the
Executive Regulations include medicine (with all its
branches), dentistry, physiotherapy, laboratory of

Oman Tax Update 3

Amounts contributed to a pension

fund located outside Oman are
eligible to be deducted on fulllment
of a number of conditions
Part II of this Chapter offers certain exemptions from the
registration requirements of tax payers with the SGT on
fulfillment of the mandatory requirements mentioned
below:
The capital shall not exceed OMR 20,000;
The total income realized shall not exceed OMR
100,000; and
The average number of employees shall not exceed
eight persons.
Chapter 4 Rules governing deduction of
expenses when computing the taxable income
Part I of this Chapter lays down general rules for
deduction of expenses when computing taxable income.
The rules laid down are as follows:
The expenses shall be actual, genuine and incurred
during the year;
The expense should be in relation to the business
activities of the tax payer;
The expenses incurred for generating the taxable
income are only eligible for deduction;
The expenses have to be recorded in the books of
accounts maintained by the tax payer and supported
by relevant documents with the exception of those
which are generally not supported by documents;
If the tax payer obtains any services, then the
proportionate value of such services, as deemed by
the SGT, will be allowed as a deduction; and
The expenses can be deducted only if they are
incurred and allowed by the Law.
Part II of this Chapter lays down rules for deduction of
various expenses.

4 Oman Tax Update

Contributions to pension funds in Oman Amounts

contributed to a pension fund in Oman are eligible to be
deducted on fulfillment of the following conditions:
Pension fund shall be independent and separate from
the tax payers own capital, cash and bank balances;
The contribution to the pension funds shall be
computed as per the rules and conditions adopted by
the pension fund;
The tax payer shall provide to the SGT the copy of the
rules and regulations of the fund along with the
license issued;
The tax payer shall also submit the statement of
accounts and audited financial statements of the fund.
Contributions to pension funds outside Oman
Amounts contributed to a pension fund located
outside Oman are eligible to be deducted on fulfillment
of the following conditions:
The pension fund should be in accordance with the
laws and rules applicable in the country in which it is
established.
The pension fund shall have its own regulations,
systems and rules and also be licensed to run a social
security system for employees of the tax payer;
The pension fund should primarily consist of
contributions remitted by the tax payers and by the
employees of the tax payer;
The monies of the pension fund should be utilized for
payment of end of service benefits on retirement to
employees and to the beneficiaries in case of death of
an employee;
The pension fund shall be independent and separate
from the taxpayers own capital, cash and bank
balances;
The contribution to the pension funds shall be
computed as per the rules and conditions adopted by
the pension fund;
The tax payer shall provide the SGT with the copy of
the rules and regulations of the fund along with the
license issued;
The tax payer shall also submit the statement of
accounts and audited financial statements of the fund.

Contribution to savings funds Amounts contributed

by the tax payer as an employer to a savings fund are
eligible to be deductible. The following are the
requirements:
The savings fund should be registered with the
Ministry of Manpower.
The tax payer in its capacity as an employer shall be
obliged to contribute to the saving fund which shall
be utilized to pay the end of service benefits for the
employees.
Bad debts A deduction for bad debts is available only
if such debts have arisen during the course of business
and are in relation to the production of gross income;
the amount of debt is accounted in books of accounts;
and the tax payer has taken steps (including legal
action) to recover such debts (The Executive Regulations
provide for detailed procedures in relation to steps for
collection of debts).
Sponsorship fees (Agents fees) A deduction for
sponsorship is available only if there is a documented
relationship between the foreign company and the
agent; the foreign company should have actually
incurred such sponsorship fees; amounts paid to the
sponsor under the sponsorship agreement will fall under
this category and will be eligible as a deductible
expense. The deduction shall be the least of actual
sponsorship fees or 5% of taxable profits before
claiming such deduction and after set off of brought
forward tax losses. This provision is not applicable to
companies engaged in petroleum exploration business.
Agency commission A deduction is available for
agency commission paid to the authorized agents,
holding a valid license to act as insurance agents, on
behalf of insurance companies, to carry on the agency
activities regularly and independently. Amounts
deducted should not exceed 25% of the net premiums
collected for calculating the agency commission. (The
Executive Regulations provides for other guidelines for
agency commission).

A deduction is also available for

donation to non-governmental
charitable associations or a nongovernment authority operating in
the eld of sports
Donations Any donation to ministries, government
units, municipalities, public authorities, or other units of
the State Administrative on celebrations of national day,
eids, religious occasions, or as contribution to
implement charitable activities, public utilities projects,
construction or renovation of mosques or any other
purposes are eligible for deduction.
Further, a deduction is also available for donation to
non-governmental charitable associations or a nongovernment authority operating in the field of sports.
The deduction shall be the least of actual eligible
donations or 5% of taxable profits before claiming such
deduction.
Rent for real estate A deduction will be allowed for
rents paid by the tax payer for real estate used for
carrying on business activities, subject to the following
conditions.
The rent agreements are registered with the relevant
authorities;
The amounts paid as rent are reflected in the
accounting records;
Details of rent paid along with other relevant details
have to be submitted by the tax payer along with the
annual return of income;
This provision in not applicable to rent paid to the
proprietor.

Oman Tax Update 5

A deduction is allowed for expenses

directly and specically incurred by
head ofce, on behalf of the
permanent establishment in Oman,
on fullling certain conditions
Interest expenses A deduction may be allowed for
interest expenses on loans in determining the taxable
income upon fulfilling certain conditions. Interest
expenses must be genuine and incurred during the year
and relate to the income earned. The borrowings should
not be for financing or capitalization of business. The
deduction is subject to a thin capitalization debt to
equity ratio of 2:1. The Executive Regulations also
provide other guidelines on interest expenses deductible
by an establishment; Omani company (other than banks
and insurance companies); and permanent
establishments.
Remuneration paid to Board of Directors of joint stock
companies/members of an Omani company/owner of an
establishment In determining the taxable income of an
Omani company or establishment, the following shall be
deductible:
Remuneration paid to the Chairman and Members of
the Board of Directors of joint stock companies are
deductible for tax purposes if they are within the limits
specified in Article 101 of the Commercial Companies
Law;
Remuneration paid to the partners, members or
owners of an Omani company or establishment the
deduction shall be the least of the following: actual
remuneration paid, OMR 1,000 per month per
member or 10% of taxable income before such
remuneration.

6 Oman Tax Update

In respect of establishments or companies carrying on

professional activities, the least of the following is
deductible: actual remuneration paid or OMR 3,000
per month per member or 10% of taxable income
before such remuneration.
In case the partners, members or owners of an Omani
company or establishment are the partners, members
or owners in more than one company or
establishment, he/she can choose only one company
to claim a deduction in respect of his/her
remuneration during a particular tax year.
Head office overheads A deduction is allowed for
expenses directly and specifically incurred by head
office, on behalf of the permanent establishment in
Oman, on fulfilling certain conditions. A deduction is
also allowed for those expenses which are allocated to
the permanent establishment by the head office, and is
restricted to the least of the following:
Actual expenses allocated;
3% of the gross income of the permanent
establishment (This percentage is increased to 5%
in respect of branches of foreign banks and insurance
companies and 10% for branches of major industrial
companies using the latest production techniques or
technologies).
Chapter 5 Rules determining the expenses of
capital assets leased through financial leasing
Lease expenses relating to capital assets The Executive
Regulations require a consistent accounting and tax
treatment of leased assets in accordance with
International Accounting Standards or IFRS. The
Executive Regulations provide guidelines for treatment
of expenses including depreciation, interest on loan,
gains (or losses) on sale of the asset, relating to capital
lease both in the hands of lessor and lessee.

Chapter 6 Rules determining tax exemptions

This Chapter lays down general rules, controls,
procedures and requirements for exemptions (including
exemption renewal) for carrying on the following
activities:
Shipping business carried on by Omani companies or
establishments;
Shipping or air transport business carried on by foreign
companies;
Investments funds; The Executive Regulations also lay
down rules, controls and procedures for temporary
exemptions and the procedures for renewal of such
exemptions. The Executive Regulations also provide
for exemptions as per the type of activity which
includes industry and mining; export of products
manufactured or processed locally; operation of hotels
or tourist villages; agriculture and animal husbandry
and the processing of agricultural produce; fishing and
fish processing and aquaculture; university education,
college or institutes of higher studies, private schools,
nurseries, training colleges and institutes; and medical
care by establishing private hospitals.
Chapter 7 Rules relating to submission of
returns of incomes, accounts and assessment
procedures
This Chapter lays down general rules for submission of
the returns, the new Income Tax Forms to be submitted
by the tax payer and the due dates for submission of the
returns. There is a considerable increase in the additional
information to be submitted along with the returns.
Details of Principal Officer, including details of Omani
Resident Card, ID card or passport are required to be
provided in the returns.
Further, the Executive Regulations lay down conditions for
exemptions for submitting the returns of income, financial
statements attached to the returns of income. Further,
the provisions of this Chapter lay down the assessment
procedures which shall be followed by the SGT.

The Executive Regulations provide for

an onsite inspection at the location of
the tax payer to examine documents
and records for the purpose of
completing the assessment
The Executive Regulations provide for an onsite
inspection at the location of the tax payer to examine
documents and records for the purpose of completing
the assessment. Mandatory conditions to be fulfilled for
exemption from filing financial statements are
mentioned below:
Establishments or Omani companies with capital not
more than OMR 50,000;
Gross income not exceeding OMR 300,000;
An average of 10 employees.
Chapter 8 Rules for payment and collection of
taxes due including additional taxes, fines and
penalties
This Chapter lays down general rules for payment of
taxes including additional taxes, fine and penalties.
Further, the SGT on request from the tax payer may
grant the tax payer the payment of tax on installment
basis and also grant exemption, in certain cases, from
payment of additional tax.

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