1. How is VAT or Sales Tax Defined in this jurisdiction?

Together with the other Gulf Cooperation Council (GCC) States, Oman has signed up to the Common VAT Agreement of the States of the GCC (GCC VAT Framework) which commits it to implementing a generally common VAT system by issuing national VAT legislation.

Under the GCC VAT Framework, it is referenced as a ‘general tax on consumption in the GCC known as VAT levied on the import and supply of Goods and Services at each stage of production and distribution’.

2. What is the name of the main legislation covering VAT or sales tax?

Oman has committed to the implementation of its domestic value-added tax (VAT) regime with effect from 16 April 2021 i.e. 180 days after the publication of the Oman Sultani Decree No. 121/2020 Promulgating the Value Added Tax Law (Oman VAT Law) in the Official Gazette of the Sultanate of Oman no. (1362) on 18 October 2020.

Further detail on the Oman VAT Regime is set out within the Implementing Regulation (Oman VAT Regulations) which were issued on 10 March 2021 by way of Tax Authority Decision No. 53 of 2021.

3. What is the rate of VAT or Sales Tax in this jurisdiction?

In line with Article 37 of Oman Sultani Decree No. 151/2020, the standard rate of VAT in Oman is 5%, with limited exemptions and zero-ratings.

4. Are there any products or services on which VAT exemption or zero rating apply?

Zero-Rating

In line with Articles 51, 52 & 53 of Oman Sultani Decree No. 151/2020, the following transactions will be zero-rated for Oman VAT purposes:

1. Supply of listed food commodities–product list and/or categories yet to be released.
2. Supply of medicines and medical equipment–product list and/or categories yet to be released.
3. Supply of investment gold, silver and platinum.
4. Supplies of international transport of Goods or passengers and related services.
5. Supply of means of marine, air and land transportation, for the transport of goods and passengers for commercial purposes, and supply of related goods and services.
6. Supply of rescue and aid aircraft and vessels.
7. Supply of crude oil and its petroleum derivatives, and natural gas.
8. Export of goods.
9. Supply of goods or services to one of the customs tax suspension situations stipulated in the Unified Customs Law, or within it.
10. Re-export of goods which were temporarily entered into the Sultanate for the purpose of repair, restoration, transfer or processing and the services added to them.
11. Supply of services by a Supplier Taxpayer who has a Residence in the Sultanate to a Customer who does not have a Residence in the Sultanate (to be extended to GCC States once GCC VAT rules are activated), provided the Customer benefits from the services outside the GCC countries [except for services which avail of special place of taxation rules as set out within Article 24 of Oman Sultani Decree No. 151/2020].

These zero-ratings are applicable within the limits, conditions and circumstances set out in the Oman VAT Regulations, once published. Zero-ratings should always be interpreted and applied narrowly, as they are a limited exception to the standard rate of 5%.

Exemption

In line with Articles 47, 48 & 49 of Oman Sultani Decree No. 151/2020, the following transactions are exempt for Oman VAT purposes:

1. Financial services.
2. Healthcare services and their related goods and services. 3. Educational services and their related goods and services. 4. Undeveloped or vacant lands.
5. Re-sale of residential real estates.
6. Local transport of passengers.
7. Lease of real estates for residential purposes.
8. Imports of goods in the following circumstances:

a) Goods imported in the cases where the supply of the goods is exempt from tax or subject to tax at the zero rate at the final destination;

b) Goods imported to diplomatic and consular bodies and international organisations and to heads and members of the diplomatic and consular corps approved by the Sultanate, on condition of reciprocity.

c) Ammunition, weapons, military equipment and means of transport, and parts imported to the armed forces and security forces in all their sectors.

d) Personal belongings and used household items brought by nationals residing abroad and foreigners coming to reside in the country for the first time.

e) Necessities of non-profit charitable societies and people with special needs, and

f) Returned Goods.

The above exemptions are applicable within the limits, conditions and circumstances which will be set out in the Oman VAT Regulations, once published, together with the Unified Customs Law (as applicable). Exemptions should always be interpreted and applied narrowly, as they are a limited exception to the standard rate of 5%.

5. Are there any products or services where a lower than standard VAT rate applies?

The Oman VAT Law lays down a zero rate for:

– foodstuffs

– Means of transport used for commercial transport, rescue airplanes, boats and aid by land

– crude oil (and derivatives) and gas.

6. How does the penalty regime work for VAT?

Under Article 72 of the GCC VAT Framework the authority is given to each GCC Member State, including Oman, to implement penalties in the event of violations.

Chapter 12 of the Oman VAT Law, covering Articles 99–103, deals with the application of Penalties under the Oman VAT regime, including those acts which may result in the application of penalties.

Under Article 100 of Oman Sultani Decree No. 151/2020, the first level of possible penalties and/or jail terms for non- compliance with the Oman VAT regime are as follows:

1. A penalty fine of at least 1,000 Rials and no more than 10,000 Rials, and/or

2. Jail for between two months and one year.

This first level of penalties/jail terms apply to the following acts:

• The Taxpayer deliberately refrains from determining the Person in Charge.
• The Person in Charge deliberately refrains from notifying the Tax Authority and obtaining its consent to appoint another Person in Charge during their absence for a period of more than 90 days.
• The Taxpayer deliberately refrains from notifying the Tax Authority of any amendments to the data submitted to the Tax Authority for VAT Registration purposes, in line with Article 65 of Oman Sultani Decree No. 151/2020.
• The Person in Charge deliberately refrains from attending at the request of the Tax Authority.
  The Person in Charge deliberately refrains from submitting the Tax Declaration for any Tax Period.
• The Person in Charge deliberately refrains from keeping regular accounting records and books in line with the provisions of the Oman VAT Law.
• Deliberately refrains from keeping Tax Invoices and documents for the period specified in line with the provisions of the Oman VAT Law.
• Deliberately refrains from issuing a Tax Invoice which will be issued in line with the provisions of the Oman VAT Law.
• Issuing an invoice deliberately recording the amount of Tax, other than the Tax imposed in line with the provisions of the Oman VAT Law.
• Carrying out any act, action, procedure or omission which would obstruct the employees of the Tax Authority, or those who are assisted by them from carrying out the functions and tasks assigned to them under the Oman VAT Law.
• The Taxpayer or any Person deliberately refrains from submitting any documents, data, records, accounting books, Tax Invoices or others in line with Article 78 of Oman Sultani Decree No. 151/2020.
• Deliberately including incorrect data or information in a VAT refund request.

In the context of the above first level of penalties, a ‘Person in Charge’ is defined in Article 1 of Oman Sultani Decree No. 151 /2020 as ‘Any Person related to the Taxpayer in any way, and replaces him in carrying out his obligations imposed under the provisions of this Law’. Article 2 goes on to further explain who the Person in Charge would normally be, depending on the type of corporate structure through which the Taxpayer is trading, for example, for an Oman established entity this would generally be the owner, general manager or an appointed agent.

Under Article 101 of Oman Sultani Decree No. 151/2020, the second level of possible penalties and/or jail for non-compliance with the Oman VAT regime are as follows:

1. A penalty fine of between 5,000 and 20,000 Rials, and/or

2. A penalty fine of between 5,000 and 20,000 Rials, and/or 2. Jail for between one and three years.

This second level of penalties/jail terms applies to the following acts:

• Deliberately refrains from registering with the Tax Authority.
• Deliberately refrains from including in the Tax Declaration the real data with the Taxable Value and the Tax due on it.
• Submitting forged Tax Declarations or documents or records to avoid paying Tax in whole or in part.
• Deliberately destroying, hiding, or disposing of any documents, records, accounts, lists or others as required by the Tax Authority to be submitted according to the provisions of the Oman VAT Law, if the destruction, hiding, or disposal is done within one year of the date of receiving the notification from the Tax Authority.
• Deliberately instigating or assisting the Taxpayer to submit declarations, records, or other incorrect documents related to the Tax obligation of the Taxpayer.

In the context of the above second level of penalties, the Court may decide to confiscate the means, devices and tools used in committing these crimes.

In the event of repetition of offences, the Court may double the fine and increase the legally prescribed maximum jail term but this cannot exceed half of the limit.

The Oman VAT Regulation specify further detail on the application of administrative fines and penalties on violators, including the appeal procedures.

7. When does VAT or Sales Tax apply?

In line with Article 36 of Oman Sultani Decree No. 151/2020, VAT is applicable on all taxable supplies of goods and services (i. e. excluding those which are specifically exempt from VAT) within the scope of Oman VAT.

VAT also applies to deemed supplies as set out in Articles 14 and 17 of Oman Sultani Decree No. 151/2020 on the basis that purchases VAT related to these supplies has been deducted (other than those subject to exemption) as follows:

• Assigning Goods for purposes other than the Taxable Activity, whether the assignment is made for a fee or not.
• Changing the use of Goods to make non-Taxable Supplies.
• Keeping Goods after suspending the practice of the Taxable Activity.
• Supplying Goods without a Fee, unless the Supply is related to a Taxable Activity such as giving gifts or free samples.
• The Taxpayer’s use of Goods, which are part of their assets, without a fee, for purposes other than the Taxable Activity. Supply of services without a Fee.

VAT is also applicable to purchases of goods and services imported from outside Oman on the reverse-charge mechanism basis (RCM) in line with Article 20 of Oman Sultani Decree No. 151/2020; where the Oman resident and tax registered business customer must account for Oman VAT on its receipt of the goods and/or services in the Sultanate.

8. Who is able to register for VAT?

In line with Article 55 of Oman Sultani Decree No. 151/2020, any resident person who engages in taxable activities which have exceeded the mandatory registration threshold in the preceding 12 months or expect to exceed the mandatory threshold in the coming 12 months, have to register for VAT purposes. The timeline and form for registration will be clarified in the Oman VAT Regulations, once published.

In line with Article 61 of the Oman VAT Law, any resident person who engages in taxable activities (including purchases) which have exceeded the voluntary registration threshold in the preceding 12 months or expect to exceed the voluntary threshold in the coming 12 months, may optionally register for VAT purposes.

The mandatory registration threshold is 38,500 Rials and the voluntary registration threshold is 19,250 Rials.

In line with Article 57 of Oman Sultani Decree No. 151/2020, all non-resident persons who are liable to account for Oman VAT on a transaction in goods or services, must register from the first 1 Rial of taxable activities.

In assessing a person’s obligation to register, all taxable supplies and transactions liable to the reverse-charge mechanism should be summed, together with expenses from a voluntary registration perspective.

9. Who is required to register for VAT?

In line with Article 55 of Oman Sultani Decree No. 151/2020, any resident person who engages in taxable activities which have exceeded the mandatory registration threshold in the preceding 12 months or expect to exceed the mandatory threshold in the coming 12 months, have to register for VAT purposes.

In line with Article 61 of the Oman VAT Law, any resident person who engages in taxable activities (including purchases) which have exceeded the voluntary registration threshold in the preceding 12 months or expect to exceed the voluntary threshold in the coming 12 months, may optionally register for VAT purposes.

The mandatory registration threshold is 38,500 Rials and the voluntary registration threshold is 19,250 Rials.

In line with Article 57 of Oman Sultani Decree No. 151/2020, all non-resident persons who are liable to account for Oman VAT on a transaction in goods or services, must register from the first 1 Rial of taxable activities.

In assessing a person’s obligation to register, all taxable supplies and transactions liable to the reverse-charge mechanism should be summed, together with expenses from a voluntary registration perspective.

10. Is it possible to deregister for VAT purposes?

A Taxable Person must apply to the Tax Authority to cancel its VAT registration in any of the following cases:

1. If they stop practising the Taxable Activity.
2. If they stop making Taxable Supplies.
3. If the value of their Taxable Supplies falls below the Voluntary Registration Threshold.

A Taxable Person may also optionally apply to cancel its VAT registration where the value of its supplies falls below the mandatory registration threshold of 38,500 Rials but continue to exceed the voluntary registration threshold of 19,250 Rials.

11. Can group companies register together for VAT purposes?

Article 58 of Oman Sultani Decree No. 151/2020 allows two or more Persons to register with the Tax Authority as a Tax Group, according to conditions and criteria set out in the Oman VAT Regulations:

• Each person needs to be an Omani resident
• All members are legal persons
• Each person must be VAT registered
• One person, whether a member of the group or not, has control over all other members of the tax group
• None of the members is a member of another tax group
• None of the members is a free zone company

Control means that a person has the right to directly or indirectly control other persons’ activities or commercial matters, or owns more than 50% of the voting rights of the legal person or more than 50% of the capital of the legal person.

Once registered, the Tax Group will be considered as a Taxpayer independent of the Persons who are members of the group. Tax Grouping will make all persons in the Group jointly and severally liable for all VAT liabilities and penalties which arise for any member of the group.

12. Which authority or authorities administer VAT collection and registration?

The Tax Authority (TA) of Oman monitors the compliance with the Oman VAT Law, Oman VAT Regulations (once published) and any other national tax regulations. They are also responsible for the enforcement of tax law and the collection of tax revenues.

13. Is it possible to recover VAT or Sales tax? When can this be done?

The rules governing the calculation of Oman VAT, including the claim of deduction for VAT on purchases, are set out within Chapter 5 of the Oman VAT Law.

VAT incurred on costs associated with taxable supplies (i.e. liable at both 5% and 0%) are deductible in a person’s periodic VAT returns, through a netting exercise against tax due on taxable sales in the same period. VAT incurred on costs directly attributable to exempt supplies or non-business activities, are not deductible. VAT incurred on costs associated with both taxable and exempt activities, will be deducted on an apportioned basis as indicated in the Oman VAT Regulations, once published.

VAT which is correctly deductible by a person may be deducted within the first VAT return in which the person qualifies for deduction or anytime after that for up to three years.

Where a person is in an overall refund position for any particular VAT return, it may request the refund or ‘carry forward’ the VAT Refundable to be used against future VAT due.

14. How and when are registered entities required to make payments to authorities?

Persons registered for VAT in Oman have to settle all amounts of tax and any penalties due, at the time of filing their periodic VAT returns or closing of a Tax Authority enquiry. Periodic VAT returns are due for filing by the 30th day of the month following the end of the Tax Period. The Tax Period will not be less than monthly but may be quarterly or other length of period.

Payments are generally accepted by means of bank transfer and credit card.

15. What kind of VAT records are registered entities required to keep?

The Oman VAT Regulations specify the records and books that the Taxpayer will keep as well as the rules and procedures related to them, the data to be recorded in them and the documents which will be kept. Generally, it is expected a person must retain all books of account, management and financial data, commercial documentation, communications, etc which support the values, details and VAT treatment of activities undertaken, including imports, exports and RCM transactions.

The Taxpayer will not keep any accounting records or books in a foreign currency without the prior written consent of the Tax Authority.

Persons registered for VAT in Oman have to retain all relevant records for a standard period of 10 years. The period of retention is extended to 15 years for Real Estate related transactions. Generally, hard copy and/or digital copies of records may be retained, subject to certain procedures for ensuring the authenticity, legibility and ability to be reproduced upon request.

16. Is there a difference to the way VAT is treated with business to business transactions?

The status of the customer in a transaction may affect the VAT treatment of the transaction in Oman. Generally, under Oman VAT Law, the status of the customer may affect the place of taxation, the party to the transaction who is obliged to account for the VAT, the VAT rate and the timing of VAT becoming due. There are not significant differences in VAT treatment between business to business (B2B) transactions and business to consumer (B2C) transactions when undertaken domestically in Oman.

However, there is a greater disparity in treatment when there is a cross-border element to the transaction – i.e. goods are delivered cross-border and/or one of the parties to the transaction (i.e. supplier or customer) is resident outside of Oman.

The type of supply (i.e. goods or services, and the exact nature of the supply) would also generally dictate whether the status of the customer is important in determining the VAT treatment.

One example of a VAT treatment which is impacted by the status of the customer is the application of the RCM – i.e. the party who is obliged to account for the Oman VAT due on the transaction will differ depending on whether the resident customer is a B or a C.

17. Are there key points which need to considered when drawing up a contract from a VAT perspective in this jurisdiction?

Yes. The application of any ‘transitional’ VAT rules for the implementation of VAT in Oman will be important to consider in the drafting of contracts which may span the effective implementation date of 16 April 2020. In particular, it is important the contract clearly states whether any consideration due under the contract is VAT inclusive and/or VAT exclusive and grants persons under the contract the ability to charge VAT where obliged to do so under local tax regulation, and potentially takes into account rate changes.

Aside from the actual wording of the contract, the parties to the contract should assess the VAT impact of the transactions under the contract up front in line with Oman VAT Law and Oman VAT Regulations (once published) in order to identify any cost, cash flow burden and/or regulatory compliance resulting from the contract.

18. Are there any specific rules governing when a VAT registered business is sold as a going concern?

Yes, Article 18 of Oman Sultani Decree No. 151/2020 states supplies of goods or services will not be subject to Tax when they are part of the transfer of a Taxable Activity, in whole or in part, to another Taxpayer.

Article 13 of the Omani VAT Executive Regulations state that the following conditions need to be met, in order to consider a transfer a transfer of a going concern which is outside the scope of VAT:

– Part of the activity that has been partially transferred is capable of operating by itself

– The supply includes all of the elements of the transferred activity

– The transferee uses the assets to carry out the same type of activity that the transferor is engaged in

– The transferor is a taxable person, and the transferee becomes taxable as a result of the supply if he was not taxable separate from the supply

– There must not be a series of consecutive transfers of the assets

19. Are there any specific rules governing when a VAT registered business merges or is acquired by another business?

The merger or acquisition of a business would follow the general VAT rules in Oman for the sale of shares, sales of tangible and intangible assets and/or TOGC.

Sales of shares are generally exempt, with consideration required in relation to the deduction entitlement of the parties of VAT incurred on any associated costs.

Sales of business assets which do not quality for TOGC relief should be individually valued as part of the transfer deal and assessed from a VAT treatment perspective. Generally, these will be taxable sales at the standard rate of 5%, subject to limited zero-ratings and/or exemptions.

20. Are there any specific rules involving VAT and charities or other not for profit organisations?

Yes – imports for non-profit charities are VAT exempt from tax.

21. Are there any specific rules governing what happens when a VAT registered business faces bad debt?

Article 40 of Oman Sultani Decree No. 151/2020 allows for an adjustment of VAT due in the event a taxpayer fails to collect any consideration due from a customer, in whole or part. The requirements for this reclaim are laid down in article 51 of the Oman VAT Regulations.

22. What is the impact on VAT when the transaction is cross border in the GCC or other economic trade area which this country is a member of?

There are specific intra-GCC VAT rules allowed for in the GCC VAT Framework and in the Oman VAT Law. These rules aim to make trade between the GCC Member States easier to conduct and relieve some of the cash flow and administrative burden associated with these transactions.

In line with the GCC VAT Framework, an Electronic Service System (ESS) should be set up between each of the GCC Member States’ Tax Authorities so there is visibility over intra-GCC transactions, their VAT treatment and there is no avoidance of tax or misuse of the intra-GCC rules. ESS is not yet in place, and until it has been implemented, Oman will treat all transactions between Oman and other GCC Member States on the same footing as transactions with non-GCC States (i.e. it will not ‘activate’ the intra-GCC rules).

23. What is the impact on VAT when the transaction is an electronic cross border one?

As set out in the GCC VAT Framework, electronic services will be taxed where they are effectively used and enjoyed. Similarly, Article 24 of Oman Sultani Decree No. 151/2020 sets out that services provided electronically will be taxable at the place of actual use of these services, or the benefit from them. Further clarification on what falls within the scope of ‘services provided electronically’ and how to determine their place of ‘actual use’ is expected in the Oman VAT Regulations, once published.

24. Are there any specific industries or transaction types which have different VAT rules?

Yes, the Oman VAT rules for transactions differ based on:

• The application of exemptions or zero-ratings, rather than the standard rate of VAT at 5%; The place of taxation which is based on the type of goods/services supplied;
• Who is obliged to account for the VAT due on the transaction – the supplier or the customer under the reverse-charge mechanism (RCM).
• Other than the categories listed in Question 4 above, which are liable to exemption/zero-rating in Oman,

Special rules on place of taxation apply in Oman in the following industries/transaction types:

• Telecommunications and electronically supplied services in line with Question 23 above Restaurant, hotel and catering services
• Cultural, artistic, sport, educational and recreational/entertainment services
• Transport of goods and passengers and related supplies
• Real estate related services
• Leasing means of transport.

25. Do the VAT authorities have any inspection or investigatory powers?

Yes, the Oman Tax Authority is tasked with monitoring the enforcement of VAT in Oman and also has inspection and investigatory powers in the form of issuing enquiries, performing audits, reviewing supporting tax records etc.

Other than in the event of fraud or tax evasion, these powers are restricted by the standard applicable Statute of Limitations of five years for audit purposes, which is extended to 10 years in the event of later registration.

26. Is it possible to challenge decisions of the VAT authority and how is this done?

Similar to other VAT regimes in the GCC, the Oman VAT Law has introduced a layered Tax Dispute process whereby a taxpayer may:

1. Request clarification on the technical tax treatment of a transaction or the tax authority’s view on the correct application of the law,
2. Request for the tax authority to reconsider a tax technical position already taken,
3. Refer a matter in dispute with the tax authority to an independent competent body for dispute resolution (Committee), and
4. Refer the matter in dispute to the relevant court for hearing through the court system.

The exact way in which each of these steps is administratively undertaken, the bodies involved in supporting the process at each stage and the associated timelines are indicated within the Oman VAT Law per Chapter 11.

27. Does VAT apply in the freezones? Does this change if goods pass from the freezone to onshore?

The treatment of transactions in goods for VAT purposes when the goods are moving in and out of the Sultanate of Oman, together with transactions in goods within Customs Zones, generally follow the treatment as outlined within the Unified Customs Law.

However, for specific VAT reliefs relating to transactions in goods cross-border, including with customs zones, see answer to Question 4 above which sets out import/export specific zero-ratings and exemptions.

28. Will VAT be a cost for my business?

VAT is applied at each stage of the supply chain, however if businesses ensure that they fully understand how to recover the VAT they pay and implement effective control systems and procedures, in most cases, the cost of VAT on the business will be negligible. There is an associated administrative cost.

29. What do businesses need to do to ensure that they comply with VAT?

Businesses and individuals who need to pay VAT to the government will do so through a self-assessment mechanism called tax reporting. To ensure that this is done accurately, it is essential that businesses keep accurate documentation about transactions and that their IT systems are configured to store and process VAT information. Incorrect calculation or reporting of VAT could result in financial penalties.

30. What is the VAT reporting period?

The minimum VAT reporting period is 1 month, but each member state has the discretion to extend this when setting local VAT regulations.