03 June 2009
MUSCAT -- Oman's tax rates are now the lowest in the region amongst countries which impose taxes with the promulgation of Royal Decree No. 28/2009, according to a KPMG newsletter.
An important change is that the new tax law removes the disparity in rates between foreign and local companies. Tax rates for branches of foreign companies have now been reduced to 12 per cent.
Foreign companies, other than GCC companies, were previously taxed at a maximum rate of 30 per cent. The new tax law provides for a uniform tax rate of 12 per cent for all companies with an initial tax free exemption of RO30,000.
Foreign companies prior to 2001 were paying taxes, at certain income levels, at the rate of 50 per cent. The maximum rate was reduced to 30 per cent in 2001 and now to 12 per cent.
Global system: Under the new law, which is effective from tax year 2010, companies are liable to tax on all their incomes wherever earned. Previously, the tax law brought to tax only income "arising or realised in Oman". In practice, the Omani tax authorities, based on certain court decisions, were already taxing overseas income using the principle of economic dependence.
The new tax law contains provisions for granting relief for taxes paid overseas.
Relief would be limited to the extent of taxes suffered on such overseas income in Oman. Such relief would be available even in respect of taxes paid in countries with whom Oman does not have a double tax avoidance treaty.
Capital gains :The new tax law specifically provides for taxability of capital gains wherever earned.
No exemptions are available for group restructurings and mergers and acquisitions.
Scope reduced: Public utility projects which were previously eligible for tax exemption for a period of five years, renewable for a further period of five years on meeting certain criteria, are no longer eligible for tax exemption.
Further, companies engaged in the fields of education and medical care, which under the old law were entitled to an indefinite tax exemption, are now provided this exemption only for a period of five years (renewable for a further period of five years on meeting specified criteria).
Withholding tax rules: Withholding taxes of 10 per cent are applicable on certain specified categories of payments made to foreign firms who do not have a permanent establishment in Oman.
These comprise: Royalties, now defined to include rental of equipment and knowhow; fees for research and development as well as management fees.
90 days threshold :Foreign companies previously had encountered difficulties in arguing that a permanent establishment is not created in case of limited visits to Oman.
The new tax law provides clarity by specifying a 90-day threshold in a tax year for creating a service permanent establishment.
Leasing companies: In a move which will be widely welcomed by leasing companies, the tax law provides for loan loss provisions to the extent specified by Central Bank regulations to be allowed to all banking companies as defined in the banking law.
As leasing companies come within the purview of the banking law, they would also be entitled to a deduction for loan loss provisions.
Depreciation rules: In a move to make computation of depreciation allowable under the tax law simpler, the new tax law has introduced the concept of pooling of assets. Under this concept, depreciation of all assets coming within specified categories would be calculated by applying the depreciation rate on the closing written down value which would be computed as follows: Opening written down value, plus, additions made during the year; less sale proceeds during the year.
The tax depreciation thus computed would be reduced from the written down value as calculated above in determining the written down value for the next year. For such categories of assets, there would be no need to compute separately, for tax purposes, the profit or loss on disposal of assets. The categories of assets to which the above simpler rules would apply comprise: Tractors, heavy equipment, computers, software, motor vehicles, furniture and fixtures (depreciation rate of 33.3 per cent);drilling rigs (depreciation rate of 10 per cent); all other equipment (depreciation rate of 15 per cent).
All other categories of assets like buildings, aircraft, ships, would continue to be entitled to depreciation on a straight line basis. The depreciation rate on first class buildings is fiveper cent and on aircraft and ships is 15 per cent.
Statute of limitation: In a move to ensure that the tax authorities are not empowered to pursue companies beyond a certain period, the new tax law provides for a time limit of ten years for the tax authorities to complete assessments in the case of companies who fail to file tax returns.
Previously, the tax authorities were empowered to pursue such companies without any limitation of time.
Executive regulations : The tax law provides for executive regulations to be issued. These are expected during the next few months. Such executive regulations are likely to include:Rules for allowance of head office overhead expenses, transfer pricing rules, and rules for filing and assessing tax returns.
© Times of Oman 2009
