Oman Guide: Oman VAT Law A Synopsis
The Sultanate of Oman announced the implementation of VAT in the country last month. Oman became the fourth GCC country to implement VAT after KSA, UAE, and Bahrain. They have announced a transition period of 180 days i.e. six months from the date of the announcement. The VAT rate initially is set at 5% in accordance with GCC executive committee decision.
Oman VAT Implementationin Oman– Background
Oman announced the implementation of VAT through royal decree No. 121/2020 on 18 October 2020. The decision came in line with the unified VAT agreement by all six GCC member states.
Value-added tax (VAT) or Goods and services tax is levied upon products and services on each value addition stage. It is an indirect charge on goods and services, ultimately paid by the final consumer. All GCC member states agreed on the implementation of VAT.
Effective Rate and Date of Oman VAT Law
The VAT rate in Oman will be 5% in line with the GCC agreed-upon decision. The tax authority of Oman has declared a transition period of 180 days from the Publishing of the Royal Decree on VAT. The effective date falls in mid-April for VAT filing. Saudi Arabia has increased the VAT rate to 15% recently. It remains to be seen that it may open the new horizon of VAT tax rate changes in the other GCC states too.
The Transition period for businesses is specified to be the next 06 months. The estimated implantation date will be 16th April 2021 (may change with final instructions). Any transaction taking place after the effective date will be considered taxable, even if it was initiated before the effective date. Any continuous transactions of supplies shall be considered taxable in part, where goods or services are handed over after the effective date.
Calculation of VAT in Oman
VAT is calculated on an incremental basis at each stage of product or service value addition. For simplicity, the final cost of VAT can be calculated against the retail price of the goods or services with the VAT rate i.e. 5%. The manufacturers, wholesalers, importers, and retailers in line with VAT implementation pay their portion of the VAT. The government through its tax authority will collect the full VAT and reimburse the over/undercharged VAT to the relevant party.
VAT Registration in Oman
Every individual or business regardless of the nature of the business activity needs to register for VAT. However, businesses dealing with exempted goods or services only do not have to register for VAT.
The registration of VAT is based on the threshold sales of the goods or services rather than the nature of the business.
The tax authority in Oman allows for the voluntary and mandatory VAT registration for all entities (individuals and businesses).
The entity will have to register for:
- Mandatory VAT registration if the annual sales turnover exceeds OMR. 38,500
- Voluntary VAT registration if the annual sales turnover exceeds OMR. 19,250
The businesses may take an assessment test of the turnover estimation. The business can evaluate the threshold on the previous year’s turnover assessment for the last 12 months (backward approach) or forecast turnover for the upcoming 12 months (forward approach).
For VAT calculations, the businesses will carry out the turnover calculations on 12 months period starting each year on January 1 and ending December 31.
The valuation of goods/services shall be valued at cost (excluding VAT amount) as:
- Value of taxable goods/supplies
- Value of goods/services supplied to the taxable person
- Value of goods/services within the GCC states
Few products/services will be exempted to treated at zero-rate VAT as discussed below.
What Supplies will be Subject to Oman VAT?
A supply means either goods or services. All products and services traded in the Sultanate of Oman will be subject to 5% VAT. In general, each supply that is taken from and to the Sultanate of Oman shall be subject to the VAT. Every taxable person receiving or importing goods to Oman shall pay the VAT. If the supplier is outside of the Sultanate of Oman (i.e. not subject to VAT in Oman) the VAT shall be calculated on the Reverse charge mechanism.
The general provisions that describe the supplies outside the scope of the VAT are:
- Manufactured by a non-taxable person in Oman
- Made outside of Oman (exempted supplies only)
- Not intended for commercial activity in Oman
All imports to the Sultanate of Oman will be subject to VAT unless they fall into the zero-rated or exempt category.
Zero-Rated Supplies under Oman VAT
These supplies are considered taxable but for VAT rated at 0%. In the practice of the reverse charge mechanism, the importer in Oman will be able to claim the input VAT deduction and refunds on zero-rate supplies.
In accordance with the current directives issued, the following products and services will be considered as zero-rated supplies:
- Specific food items
- Specified medical supplies and medical equipment
- Goods related to rescue activities i.e. rescue planes, boats, and assistive goods
- Supplies of transportation through land, sea, and air of passengers and commercial goods including related services and goods
- Supplies of Oil, Oil derivatives, and natural gas
- All supplies related to international and intra GCC transportation of passengers and goods, and related supplies to such transportation.
- Supply of investments in gold, silver, etc.
- Supplies transacted outside of Oman not subject to VAT in Oman
- Supplies in custom suspension with Oman customs authority (subject to conditions)
- Supplies brought to Oman for improvements through refurbishment, repairs, or maintenance
Exempted Supplies from VAT
Some supplies based on transactions and others on nature will be exempted from VAT. Supplies exempted based on transaction include:
- Any supplies transacted between the same group of the VAT group (e.g. a parent company and subsidiary or branches)
- Business ownership transferred by one taxable person to another
- Any insurance claims made within the Sultanate of Oman
- All imports made by Armed forces, Army, and Air force in Oman
- All imports made by diplomats, embassies, consular bodies, international organizations. (subject to conditions)
- Supplies imported for charities and not-for-profit organizations
- Supplies brought to Oman by travelers and passengers as gifts or personal use only
- All supplies imported for people with special needs including medical aid equipment
In addition to receivers’ or person utilizing the supplies, some supplies will be exempted from VAT by nature of product/service:
- Financial Services
- All Health Care services including the imports of medical supplies and equipment
- All educational services including the import of supplies for educational purpose usage
- Resale of the Real-estate and leasing of real estate properties for residential purposes only
- Non-developed land i.e. empty or barren land
- All local means of transportation for passengers
Important Considerations in Oman VAT Law
The tax authority of Oman and the finance division will provide further details on the elaboration of the VAT implementation and exemptions. However, businesses in particular should take care of a few important considerations regarding VAT implications.
What is the Place of Supply under Oman VAT Law?
The place of supply shall be determined on the basis of the final consumption place of the supply. Regardless of the product originating place, if the supplies are consumed within Oman, shall be levied to VAT.
Services supplied outside of Oman the residents will be treated as supplies in Oman. Some exemptions from Oman VAT LAw will apply to certain services provided to end-users outside of Oman. All other products and services not falling under zero-rate or exemptions shall be levied VAT in Oman.
What are Tax Refunds and Recovery in Oman VAT?
All registered VAT users will be able to apply for any tax refunds and recovery under the following conditions:
- VAT refunds applied under the input VAT tax deductions, i.e. where the registered person can adjust for tax paid by the supplier
- VAT refunds applied under the output VAT tax deductions, i.e. where the registered person paid excessive output tax on sales to consumers
- VAT paid by exempted designators such as diplomats, consolers, etc.
- VAT paid by travelers on gifts and items subject to a final destination outside of Oman
- Any excessive VAT paid by a registered entity in Oman
How is Record-Keeping, Invoices, and filing will be done in Oman VAT?
All registered entities will require preparing VAT records in accordance with statutory laws in Oman. All entities will have to maintain a VAT account with the tax authority of Oman.
All registered entities will have to provide a VAT invoice clearly mentioning the VAT due on all supply lines except for the exemptions and zero-rate. A compliant invoice must state visibly the amount, transaction date, place of supplies, and VAT calculated.
All registered entities will have to file for VAT returns at the end of the financial year. The Tax authority may conduct a comprehensive assessment of VAT returns. However, it is the duty of a registered person to carry out a self-assessment of the VAT calculation for each tax year.
How Late Filing and Penalties will be treated under Oman VAT Law?
The VAT regulations include severe penalties on the late filing of VAT or deliberate attempts on forging the records. The guilty of late VAT filing may face imprisonment of a minimum of two months and up to two years or a penalty of OMR. 1,000 and a maximum of OMR. 10,000 or both.
The severity of penalties will mainly be decided by the tax authorities on the deliberate attempts by the guilty to avoid VAT.
- A deliberate attempt for not registering for VAT
- A deliberate attempt to for delaying the VAT returns
- A deliberate attempt to forge or hide any relevant records and invoices from the tax authority
- The registered person fails to maintain accurate VAT records and tax invoice
- In the case of repeated violations, the penalties will increase to a minimum of OMR. 5,000 to a maximum of OMR. 20,000.
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