Oman Guide: VAT in Oman to be introduced in April 2023

VAT in Oman
VAT in Oman to be introduced in April 2021

What is the VAT rate and When will it be effective?

Sultan Haitham bin Tariq approved the fact that Oman will introduce VAT by 5% and it will be effective from April 2021.  VAT has been levied based on No. 121/2020 Royal Decree. As a member of GCC, Oman is the fourth country who introduced 5% VAT as per the VAT implementation plan made by this union.

Important dates regarding VAT to be considered:

12 October 2020 Issuance of Royal decree regarding VAT by Sultan Haitham bin Tariq
18 October 2020 Recorded in gazette
16 April 2021 5% VAT effective on business and supplies mentioned
15 October 2021 Publication of details regarding the application of the new VAT regulations


Why is Oman introducing VAT?

For the past couple of years, Oman was experiencing economic turndown and instability. While other members of GCC planned to introduce the value-added tax in 2018, Oman delayed its introduction of VAT from 2018 to 2021 to promote their non-oil-based business industries.

But the negative impact of Covid-19 caused terrible fall of oil price while Oman’s more than 80% national revenue generated from exporting oil. Oman’s economic and financial situation was worsened by Moody’s negative rating (Ba3) first in March 2020 and then in June 2020 and enlisted Oman under the names of countries which would be a worse investment opportunity.

In the next month, the Ministry of Finance in Oman published a fiscal budget that showed a budget reduction by $1,300,000,000.00. It was a consequence of Oman’s worse economic condition triggered more by a recent global pandemic, rapid fall in oil price and Moody’s negative investment rating.

Under these given circumstances, the only possible way for Oman to manage its economic condition was to introduce VAT. The country followed its other 2 gulf companions- UAE and Saudi Arabia who in 2018 introduced VAT as a tool to deal with the adverse economic condition.

Another additional technique Saudi Arabia applied in 2020 was to increase its existing tax rate by 3 times while in Oman government employees’ salaries were reduced to fight back against the worse financial condition.

What are the products and services that are exempt from 5% VAT?

On the following items, zero or partial VAT rate will be imposed.

  Purchase of basic commodities and food items;

  Export of particular medicine and medical equipment;

  Imports of crude oil;

  Sales proceed from green land;

  Sales proceeds received from real estate;

  Specified financial services;

  Services and products used for healthcare and education purpose;

  Public transportation services;

  Services and commodities that are imperative for physically challenged people;

  Supplies and products donated to any charity organization;

  Sale of residential land or any vacant land;

  Use of gold, silver or any other precious metal for investment purpose;

  Equipment and machine-related to national rescue and aid service;

  Supply of natural gas;

  Transportation of particular goods and passengers internationally.

Who will have to provide 5% standard VAT mandatorily?

As a member of Gulf, the conditions of registration under GCC VAT agreement are expected to be followed for VAT registration in Oman. No VAT will be levied on companies or residents that are engaged in supplying or interchanging products and services with zero-rated VAT. But VAT will be imposed on non-residents for the amount of VAT added products and services that will be exchanged by them. There is no standard limit in the amount of money on VAT based supplies for the non-residents.

Businesses in Oman can apply for VAT registration if they have purchased VAT added supplies amounting to at least OMR 19,250.00. But it is optional for them and they can voluntarily apply for the registration. But registration for VAT has been made mandatory for these firms if the purchase amount exceeds to OMR 38,500.00.

What are the relevant rules regarding VAT returns and refunds?

VAT regulation authorities will mention tax period for a particular fiscal year. After the end of the tax period, Submission of application for VAT returns is instructed to be made within the next 30 working days.

In the case of VAT refunds, the concerned authority will inform the relevant parties regarding the process and date of refund. Refund on VAT can be made to non-residents or tourists in Oman on whom legally tax has not been imposed yet.

How does VAT return filing work?

Each person to whom providing tax to the government has become an obligation needs to prepare VAT return and file it with the TA. The VAT return is prepared based on the gross purchase and sales transactions on supplies on which 5% or less than 5% VAT rate are attached. After identifying total purchase and sales transactions for the entire tax period, the net amount of VAT that the individual or entity needs to pay to the government are determined. That is, in a VAT return file, total VAT payable of an entity can be assessed.

For businesses, preparation of VAT account is a must as it shows the net amount of VAT payable that need to pay or the net amount of VAT refund that need to claim from the government. Further information regarding how to pay for the net due amount, when to pay, to whom the payment will be made etc. are informed by the tax authorities in time.

What are the recording requirements for VAT in Oman?

Tax authorities of Oman have made it mandatory for each taxpayer to record each ad every transactions and detail regarding their VAT payment. It may include the source documents that have been used to determine total VAT payable in a particular fiscal year. Recordings on VAT are preserved as it is the source documents for the linkage between VAT payable and return for an individual.

For corporates, VAT refund, returns and payable also have a direct connection and therefore these documents should be kept for years. In case of VAT related to real state, the recordings are instructed to keep for 15 years while it is only 10 years for VAT on other items.

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