Oman Guide: What Is The VAT Impact On Financial Services Sector In Oman?
In an effort to boost the dipping GDP of the country, the government in Oman has imposed VAT on several sectors. With this development, Oman became the fourth country in the GCC to incorporate VAT. It was on 16thApril that VAT in Oman was introduced, following the footprints of the UAE, Bahrain, and KSA. People working in the financial services sector would be interested to know the implications of value added tax. In this post, you will get to know everything about VAT for financial services sector in Oman.
VAT exemptions for financial services sector in Oman
According to the laws defining VAT in Oman, some financial services have been exempted from 5% taxation, as per Article 47. Oman is going to follow the same VAT policies, as followed in the UAE, Bahrain, and KSA. Therefore, only the margin or interest-based financial services would be exempted from VAT. Besides, further regulations are yet to specify the criteria, that would govern the taxation norms in this segment.
Financial services with standard VAT rates
The general VAT rates on financial services would be 5%, which is also applicable to all other sectors. This would be applicable for remittance fees, bank fees, annual card fees, loan processing fees, etc. Although Oman needs to comply with the same treatment, further legislation would be necessary to confirm the specifications.
However, when financial services are supplied to someone residing outside Oman or the GCC, the zero VAT rate would be applicable.
Irrecoverable VAT in Oman
For financial institutions operating in Oman, irrecoverable VAT may prove to be a major expense. This might have a significant impact on their pricing policies. Therefore, it is necessary to carry out an assessment of the VAT cost early, so that the institutions can understand the bottom-line impacts.
Input VAT allocation on finances
Financial institutions often find it challenging to distribute and monitor input VAT between exempt supplies and taxable supplies. All the GCC nations have launched their own delivery systems for input VAT. The businesses operating in the financial sector use this system to get an idea of the recoverable input VAT on overheads. Regulations are yet to validate the system that financial institutions in Oman are supposed to follow.
Mixed supply in Oman
As a part of norms governing the VAT for financial services sector in Oman, any financial service that consists of different components, or bundled services would be treated differently when it comes to taxation. However, these services need to be supplied separately to be taxed. Therefore, it is imperative to evaluate these attributes carefully before providing the relevant VAT treatments.
The imposition of 5% VAT on various sectors demonstrates that Oman is adhering to the Common VAT Agreement of GCC. For more than a year, starting from February 2020, the country has been urging its businesses to register for value added services. At a time when the pandemic has rendered domestic revenue inflows low, the government of Oman expects to make up around 1.5% of their GDP through VAT.
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