Withholding Tax in Oman
As effective from 2010, direct taxes in Oman mainly compose of Corporate Income Tax and withholding tax. There are companies in UAE having routine transactions with their counterparties in Oman and it is important for them to know about the tax implications and provisions relating to withholding tax in Oman on their activities.
What is meant by withholding tax?
Withholding tax is the portion of tax amount that a party withholds while making payment to another party as per the tax rules in the country in which the payment is made. The withheld amount is then paid directly to the government of the country by the payer. The percentage of tax rate applicable to each payment may differ based on tax accounting in the country and there can be exemptions as well on certain payments.
What are the implications of withholding tax in Oman?
Apparently, there is no personal income tax in Oman and hence no compliance obligations for employers in Oman relating to withholding tax for personal income tax. However, Corporate tax is applicable to companies having commercial activities in Oman or individuals in their capacity as proprietor of commercial entities in Oman. Also, provisions of withholding tax are applicable to foreign persons including individuals on payments against an income earned in Oman. Tax rates differ based on the nature of the transaction and the type of parties involved. There is some concession for Oman nationals in the rates when the corporate tax is concerned.
Will there be withholding tax on export of services to Oman by UAE companies?
Tax regulation in Oman specifies the types of payments for which the withholding tax is applicable. Such payments include fees for management, provision of services, royalties including rental income from industrial, commercial and scientific equipment, research and development, use or right to use computer software, dividends on shares of joint-stock companies and interest. Hence if any company in UAE provides these services to clients in UAE will trigger off the withholding tax in Oman and the client shall deduct the tax amount on the payments due to the UAE Companies at the rate as prescribed in the tax regulation.
Is withholding tax applicable to companies or foreign nationals which do not have a permanent establishment in Oman?
Yes, there are scenarios where the applicability of withholding tax is triggered on payments received by companies or foreign nationals which do not have a permanent establishment in Oman. For example, an accounting professional of a consulting firm in UAE travelling to Oman to provide consulting services to a company for a year. This service falls under the applicable category and the Company in Oman shall deduct the tax on payments to the professional for the work performed in Oman, though the professional or consulting firm in UAE has no permanent establishment in Oman.
Are there any criteria to be met to apply withholding tax on payments in Oman?
To trigger the applicability of withholding tax in Oman, the fundamental criteria is that the payment shall be relating to an income realised in Oman. How to identify whether the income is realised in Oman is defined as the source of the fund for such payment is from Oman. Hence to identify the source of the fund for the payment is as important as identifying the nature of payment whether applicable for a tax cut or not while determining the withholding tax responsibilities before making any payment in Oman. For example, Interest income earned by a foreign national on any bank deposit in Oman will trigger the deduction of tax by the bank. In this case interest payment falls under the tax applicable list of payments and also the source of fund which is the bank deposit is in Oman.
Are there any payments which are excluded from withholding tax in Oman?
There are few types of payments which are excluded from services for the purpose of withholding tax in Oman which includes training, conferences, seminars or exhibitions, transportation of goods, insurance of such transported goods, tickets for airline passengers, expenses on staying abroad, board meetings, reinsurance expenses and services relating to any activity or property which is located outside Oman.
CDA Taxation Services
CDA has competent and qualified tax professionals who can help you to identify the tax impacts on your activities in Oman and clarify your questions in this regard. It is important to be aware of the tax-related provisions and rules prevailing in the country where you have or intend to have any operations or payments. We have experience in providing tax and accounting advice over various complex scenarios to clients in multiple sectors, which can be potentially handy to improve the tax, accounting and reporting functions in your company.
This brings us to the completion of our discussion on withholding tax in Oman. Still, do you have tax-related queries on your activities in Oman? Feel free to contact CDA for your assistance and clarifications. CDA will offer you a one-hour free consultation where we can discuss more on recent developments in a tax point of view.
