Oman VAT implementation in 2021: What to expect

Deepika RajanDeepika Rajan    15 November 2020
Oman VAT implementation in 2021: What to expect

What to expect when Oman implements VAT in 2021

On the 12th October 2020, His Majesty, the Sultan of Oman, Sultan Haitham bin Tariq bin Taimur, issued Royal Decree No.121/2020 to implement VAT in Oman at 5% from April 2021. Oman will be the fourth GCC State to introduce VAT, after UAE, KSA, and Bahrain. With less than 6 months to go, this latest announcement means that all businesses in Oman
must assess the potential impact of VAT on their business and determine their VAT implementation plans. With the expected release of the VAT Executive Regulations in December 2020, all business should complete their VAT implementation and be prepared to charge and account for Value Added Tax on their supplies from day one.

Oman’s VAT regime follows the Common VAT Agreement of the States of the Gulf Cooperation Council but does have a few deviations from what we have seen implemented in UAE, KSA, and Bahrain.

Taxability

5% VAT in Oman will be applied to most goods and services including the importation of both goods and services into Oman, and also on free supplies. Some supplies will be exempt while a few will be zero-rated as well, though the distinction between an exempted supply and zero-rated is important. In both cases, no VAT is applied but when supply is exempt, the taxable person making the supply cannot deduct the input VAT, whereas, when supply is zero-rated, the input VAT can normally be deducted.

Oman VAT Law intends that the following supplies be zero-rated:

  • Foodstuff (to be determined by the decision of the Chairman)
  • Medicine and medical equipment (to be determined by the decision of the Chairman)
  • Export of goods to a destination outside Oman
  • Re-exporting of Goods that have been temporarily imported into Oman
  • Supply of goods to or within customs duty suspension
  • Export of services to a Customer outside Oman, except covered under exceptions
  • International Transport and related services
  • Supply of investment gold, silver, and platinum
  • Sea, Air and Land means of transport used for commercial transport and related goods and services
  • Supply of rescue aircraft, rescue boats, and auxiliary ships
  • Supply of crude oil and its oil derivatives, and natural gas.
  • Oman has opted to apply the VAT exemption for the following supplies:
  • Financial services
  • Provision of health care, and associated goods and services
  • Provision of education, and associated goods and services
  • Undeveloped lands (bare lands)
  • The resale of residential real estate
  • Local passenger transport
  • Renting real estate for residential purposes

By subjecting both health care and education to be exempt, Oman VAT law is the first country in the GCC to adopt this. However, this will mean many more businesses will be a “mixed taxpayer” in that they will incur or supply both taxable and exempt services and in turn recoverability of VAT on costs will be restricted. It is also interesting to note that the sale of
residential houses will be subject to a 5% VAT rate.

Registration

The VAT Registration process is expected to begin in January 2021. The mandatory registration threshold is likely to be Omani Rial (OMR) 38,500, while the voluntary registration to be set at OMR 19,250. Key highlights on registration are as follows:

The taxable turnover threshold needs to be calculated for the supplies at the end of any month in addition to the eleven months immediately preceding it (backward-looking test); or the supplies expected to be achieved at the end of any month in addition to the eleven months immediately following (forward-looking test)

A taxpayer in Oman should calculate the backward-looking test by end of October 2020.

Exemption from VAT registration may be allowed to businesses making wholly zero-rated supplies.

Businesses having multiple entities within the same corporate group can form a VAT group as well as subject to joint ownership and control. Businesses with no place of residence in Oman will have to compulsorily seek VAT registration
if they make any taxable supplies in Oman. There is no minimum registration threshold for non-resident persons.

Transitional Provisions

There are transitional provisions in the VAT Law which consider scenarios where a contract or agreement remains silent on VAT, the price is deemed VAT inclusive. It is important to always have a Tax clause which refers to the accounting treatment for all forms of taxation and whether the contract price is inclusive of any tax. For supplies for which an invoice is issued or payment is received before the implementation of VAT and for which the supply is made after, then VAT will still be due on the date of supply if it is made after the introduction of VAT in Oman.

Records, Returns, and Tax Invoices

Oman will also have tax invoices and simplified tax invoices, but the law does not prescribe the minimum information for invoices. According to the FAQs issued by the Omani Tax Authority, it seems like many of the requirements of a tax invoice would be the same as the ones stated in the UAE VAT Law.

The Executive Regulations will confirm the above details along with answering the question of whether tax invoices in English are acceptable. Tax invoices can be issued in a different currency but need to be converted according to Central Bank rates.
Tax invoices and other records need to be kept for 10 years. The format of the VAT return is not known yet, but every taxable person shall file a tax return and pay the net tax payable to the Authority within thirty days following the end of the tax period.

Penalty

Oman has implemented strict penalty provisions in case of violation or non-fulfillment of VAT obligations. For example, a business owner who deliberately does not register for VAT purposes is punishable with one to three years imprisonment or with a fine of 5,000 OMR (approx. 13,000 USD) to 20,000 OMR (approx. 52,000 USD). The same penalties apply, amongst others, when a business deliberately refrains from reporting correct data in its tax return, or when it is found to be evading tax.

Consumer Impact

We can expect, as we have already seen in the other three GCC States, a spike in consumption in the run-up before the introduction of VAT, and a dip right after, with a marked increase in inflation. So retailers should expect to see consumers to pre-order goods and services ahead of the introduction date and will need to stock up to provide for the rush. Typically, residents tend to resort to the purchase of luxury items before the introduction of VAT, i.e. cars and jewelry so financing for larger ticket purchases will also be in demand. Over time, the introduction of VAT at a low standard rate of 5% will be absorbed into prices.

What’s Next

The key dates are :

• December 2020: Publication Executive Regulations
• January 2021: Opening Registrations
• April 2021: Implementation of VAT
• 30 June 2021 (expected): Filing of the first VAT return

Businesses that have not yet begun their VAT implementation projects will need to start preparing by evaluating their current position, available resources, and VAT-readiness plan. Being a transactional tax, VAT is expected to have a wide impact across the business.

Some of the key areas to assess the readiness for VAT include:

  • VAT treatment of both domestic and overseas sales and purchases
  • Deemed / free supplies
  • VAT Registration – single, group, exemption
  • Contracts and pricing including payment settlement terms
  • Transitional supplies which span the introduction date
  • IT ERP Accounting system and IT configuration, Tax coding
  • Invoicing – can your IT system generate a VAT invoice, credit notes
  • VAT compliances – who will be responsible for VAT in your business

There will be further details in the Executive Regulations to be released in December 2020.

 

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax

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