VAT implementation in Oman

Following the VAT introduction in Kingdom of Saudi Arabia, United Arab Emirates and Bahrain, the fourth GCC country that is going to be added in the list of VAT implementation is Oman. The Sultan of Oman, Sultan Haitham bin Tariq bin Taimur has recently issued a Royal Decree No. 121/2020 on the 12th of October, 2020 regarding the VAT implementation in Oman. Royal Decree issuance is considered as a significant and essential step for VAT introduction in Oman. The VAT law is expected to embark established principles related to VAT application in Oman in compliance with Unified GCC Agreement related to the Value Added Tax (VAT). It is expected that with VAT law to be published on the 18th of October, 2020 in Official Gazette, it will be effective from April 2021. Detailed information about certain areas of Law will be provided in VAT Executive Regulations which has the expected date of publishing by December 2020. Not much information is available at this point of time, however, the Tax Authority of Oman has initiated to share some information about VAT Law by its social media platforms[1].

VAT not only impacts the business in terms of finance but also warrants an evaluation of the processes, systems, agreements, documentation, strategies, contracts as well as the pricing. Businesses that had experienced the implementation of VAT in other GCC countries depict that there are two essential tasks that are required in order to prepare for introducing the VAT and these are careful planning and the management of time. Therefore, it is crucial for the businesses operating in Oman to avoid any delay and start the preparation for the implementation of VAT according to the existing VAT legislations existing in GCC and Common VAT Agreement of GCC. After the issuance of Law and Regulations of Oman by the end of this year, the businesses will be able to update the work which they have already done and thus be ready completely[2].

Business in Oman must start considering immediate steps for measuring the impact that the VAT will have on the business activities. They need to focus on implications associated with VAT introduction on the transactions they undergo and must be ready for complying with requirements of new VAT by April, 2021. There is a short time for implementation and considering the fact that Executive Regulations might not be provided before end of 2020, it is critical that the businesses begin planning for the implementation1. A minimum of 3 months is required for preparation for implementing the VAT even by the most streamlined, organized and the efficient enterprises across GCC and the rest of the world. Business must have clear-headed planning and a practically-minded advisor in order to successfully navigate the challenges and make themselves ready for compliance with VAT[3].

Framework of VAT

The Law is in-line with the VAT Agreement framework of Gulf Cooperation Council (GCC). It is similar to what Kingdom of Saudi Arabia, United Arab Emirates and Bahrain have implemented but not the exact same as them. The expected date of release of the Executive Regulations is by December 2020. It is expected that there will be 5% VAT as a standard rate on go-live date, with zero-rating as well as exemptions associated with some supplies. VAT has a wide scope and is more likely to be applicable on vast goods and services. It will be applied on goods and services importation into Oman. The transactions such as “free of charge” items as well as the personal use of the assets of the business will be treated in terms of “deemed” supplies which will be included in the territory of VAT3.

Exemption

It is expected that supplies such as financial services, bare land, healthcare, education, renting, and resale of the residential property may be exempted from VAT3.

Zero-Rating

There are several categories which may not be subjected to VAT at 5% standard rate, these categories include the basic food commodities; Medical care services as well as associated goods and services; the educational services; prerequisite for people having disabilities; Supplies for charities; Undeveloped or vacant lands; Financial services; Residential properties resale; transport services; renting of real estate for the residential purposes; Medicines or medical equipment’s supply; Investment gold, silver or platinum supply; Supply of the international transport, interchange of goods and passengers, supply of associated services; Supply of rescue or aid aircraft and vessels and lastly, Crude oil, petroleum derivatives and natural gas supply1.

Registration requirements

It is expected that the process of registration will be initiated from January 2021. According to the VAT Agreement of GCC, two types of registrations are expected3.

• Mandatory registration: For businesses having a 100,000 USD or 38,500 OMR as a taxable turnover per year, it will be compulsory to register. However businesses which make only the zero-rated supplies will have an option of seeking exemption from the registration but it will be subjected to their prior approval from the Tax Authority.
• Voluntary registration: The businesses that do not meet threshold of mandatory registration will have a voluntary registration option. The threshold for the voluntary registration is based on total supplies value approximately 50,000 USD or 19,250 OMR or else on the qualifying expenses.

Penalties

Penalties are expected in case of any violation or if there is non-fulfilment of the obligations of VAT.

[1] PricewaterhouseCoopers, “Oman: VAT to Be Implemented from April 2021,” PwC, October 12, 2020, https://www.pwc.com/m1/en/services/tax/me-tax-legal-news/2020/oman-vat-to-be-implemented-from-april-2021.html.

[2] Rhys Penning and AabhaLekhak, “Tax Flash: VAT to Be Implemented in Oman,” KPMG (KPMG, January 23, 2020), https://home.kpmg/om/en/home/insights/2020/01/oman-tax-alert-vat-to-be-implemented-in-oman.html.

[3] Deloitte, “Oman to Implement Value Added Tax from 2021: Deloitte Oman: Tax Services: VAT Alerts,” Deloitte, October 17, 2020, https://www2.deloitte.com/om/en/pages/tax/articles/oman-to-implement-vat-from-2021.html.

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.