Taxes in Oman for Businesses in 2024: What You Need to Know

The tax landscape in Oman has undergone significant changes over the past few years, transforming the country into a more structured and transparent jurisdiction for businesses. As a crucial player in the Middle Eastern economy, Oman’s tax system is designed to support its economic diversification initiatives and attract foreign investments. This article provides a detailed overview of the tax regulations in Oman for 2024, covering corporate tax, VAT, withholding taxes, and available incentives. Understanding these aspects is essential for businesses looking to establish or expand their presence in the Sultanate of Oman.

1. Overview of Oman’s Tax System

Historically, Oman was known for its minimal taxation policies. However, in recent years, the country has introduced a variety of taxes to reduce dependency on oil revenues and align its economic policies with international standards. The tax system in Oman now comprises several components, including corporate income tax, value-added tax (VAT), and social security contributions.

The Omani tax authorities operate under the Ministry of Finance and the Secretariat General for Taxation (SGT), which are responsible for the administration and enforcement of tax laws in the country. Businesses must be well-acquainted with the tax regulations to ensure compliance and avoid penalties.

2. Corporate Income Tax

2.1. Corporate Tax Rates in 2024

Oman’s corporate income tax is applicable to all registered businesses and permanent establishments operating in the country. For 2024, the standard corporate income tax rate remains at 15%, which is competitive within the GCC region. Small and medium-sized enterprises (SMEs) may qualify for a reduced tax rate of 3%, provided they meet specific criteria, such as having annual revenues not exceeding OMR 50,000 and employing a workforce of no more than 15 employees.

2.2. Taxable Income and Deductions

Taxable income in Oman is calculated based on the global income of a business entity, regardless of its source. Companies are allowed to deduct business expenses, including salaries, rental costs, and operational expenses, from their taxable income. However, certain expenditures, such as entertainment and private expenses, are non-deductible.

2.3. Tax Compliance and Filing Requirements

Corporate tax returns must be filed within six months following the end of the fiscal year. The tax year in Oman typically runs from January 1 to December 31. Companies are required to pay their taxes in three installments throughout the year, with a final settlement based on the annual tax return. Late filing or payment of taxes may result in penalties, ranging from 1% to 2% of the due tax amount per month.

3. Value-Added Tax (VAT)

3.1. VAT Introduction and Implementation

Oman introduced VAT on April 16, 2021, as part of its economic diversification plan. The VAT rate is currently set at 5%, which applies to most goods and services, making Oman’s VAT structure one of the lowest in the region.

3.2. VAT Registration and Compliance

All businesses with annual supplies exceeding OMR 38,500 are required to register for VAT. For businesses with supplies exceeding OMR 19,250, voluntary registration is available. VAT returns must be filed quarterly, and any errors or omissions must be corrected promptly to avoid penalties.

3.3. Zero-Rated and Exempt Supplies

Certain goods and services are either zero-rated or exempt from VAT in Oman. Zero-rated supplies include basic food items, healthcare services, education services, and exports. Exempt supplies include financial services, life insurance, and the sale of undeveloped land. Businesses engaged in zero-rated or exempt activities should be aware of the implications for their VAT recovery and compliance obligations.

4. Withholding Taxes

Oman imposes withholding taxes on specific types of payments made to non-residents. The withholding tax rate is 10% and applies to payments for royalties, interest, dividends, technical services, and management fees. This measure ensures that non-residents who derive income from Oman contribute to the country’s tax revenues.

4.1. Exemptions and Double Taxation Agreements (DTAs)

Oman has signed multiple DTAs with various countries to eliminate double taxation and encourage cross-border trade and investment. Businesses from countries with DTAs may benefit from reduced or exempt withholding taxes, depending on the terms of the agreement.

5. Social Security Contributions

Employers in Oman are required to make social security contributions on behalf of their employees. The contribution rate for Omani employees is 18.5%, which comprises 11.5% paid by the employer, 7% paid by the employee, and an additional 1% for occupational injuries. Expatriate employees are not subject to social security contributions but are required to pay for private health insurance.

6. Tax Incentives and Free Zones

6.1. Special Economic Zones and Free Zones

Oman offers several tax incentives for businesses operating within its Special Economic Zones (SEZs) and Free Zones. These zones include the Duqm Special Economic Zone, Salalah Free Zone, Sohar Free Zone, and the Knowledge Oasis Muscat. Companies operating in these zones can benefit from corporate tax exemptions for up to 30 years, exemptions from customs duties, and full foreign ownership rights.

6.2. Research and Development (R&D) Incentives

Businesses engaged in research and development activities are eligible for additional tax incentives, including higher depreciation rates for R&D equipment and tax credits for qualifying expenses. The Omani government actively encourages innovation and technology transfer through these incentives to diversify the economy further.

7. Recent Developments and Future Outlook

In 2024, Oman’s tax regime is expected to remain stable, with ongoing efforts to increase transparency and align with international standards. The Omani government is also considering the introduction of new taxes, such as personal income tax, to further broaden its revenue base. These potential changes could significantly impact the tax environment and increase the overall tax burden on businesses and individuals alike.

7.1. Economic Diversification Initiatives

Oman Vision 2040, the country’s long-term economic strategy, aims to reduce dependency on oil revenues by developing non-oil sectors such as tourism, manufacturing, and logistics. The tax policies are designed to support these initiatives by offering incentives to businesses that contribute to economic diversification.

7.2. Compliance with Global Standards

Oman is a member of the Gulf Cooperation Council (GCC) and has committed to implementing international standards for tax transparency and information exchange. The country is also part of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), indicating its willingness to comply with global tax norms and avoid harmful tax practices.

Conclusion

Oman’s tax system for businesses in 2024 offers a balanced approach, with competitive corporate tax rates, a low VAT rate, and various incentives for companies operating within its free zones and special economic zones. The government’s focus on economic diversification and alignment with international standards makes Oman an attractive destination for foreign investment. However, businesses should remain vigilant about compliance requirements and potential changes in tax policies that could impact their operations.