VAT Introduction in Oman: A Brief Guide for Businesses

The Sultanate of Oman is a country located on the Arabian Peninsula's southeastern coast. It is a relatively easy place to do business, and the World Bank agrees, ranking it 68th out of 190 countries in its 2020 "Ease of Doing Business" rankings. There are no surprises here, especially given Oman's 100% foreign ownership policy and strategic geographical location controlling one of the world's most important maritime trade routes (the route between the Indian Ocean and the Arabian Gulf). The Sultan of Oman has been implementing a number of modern business laws in order to increase foreign investment in the country and revenue for the government. The most recent example is the implementation of value added tax (VAT), which went into effect in April 2021. The introduction of VAT has brought a significant change for businesses in Oman because it has a broad scope and has a far-reaching impact on all business operations. We have written this piece to help established and soon-to-be established businesses in the sultanate navigate Oman VAT.

Oman VAT Framework

The standard VAT rate in Oman is 5%. Except for certain exceptions and zero-rating provisions, this rate applies to all supplies of goods and services. Kindly note that businesses collect VAT from end users on behalf of the Omani government. As a result, your company is required to file VAT returns to consolidate payments made to relevant agencies. Based on the combined figures, your business will either have to pay a differential amount to the Omani government or be eligible for a VAT adjustment (refund) if it overpaid.

On Oman VAT Exemptions

The Oman VAT Law exempts certain supplies from VAT, including:

• Educational services, as well as associated goods and services
• Financial Services
• Health care services as well as related goods and services
• Undeveloped land (vacant land)
• Local passenger transport
• Re-sale and rental of residential properties
• Imported goods in favor of International diplomatic institutions
• Imported goods for Non-profit charity organization supplies
• Imported goods that are returned
• Imported goods for Armed forces and internal security forces

On Zero-rated Categories

They are as follows:

• Natural gas
• Crude oil (and derivatives)
• Investment gold, platinum, silver
• Export of goods and services
• Medical supplies and medicines
• Supplies of air, sea and land means of transport (like ships, aircraft, etc.)
• Supply of rescue planes, rescue and assistance boast
• Transport of goods, passengers, and related services within the Gulf Cooperation Council (GCC) or internationally
• Certain food items (like fruits and vegetables, dairy products, tea, water, etc.). There are over 488 food items listed, and the list is constantly being updated.

VAT Registration Requirements in Oman

There are two categories for Oman VAT registration:

1. Mandatory registration: Any business in Oman with taxable supplies, including imports totaling more than OMR 38,500, must register for VAT.

The VAT registration is happening in a phased manner depending upon the value of taxable supplies. Currently the registration timeline for a person whose value of taxable supplies is between 38,500 OMR and 249,999 OMR is from 01st Dec 2021 to 28th Feb 2022 and the effective registration will be from 01st April 2022. It is important for you to note that when calculating the value of supplies, the company must consider both zero-rated and standard-rated sales. Also, regardless of the value of supplies, any business run by a non-resident individual or entity is required to register for Oman VAT.

2. Voluntary registration: Voluntary registration is allowed for businesses whose taxable supplies do not reach the mandatory registration threshold.

More specifically, resident businesses with yearly supplies above OMR 19,250 may register for VAT at their own time.

Compliance Requirement

Seeing as Oman VAT is still in its infancy and evolving, the compliance requirements outlined below are subject to change. We recommend using tax audit services on a regular basis to ensure compliance in the following areas:

• Record Keeping: Every registered Oman VAT business is required to keep proper financial documents and business records, including customs documents, tax invoice details, accounting books, and records for export and import transactions.
• Returns Filing: Registered businesses are required to submit VAT returns to the Oman Tax Authorities every quarter, within 30 days following the quarter’s end.
• Penalties: The penalties for non-compliance with Oman VAT laws are severe, with fines of up to OMR 20,000 and not less than 1 year up to 3 years in prison in specified situations. Also the penalty for tax evasion is 300% of the tax due.

Next Steps

If you own a business in Oman that meets the mandatory requirements for Oman VAT, you must register your company with the Oman Federal Tax Authority. There is a dedicated online portal for this purpose, so there is no need to go in to file your documents; this also applies to VAT returns.

VAT Services in Oman

With the implementation of VAT in Oman, eligible businesses are now tasked with increased financial compliance responsibilities. Furthermore, VAT has a broad scope, and companies must consider the impact of VAT on crucial areas such as their supply chain transactions. However, this is unfamiliar territory for many, and having expert assistance can make all the difference. MBG Corporate Services offers an excellent VAT return and audit service for businesses in Oman. Our team consists of highly experienced professionals who have the knowledge to assist your company in navigating the constantly changing Oman VAT regulations and compliance requirements, ensuring your business is VAT-compliant all year long. Get in touch with us today.