Oman – Update on recent tax changes

Oman – Update on recent tax changes

Below are updates on Omani tax developments related to the country’s 2014 Budget, withholding taxes, late-filing penalties and its new treaty with Japan.

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Oman’s 2014 budget projects break-even oil price will reach US$112 per barrel

In its 2014 budget, the Oman government says it expects revenue to grow by nearly 5 percent in 2013 and 2014, but increased public expenditure is set to push the break-even oil price to 112 US dollars (US$) per barrel (compared to a budgeted barrel price of USD 85). Overall, the government expects to see nearly 5 percent economic growth in both 2013 and 2014.

Income tax revenue is expected to rise by 14 percent, to 400 million Omani rial (OMR), and customs duties revenues are expected to rise by 23 percent, to OMR 270 million. These increases were largely expected, given the Tax Authority’s deployment of more resources and more dedicated focus on the part of specialist teams, such as the Large Taxpayer and Withholding Tax units. Following a settling-in period for the new Income Tax Law (effective 1 January 2010), the Tax Department can be expected to strengthen the soft approach that it has taken so far. Taxpayers could see income tax penalties being enforced more regularly (see ‘Date to remember’ below).

In light of rising public expenditure and a budgetary deficit of OMR 1.8 billion, the government has highlighted the need for increased private investment– both local and international – in public sector projects and greater use of public-private partnering. The government also acknowledges the need to develop non-oil revenues and diversify the economic base.

Read KPMG’s Oman Budget Newsletter 2014 (PDF 171 KB).

Withholding tax on software and other items

As part of a taxpayer outreach initiative, the Oman Tax Authority recently held a training session to bring more clarity to withholding tax matters. The training focused on withholding tax on software and whether a payment to acquire software would be categorized as a “royalty” or as “consideration for use or right to use of software” – a hot topic of debate for Omani taxpayers.

The Tax Authority further clarified that withholding tax does not apply to payments made:

  • For the use of satellite transponder capacity
  • For the use of cable bandwidth for transmission of electricity or communications
  • Under roaming agreements from one telecommunication operator to another.

Highlights of the Tax Authority’s comments on software-related payments are as follows:

  • Where a software owner transfers full ownership of the software to the customer (i.e., retains no right over the software), the transaction is treated as a software development service and no withholding tax applies.
  • Where a software owner grants the right to use some of its proprietary or intellectual property to the customer without divesting itself of these rights, the customer’s payments would be treated as a “royalty” and withholding tax would be applicable.
  • Where the software owner grants only the right to use the software itself, without granting any right to use any other proprietary or intellectual property right in the software, payments made by the customer would be treated as “consideration for right to use software” and withholding tax would be applicable.

The Tax Department clarified that where payments are made to countries with which Oman has a tax treaty, the treaty’s provisions would override the provisions of domestic law.

File 31 December year-end returns by 31 March

For companies in Oman with fiscal years ending 31 December 2013, the due date for filing Provisional Returns of Income and tax payments is 31 March 2014. The penalty for missing the deadline could be up to OMR 1,000 under Article 179 of the Tax Law.

The Tax Department has not enforced the penalty in the past, but, at a recent KPMG seminar, the Secretary General for Taxation said that such penalties could be enforced in future. The Ministry of Finance in fact alerted taxpayers with a notice to this effect before the due date for submitting last year’s return.

Japan and Oman sign double tax treaty

The governments of Japan and Oman signed a new tax treaty on 9 January 2014, during a two-day visit to Oman by Japan’s Prime Minister and other delegates. Watch future editions of MESA Tax Update for details and the treaty’s expected coming into force date.

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