Oman – new treaty with Spain, social insurance update

Oman – new treaty with Spain, social insurance...

Oman’s newly signed treaty with Spain reduces withholding tax rates and includes a new limitation on benefits clause to prevent treaty shopping. Oman also increased employer and employee contributions to Public Authority for Social Insurance and broadened the base for calculating these contributions to include allowances.


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Treaty between Oman and Spain signed

On 30 April 2014, Oman and Spain signed an income tax treaty. The tax treaty has not yet entered into force, so it is not yet effective. Highlights of the treaty are as follows:

  • The treaty generally follows the OECD Model Tax Convention.
  • The tax treaty provides for maximum withholding tax rates of:
    • 10 percent on dividends (0 percent in case of a beneficial owner company subject to conditions)
    • 5 percent on interest
    • 8 percent on royalties (defined to include payments for the use of, or the right to use, industrial, commercial or scientific equipment).
  • A permanent establishment includes a building site, a construction or an installation or assembly project if it lasts for more than 9 months.
  • For the purposes of article 8, the terms "profits from the operation of ships or aircraft in international traffic" by an enterprise includes profits from:
    • the lease of ships or aircraft on charter fully equipped, staffed and supplied
    • the lease on a bare boat charter basis of ships or aircraft used in international traffic
    • the use, maintenance or lease of containers, where such lease is ancillary to the exploitation of ships or aircraft in international traffic.
  • Capital gains from the alienation of shares, participations or other rights, which directly or indirectly entitle the owner of such shares, participations or rights to the enjoyment of immovable property situated in a contracting state, may be taxed in that state.
  • Teachers and researchers who are invited by a university or other similar teaching institution for the purpose of teaching or carrying out research are exempt from tax in the source country if their stay does not exceed a 2-year period.

Credit method

Spain and Oman apply the credit method for the avoidance of double taxation. In addition, if the income derived by a resident of Spain/Oman is exempt from tax under the treaty, Spain/Oman may still take into account the exempt income in calculating the amount of tax on the resident's other income (exemption with progression). 

Further, subject to Spanish domestic law, Spain grants an indirect tax credit for the underlying tax effectively paid on the benefits of the company resident in Oman out of which the dividends are paid to a company resident in Spain.

Anti-treaty shopping clause

A limitation of benefits clause is introduced under the protocol to the treaty under which:

  • Both states are entitled to apply their domestic anti-abuse provisions.
  • Treaty benefits do not apply to non-beneficial owners.
  • The two states are not prevented from applying their domestic controlled foreign company (CFC) rules.
  • Articles 10 (dividends), 11 (interest), 12 (royalties) and 13 (capital gains) do not apply where obtaining treaty benefits is one of the main purposes of any person related to the creation or transfer of shares or other rights generating dividends, the credit generating the interest, or royalties.

Social insurance update

Under new social security rules,12 employers’ contributions to the social insurance scheme governed by the Public Authority for Social Insurance (PASI) is increased to 10.5 percent (from 9.5 percent) and the employee’s contribution is increased to 7 percent (from 6.5 percent). Employers’ contributions to insurance against work-related injuries and illness are unchanged at 1 percent. 

As of 1 July 2014, employer and employee contributions are calculated on the sum of the basic salary and allowances paid in cash and in kind. Thus, social insurance contributions are now assessed on an employee’s total gross salary (previously basic salary), subject to a monthly gross salary cap of 3,000 Omani rials (OMR). 

How ‘allowance’ is defined is unclear, although it likely includes employer-provided cars, mobile phones or accommodation. Employers will need to assign a monetary value to such employee benefits. Allowances also include ‘periodic’ allowances that are paid at least four times during a year. 

Social insurance contributions are payable for a whole month regardless of the date on which an employee starts work. Where an employee is terminated during any part of the month, the social insurance contribution is not payable for the final month unless the termination date falls on the last day of the month. 

Additionally, the minimum old age pension for beneficiaries under the social insurance scheme (received from PASI) shall be raised from the present OMR150 to OMR202.5008. The pension is calculated on ‘gross wage’ and not ‘basic wage’.

12Royal Decree 61/2013, effective from 1 July 2014.

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