KPMG in Oman summarizes developments regarding Oman’s withholding tax and the country’s implementation of the Gulf Cooperation Council’s value-added tax framework.
In February 2017, Oman introduced a new withholding tax regime that, among other things, prescribes withholding tax at the rate of 10 percent on interest and dividends paid by Omani payers to foreign persons. The tax is due within 14 days from the end of the month in which the interest or dividend is accrued or paid.
The withholding tax on interest is particularly adverse for Omani businesses, especially those in financial services and capital intensive sectors, which rely heavily on overseas debt funding to conduct their business. While foreign interest recipients are legally liable for the tax, commercially, it ends up being an added operating cost for Omani businesses (due to grossing-up clauses in loan agreements). Given the adverse impact on investment and the current economic environment, the tax authority is reviewing these provisions. Executive regulations are expected that may reduce the impact on Omani businesses.
Pending the issuance of the executive regulations, KPMG in Oman has helped companies obtain clarification from the tax authorities allowing Omani payers of interest (to overseas lenders) to hold the deposit of these withholding taxes with the Omani tax authorities. Such clarification has helped many businesses avoid the cost of the withholding tax liability on overseas interest payments, which they otherwise would have been required to remit and bear as their expense.