The introduction of VAT in the Sultanate of Oman: a brief legal guide

Oman

GCC member states all signed up to the GCC-Wide VAT Agreement in 2016, which serves as a guide for gulf council states to implement almost identical, domestic value added tax (VAT) laws in the supply chains of their countries. Oman has recently implemented this Agreement by passed the VAT Law (Royal Decree No. 121/2020), which came into effect on 16 April 2021.

The VAT Law has introduced a standard rate of 5% VAT in Oman, which will apply to all suppliers of goods and services, therefore impacting the entire supply chain, subject to certain carve outs for zero rated supplies and exempt supplies which are discussed below. 

In this article we consider some key features of the VAT Law for Omani companies including registration, VAT calculations, the rates of VAT, the appointment of responsible person and record keeping.

1. Registration

In order to remain legally compliant and receive the benefits of VAT implementation, companies must check whether they are able to register for VAT. Prior to registration, all companies must also ensure they have obtained a tax card with a tax identification number.

The VAT Law sets out various types of registration, as follows:

  1. Mandatory Registration
    • Companies must register for VAT if their total value of supplies made in the last financial year exceeds OMR 38,500; and

  2. Voluntary Registration
    • Companies have the option to register for VAT if their total value of supplies or expenditure made in the last financial year exceeds OMR 19,250. Although such registration is not necessary.

Companies cannot register for VAT if their total value of supplies or expenditure made in the last financial year was less than or equal to OMR 19,250.

2. Schedule for VAT registration:

The following table sets out the schedule for VAT registration for companies from the Chairman’s Decision determining the VAT Registration Due Dates and Effective Dates (Tax Authority Decision No. 3/2021):

Category

Date of Company

Registration for VAT

Date on which company is to start charging VAT

If the annual value of supplies of the company exceeds or is expected to exceed

OMR 1,000,000

1 February 2021

to

15 March 2021

16 April 2021

If the annual value of supplies of the company is between

OMR 500,000 & OMR 999,999

1 April 2021

to

31 May 2021

1 July 2021

If the annual value of supplies of the company is between

OMR 250,000 & OMR 499,999

1 July 2021

to

31 August 2021

1 October 2021

If the annual value of supplies of the company is between

OMR 38,500 & OMR 249,999

1 December 2021

to

28 February 2022

1 April 2022

The voluntary registration process began on 1 February 2021 and such registrations are effective from the date specified on the relevant VAT registration certificate.

3. VAT Calculations

On a quarterly basis, each company that has registered for VAT needs to calculate the VAT it has charged on the goods and services it has supplied (output VAT) and the amount of VAT it has paid on the goods and services it has received (input VAT).  If the output VAT is higher than the input VAT, it is required to pay the balance to the Tax Authority.  If the input VAT is higher than the output VAT, it is entitled to request the balance from the Tax Authority.

4. Rates of VAT

Depending on what category of goods and services a company provides, the amount of VAT to be applied varies:

  1. Zero Rated Supplies
    • Although the supply of goods and services is still taxable, customers are charged VAT at 0% rate.

    • Companies may still claim any VAT they incurred on supplies.

    • Therefore, the company can still net the output tax it receives (which is zero) against its input tax and claim the balance from the Tax Authority.  However, this is only possible if the company is VAT-registered.

    Goods and services that fall under this category include:

    • Supply of certain foodstuffs which have been specified by the Tax Authority in its Decision on determining Zero-rated Foodstuffs (Tax Authority Decision No. 2/2021);

    • Supply of specific medicines and medical equipment;

    • Supply of investment gold, silver and platinum;

    • Crude oil, petroleum products and natural gas; and

    • Supply of international transport and intra-GCC transport of goods and passengers, including related services.

  2. Exempt Supplies
    • Sales of goods and services are exempt from VAT and therefore such companies cannot claim credit for the VAT they have paid for the supply of goods and services.

    Goods and services that are exempt from VAT include:

    • Financial services;

    • Healthcare services and goods and services associated with it (but excluding services such as food and drink for visitors and renting a television);

    • Educational services and goods and services associated with it;

    • Undeveloped land;

    • Local passenger transport;

    • Renting and reselling of residential estate (but excluding certain real estate including hotels, tourist complexes, industrial complexes, commercial complexes, hospitals and structures which may be transported without damage);

    • Personal belongings and gifts brought by travellers coming to the Sultanate; and

    • Supplies for people with disabilities.

  3. Standard Rated Supplies
    • A standard 5% VAT is applied.

    • Therefore, the company can net the output tax it receives against its input tax and claim/pay the balance from/to the Tax Authority.  However, this is only possible if the company is VAT-registered.

5. Appointment of Responsible Person

The VAT Law requires the appointment of a responsible person from the company to fulfil the obligations imposed by the VAT Law. The position of this individual may vary depending on the type of company. The company must inform the Tax Authority of such appointment. 

6. Record keeping

Companies must keep any documents related to VAT, such as records and documents related to imports and exports of goods, for a period of ten years from the date of the end of the previous tax period in which the relevant tax return has been submitted. This period is extended to fifteen years for capital assets relating to real estate.

If you have any legal questions on the implementation of VAT in Oman, please contact us.