Oman Implements VAT

April 23, 2021, 7:01 AM

The Sultanate of Oman issued its VAT Law on October 18, 2020, setting out its regime for a value-added tax (VAT). The accompanying Executive Regulations (Regulations) were published on March 14, 2021. These Regulations provide implementing guidelines to the VAT Law. The Omani VAT regime has now come into effect from April 16, 2021.

In their previous article, the authors touched on a number of potential Omani VAT issues: the importance of contracts and appropriate VAT clauses, ascertaining correct VAT treatment, VAT registration and gathering information from customers, VAT recovery issues and VAT grouping and VAT litigation avoidance strategies. This article seeks to address new information published since the issuance of the Omani VAT Law as well as additional guidance provided by the Regulations.

In this article the following topics are (re)visited based on greater insights provided by the Regulations:

  • different potential VAT treatments;
  • VAT invoice requirements;
  • VAT registration, information collection and recordkeeping;
  • VAT recovery and VAT grouping.

Different Potential VAT Treatments

The VAT treatment depends primarily on where a supply of a good or service takes place (or is deemed to take place). With respect to goods, the supply is in principle where the goods are located on the date they are placed at the recipient’s disposal. With respect to services, the place of supply depends on (i) the type of recipient (i.e., business-to-business or business-to-consumer) and (ii) the type of service.

Special rules may apply to certain services such as real estate related services or electronically supplied services (or e-services). Real estate related services and e-services are always deemed to be supplied where the real estate is located and where the recipient is located, respectively. Particularly, overseas business-to-consumer suppliers of e-services should be aware that they will need to register, charge, collect and remit Omani VAT to the Omani tax authorities (OTA).

Businesses in Oman importing services or goods may need to account for Omani VAT by means of a reverse charge mechanism. Such VAT would in principle be recoverable if and to the extent the business itself renders VAT taxable activities.

As mentioned above, different VAT rates may apply. Supplies may either be taxable at 5% or 0% (so-called zero-rated), VAT exempt or out of scope of VAT. The following supplies are exempt from Omani VAT:

  • financial services;
  • provision of health care, and associated goods and services;
  • provision of education, and associated goods and services;
  • undeveloped land (bare land);
  • resale of residential real estate;
  • local passenger transport; and
  • renting real estate for residential purposes.

In addition, the importation of certain goods is VAT exempt (e.g., personal items, necessities of non-profit associations and returned goods). The Regulations provide additional guidance on the scope of the foregoing exemptions. Similar to EU VAT exemptions, in principle an exemption has a limited rather than a broad application, so scrutiny is advised.

The 0% VAT rate applies to the following supplies:

  • supply of foodstuffs;
  • supply of medicines and medical equipment;
  • supply of investment gold, silver and platinum;
  • supplies of international transport and intra-Gulf Cooperation Council (GCC) transport of goods and passengers and the supply of related services;
  • supply of sea, air and land means of transportation for transporting of goods and passengers for commercial purposes, and the supply of goods and services related to these means of transportation;
  • supplying rescue aircrafts, rescue boats and auxiliary ships; and
  • supply of crude oil and its oil derivatives and natural gas.

In addition, the export of goods out of Oman is also subject to a 0% VAT rate. It is noteworthy that Oman implemented all 0% VAT rated supplies which were mentioned in the overarching GCC VAT Agreement of 2016, including foodstuffs (which is an optional provision). The scope of the 0% VAT rate for the supply of foodstuffs is however limited to a specific list as determined by the OTA. The currently published list mostly contains food items which can be qualified as being essential (i.e., no soft drinks, sweets or chocolate).

These VAT exemptions and zero-rated supplies are subject to various conditions as set out by the Regulations. As they constitute exceptions, their scope should in general be interpreted strictly.

The correct VAT treatment is particularly important for the recovery of input VAT at the recipient’s level. Furthermore, fines and/or penalties may be imposed in case supplies are incorrectly treated for Omani VAT purposes. Fines for non-compliance range from 500 Omani rial ($1,300) up to 10,000 rial. As with the other GCC member states, certain acts of VAT non-compliance may be penalized with imprisonment (up to three years).

VAT Invoice Requirements

Taxable persons are required to issue a tax invoice when making taxable supplies. This includes deemed supplies and upon receipt of advances. The Regulations provide the following invoice requirements (Article 144):

“1- The term “Tax Invoice”.

2- The date of issuance of the Tax Invoice, the date of supply, and the date of payment.

3- The sequential number of the Tax Invoice.

4- The supplier’s full name, address and Tax Identification Number.

5- The customer’s full name, address and Tax identification number, if any, or its equivalent in his country of residence if he has no place of residence in the Sultanate.

6- Description of the supplied goods and services.

7- The quantity of goods.

8- Payment date of advance payment, if any,

9- Total consideration excluding Tax.

10- The applied Tax rate.

11- Any price discounts, or reductions granted to the customer, or any subsidies granted by the State that were not included in the value of the consideration excluding Tax.

12- Taxable value.

13- Value of the Tax due.”

Provided the value of a supply (excluding tax) does not exceed 500 rial and the nature of the supplies does not require the issuance of an immediate tax invoice, the Regulations provide for the option to issue a simplified tax invoice. The simplified invoice has fewer requirements and the issuance thereof is subject to prior approval by the OTA.

VAT Registration, Information Collection and Recordkeeping

A person carrying on a business in Oman and making taxable supplies of goods or services exceeding the mandatory registration threshold will be required to register for Omani VAT purposes and file periodical VAT returns. As confirmed in a decision from the OTA, the mandatory registration threshold per 12-month period is set at 38,500 Omani rial and the voluntary registration threshold is set at 19,250 rial. No threshold applies to nonresident persons, which means that businesses established outside of Oman may under certain circumstances be obliged to register for VAT from the first Omani rial charged.

The Omani VAT registration is introduced in multiple phases (i.e., a staggered introduction) which started in March 2021 with businesses with a taxable supply turnover of 1 million rial. The VAT registration for businesses with a taxable supply turnover of 500,000 rial started on April 1, 2021 and continues until May 31, 2021.

For businesses making preparations to VAT register and assess their VAT position, it remains to be seen how accommodating the OTA will be towards nonresident taxpayers. Bahrain, the United Arab Emirates and the Kingdom of Saudi Arabia have each provided ample (guidance) documentation in both Arabic and English.

As mentioned above, e-services provided by an overseas supplier are subject to VAT if the recipient of such services is located or residing in Oman. A reverse charge mechanism applies in case of business-to-business supplies of e-services, under which the burden of VAT is shifted from the overseas supplier to the Omani recipient. As of April 16, 2021, foreign and domestic e-service suppliers should therefore actively obtain customer information (i.e., VAT number) to determine their customers’ status for VAT purposes (business or consumer).

The Regulations clarify which records a taxable person is required to maintain. This includes but is not limited to:

  • daily transactions details in chronological and sequential manner;
  • inventory record, where the inventory items, the budget and the total/result count are recorded;
  • records and documents related to the supplies of imported and exported goods and services;
  • records and documents related to the intra-GCC supplies of goods and services;
  • records and documents related to all customs transactions;
  • all tax invoices and other documents issued by the taxable person;
  • all tax invoices and other documents received by the taxable person; and
  • records that include information necessary to determine the correct tax treatment.

These records can be kept electronically, provided certain conditions stated in the Regulations are met. Furthermore, the records can be kept in any language, provided that they can be provided to the OTA in Arabic, upon request.

VAT Recovery and VAT Grouping

Omani businesses should in principle be able to recover incurred Omani VAT if and to the extent that they render VAT taxable activities. VAT recovery will normally only be possible if the recipient has received a tax invoice which adheres to the Omani VAT invoice requirements. Part of these requirements will be the inclusion of details on the supplier and recipient. As such, any incurred VAT on incorrectly issued invoices (e.g., wrong issuing party, wrong VAT rate and/or other missing requirements) may not be recoverable.

Businesses operating in Oman should therefore (pre-emptively) develop internal VAT policies to ensure proper VAT administration and invoicing.

The Regulations provide the manner in which a taxable person should claim a refund of VAT. The Regulations state that a refund application must be submitted in a standardized form to the OTA.

This refund application should include the amount of the VAT refund requested, the reason for the refund, and the tax period to which it relates. The refund of VAT may be claimed by the taxable person in the instances where:

  • the VAT paid is in excess of the VAT due;
  • the VAT is paid by a person who is not a resident in Oman;
  • the VAT is paid by a foreign government, military, diplomats, etc.;
  • the VAT is paid by tourists on goods purchased in Oman who carry them along as personal baggage; or
  • cases are prescribed by the OTA through an executive decision.

As per the Regulations, refund claims must be submitted within a period of five years from the end of the tax period in which it becomes due, otherwise this right shall be forfeited.

A VAT group is a facility that allows two or more taxpayers to be registered for VAT purposes as a single taxpayer. The VAT group scheme may be particularly of interest to taxpayers with a restricted VAT recovery rate which are part of a group with non-restricted businesses. Inclusion of such taxpayers in the VAT group may provide for (additional) VAT recovery.

In addition to VAT grouping, businesses should carefully review their existing Omani structures and supply chains, in particular with respect to “inactive"/"dormant” holding companies which may incur irrecoverable VAT on a regular basis. There are various ways in which a holding company can strengthen its VAT recovery position.

Planning Points

In anticipation of the introduction of Omani VAT, businesses operating in Oman should address the new state of play. In this respect, the planning points from the authors’ prior article still hold true:

  • Assess the business’s legal structures and supply chains to identify and highlight Omani VAT risk areas.
  • Subsequently, review legal arrangements (contracts and terms) to determine whether they reflect the economic reality and whether they include appropriate tax clauses.
  • Revise contracts that are “silent” on VAT (which may be challenging from a commercial perspective).
  • Ensure that new and future contracts contain appropriate tax clauses.
  • In terms of VAT recovery, businesses should explore various opportunities to enhance their VAT recovery position. Such opportunities may include but are not limited to VAT grouping, revisiting financial arrangements and/or “dormant” holdings.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Ton van Doremalen is a Partner, Head of Tax, Middle East, Daan Arends is a Partner, and Wouter Kolkman is an Associate with DLA Piper.

The authors may be contacted at: ton.vandoremalen@dlapiper.com; daan.arends@dlapiper.com; wouter.kolkman@dlapiper.com

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