OMAN Law and Practice Contributed by: Said Al-Shahry, Thamer Al-Shahry, Jeremy Pooley, Maria Mariam Rabeaa Petrou, Mujtaba Ali Kazmi and Salim Al Harthi, Said Al Shahry & Partners
5.4 Tax Consolidation Oman does not have a regime of tax consolidation. Each taxable entity is required to file its own Annual Return of Income. 5.5 Thin Capitalisation Rules and Other Limitations If the debt-to-equity ratio exceeds 2:1 in the case of related party debt, interest on the excess debt is not deductible for tax purposes. This rule applies to all Omani taxpayers other than banks and insurance companies, permanent establishments of foreign companies or proprietary (Omani-owned) establish - ments. Interest paid to related parties is allowed only to the extent the loan terms are at arm’s length. 5.6 Transfer Pricing Transactions between related parties must be val - ued at arm’s length. There is no specific guidance on acceptable methods for determining an arm’s- length price. In practice, the Oman tax authorities apply transfer pricing rules in accordance with OECD guidelines. 5.7 Anti-Evasion Rules Oman has stringent anti-evasion rules. Where a taxpayer fails to declare the correct income in their income return, the Chairman of the Tax Authority may impose a fine between 1% and 25% of the difference between the tax value of the taxpayer’s actual taxable income and the tax value as per the return submitted. Subject to any harsher punishment specified in the Penal Code or any other law, the following offenc - es are punishable by imprisonment for a period of between six months and three years and/or by a fine of between OMR5,000 and OMR50,000: • intentional refusal by the tax manager to submit the actual taxable income; • intentional abetment or assistance of the person subject to tax to submit incorrect tax declarations, accounts, records, lists of assets or debits or other documents relating to the tax return of the person subject to tax; • intentional destruction, concealment or disposal of any documents, records, accounts or lists required by the Tax Authority to be submitted if such
advantages, exemptions and facilities as those pro - vided under the Freezone Law. Tax Exemptions Exemptions from tax are given in two ways: (i) exempt activities and (ii) exempt income. Exempt activities Tax exemptions are available for industrial (manufac - turing) activities; the exemption is for five years and cannot be renewed. Tax exemptions are also avail - able to establishments/Omani companies engaging in shipping and specific investment funds. The ESP has exempted certain commercial activities from income tax – see 5.2 Taxes Applicable to Businesses (Eco - nomic Stimulus Plan). Exempt income Examples of income exempt from tax include: • dividends received from Omani companies; • profits or gains on the disposal of securities listed on the Muscat Securities Market (currently known as Muscat Stock Exchange); • the income of foreign marine companies conduct - ing activities in Oman through an authorised agent, but only where the country of the foreign company affords reciprocal treatment; • the income of foreign airlines carrying on business through permanent establishments in Oman to the extent of the income from operating aeroplanes for international transport, but only where reciprocal treatment is afforded in the airline’s home country; and • the income of a special purpose company estab - lished in Oman under the Capital Market Law. While taxable under law, foreign companies engaged in oil and gas exploration activities normally have their liability to tax discharged by the government under the terms of their oil and gas concession agreements. Foreign companies working for the government on projects deemed to be of national importance may be able to negotiate a tax protection clause whereby the government reimburses any tax paid by them.
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