Muscat: The much awaited amendments to the Executive Regulations (ER) of the Oman Income Tax Law (ITL) was issued by the Ministry of Finance, vide Ministerial Decision (MD) 14/2019 published in the Official Gazette on February 10, 2019. The amendments attempt to provide further clarity on a number of matters on which provisions were previously introduced through amendment to ITL, way back in February 2017.
Darcy White, Tax Partner at PwC Oman, says that the current amendments provide taxpayers with certainty on the applicability of withholding tax and improved tax administration (both from ministries and taxpayers). Large taxpayers may need to prepare for tax officials onsite examinations.
WHT on dividends, interest and services
MD 14/2019 confirms that dividend withholding tax (WHT) shall apply only on dividend distributions by joint stock companies and mutual funds, and not for limited liability companies.
Further, definition of interest has been put in place to include amounts paid on debt, advances or any arrangement of financial nature, subject to other prescribed conditions. However, certain exceptions have been provided for interest on funds deposited, bonds and debt instruments issued by banks and government and short term (less than 5 years) facilities.
Although MD 14/2019 does not define ‘services’, however, specific exclusions have now been defined so as to be not subject to WHT. The defined exclusions are payments for participation in conferences, seminars and workshops, training, freight charges and associated insurance, air tickets and reimbursements thereof, board sitting fees, reinsurance and any service relating to an activity or property outside Oman. Taxpayers are required to apply WHT provisions, subject to tax treaty benefits.
Gaurav Kapoor, Tax Director at PwC Oman, suggests that although this been the practice followed by the Oman Ministry of Finance in the past, formal amendments to this effect goes a long way in removing ambiguities and provide taxpayers with a firm basis on applicability of WHT. In addition, electronic filing will enhance quality and reduce inaccuracies.
Deductibility of member’s remuneration (for limited liability companies) has been increased for the first time since 1998 — for tax years beginning on or after January 1, 2018.
For professional companies, deductibility has now been restricted to least of actual amounts paid / 35 per cent of taxable income / OMR3,500 per month per director. For other companies, deductibility shall be restricted to the least of actual amounts paid / 25 per cent of taxable income / OMR1,500 per month per director. The executive regulations provides for what will be considered as professional activities.
Deductibility of donations has been clarified to be allowable for donations in cash or kind for each of the various categories defined in the ITL, subject to other prescribed conditions in this regard.
Tax exemptions have been limited to companies carrying out their main activity in the field of manufacturing sector, for a non-renewable period of 5 years. Other conditions such as minimum limit of investment in fixed assets and prescribed Omanisation percentages have also been detailed.
Onsite examination provisions clarifies the responsibilities of taxpayers as well as the rights of tax inspectors in relation to onsite review during assessment proceedings.
Tax card system
With the introduction of the tax card concept by the ITL, taxpayers have been anticipating implementation of the same for a while now. Amendments have formally introduced the tax card mechanism, both for existing and new taxpayers. The tax card will be valid for a period of 2 years and renewable.
Increased use of the electronic filing portal
The amendments provide for increased use of the electronic filing portal for submissions by the taxpayer and notifications to the taxpayer, thus warranting for taxpayers to be more vigilant of electronic notifications received so as to ensure timely appropriate action.
Penalty for auditors
Tax authorities are now empowered, by way of an official notification, to temporarily cease dealing with certified auditor(s), if there is reason to believe that such auditors assisted or advised taxpayers on submission of incorrect tax declarations in any manner.
Gaurav Kapoor views the amendments focusing on digitisation of the systems and processes as a new milestone in the tax system of the Country.
The taxpayers are required to carefully consider impact of amendments on their businesses and compliance requirements especially for those amendments applicable for the 2018 tax year.
* The author is the Tax Director at PwC Oman