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Whilst existing businesses which are well established in an economy choose to model their transactions in the most tax efficient manner, the potential tax exposure in an economy is an important consideration for any business planning to enter into a new market.  In this regard, an important factor to be considered by foreign entities entering the Omani market, is the implications of any withholding tax or other tax deducted as source, under the Oman Tax Law.

Withholding tax, as the name suggests, is a tax on payments made by an Omani taxpayer to a foreign entity, where the foreign entity has no “permanent establishment” or taxable presence in Oman, and the income received by it overseas falls into the ambit of any one of the categories, discussed below.

Withholding tax at the rate of 10% in Oman is applicable on the following categories of income accrued:

1. royalties (consideration for the use or right to use intellectual or proprietary rights for literary, artistic or scientific work; patents, trademarks, design, drawings; leasing of industrial commercial or scientific equipment; consideration for granting rights of exploitation of mining; consideration for information concerning industrial, commercial or scientific experience);
2. payments for research and development;
3. payments for the use of or right to use computer software; 
4. management fees; and
5. fees for the performance of services.

Though payments in the nature of dividends and interest also attract withholding tax, as per the Income Tax law, withholding tax on payments of dividends and interest is presently suspended for an indefinite period pursuant to a Royal Directive issued on 11 January 2023 by His Majesty Sultan Haitham bin Tarik. 

In 2019, the Executive Regulations of the Income Tax law were amended and, the following payments categorized under “performance of services” were exempted from the application of withholding tax:

1. participation in organizations, conferences, seminars or exhibitions;
2. training;
3. transportation and shipment of merchandise and its insurance;
4. air tickets and boarding cost abroad;
5. meetings of Boards of Directors;
6. reinsurance payments; and
7. any services provided linked to a business or property located outside Oman.

Further, the Tax Authority, has also clarified that regardless of where the service has been performed, withholding tax is applicable on the payments made to a foreign person in respect of services. The foreign person will be entitled to a Tax Deduction Certificate issued by the Tax Authority, based on which credit for tax can be claimed subject to the laws of the foreign jurisdiction.

While withholding tax is the tax of the foreign person, it is the responsibility of the Omani party to deduct and pay the withholding tax to the Tax Authority in Oman. Therefore, it is important to ensure that all contracts have a tax clause that clearly define who bears the withholding tax, in order to correctly be able to determine the amount of tax to be paid.  

Author details

Angad Ahuja Associate  Commercial & Projects Al Busaidy, Mansoor Jamal & Co Tel: +968 24829200 Email: angad.ahuja@amjoman.com