Scope of levy on foreign persons widened

AMENDED LAW: Measure expected to generate significant revenues for government, says tax expert

The amended Oman Income Tax law published in the Office Gazette on Sunday brings several new categories of income within the scope of the provision for taxing foreign persons carrying out activities outside of a permanent establishment.

According to a key executive of professional tax, audit and advisory services firm KPMG, the tax code previously imposed a 10 per cent tax on income earned by foreign persons operating outside the purview of a permanent establishment. Examples of such taxable income include: Royalties including rental income from industrial, commercial and scientific equipment; Research and development; Use or right to use computer software; and Fees for management.

However, Royal Decree 9/2017 promulgating the revised Income Tax Law, extends this tax to income realised from the following as well: Fees for the provision of services; Dividends from shares of joint stock companies; and Interest, said Ashok Hariharan ( pictured), Head of Tax, KPMG Lower Gulf.

“The extension of tax to foreign persons earning fees from the provision of services is expected to capture everything other than the supply of goods,” the tax consultant noted. “This is a massive change in the scope of tax and is expected to generate significant revenues to the Government, which will at the same time result in escalation of costs of services by 10 per cent as foreign service providers are likely to push that cost to local businesses.”

The 10 per cent tax on such foreign persons, Hariharan explained, applies on the gross amounts due in respect of the above specified categories and is required to be deducted by the tax payer and paid to the tax authority within 14 days of the end of the month in which the amounts are paid or credited to the account of the tax payer.

“The amendment now specifies that tax shall also be deducted on the above specified payments made by ministries, government bodies and other units of the state administrative apparatus, who do not otherwise meet the definition of a tax payer,” he stated.

Significantly, the amended provisions pertaining to taxable dividends and interest came into effect yesterday, February 27, 2017, according to the tax expert. “however, in respect of fees for provision of services, there is some uncertainty on the effective date as the definition of income, which has now been amended to specifically include fees for provision of services, is effective from January 1, 2018 whilst the extension of the scope of withholding tax to include such fees for services is effective from February 27, 2017,” he stated.

Additionally, the amended tax code reduces the scope of tax exemptions hitherto applied to a number of economic activities and services in the Sultanate. The law previously allowed for tax exemption of a maximum period of 10 years on income realised from eight broad categories of activities.

They were: Industry (manufacturing); Mining; Export of locally manufactured or processed goods; Operation of hotels and tourist villages; Agricultural and animal produce including processing such produce; Fishing and fish processing, farming and breeding; Education provided by specified institutions; and Medical care provided by private hospitals.

“The amended tax law now restricts the exemption only to industry (manufacturing). Further, the period of exemption has been limited to 5 years. This amendment is effective from February 27, 2017. It will not affect exemptions already granted,” Hariharan added.