On 14th March 2021, the much-awaited Executive Regulations of Value Added Tax (VAT) was issued by the Head of Oman Tax Authority (OTA), His Excellency Saud bin Nasser Al Shukaili vide Ministerial Decision 53/2021. Oman’s Official Gazette no. 1383 published the regulations with guidelines for implementation. The VAT system in Oman will come into force on 6th April 2021 and the Sultanate is going to join the other three GCC member states viz the UAE, Saudi Arabia, and Bahrain to introduce the levy.
VAT is being introduced in Oman keeping in perspective of the county’s ‘Oman Vision 2040’ initiative that stipulates the roadmap to diversify the oil-based economy to non-oil sectors including logistics, manufacturing, and tourism.
Only those holding a “commercial registration number” (CRN) can register for VAT through the online portal of OTA. The necessary forms and guidelines for registration were provided after OTA decided to implement a staggered registration schedule for those requiring VAT registration.
The schedule is staggered based on the income and businesses with an annual turnover of more than OMR 1 million can apply for VAT registration till the time it goes live. The upcoming registration schedule for income exceeding OMR 500,000 is likely to commence on 1st April and last till 31st May 2021.
The Executive Regulations provide ample clarity on most of the significant areas that were debated, discussed, and exhaustively studied over a long period considering social and economic impacts and clarify the applicability, rules, and procedures of the VAT Law including supplies, supply provisions, administrative matters, and penalties, tax points during transactions, VAT for online services, value assessment of supplies, exemption, and tax adjustments, totally exempted supplies, applicability in special economic zones, customs duty waiver, registration, de-registration, requirements of documentation, tax filing and invoicing, VAT returns, etc.
It is important for businesses to clearly understand the regulations that provide guidelines on the scope and extent of VAT exemptions and zero-rating. Businesses operating in areas that are exempted or zero-rated must be aware of the proper scope and applicability of such exemptions and zero-rating for their business activities and benefit from it.
Companies qualifying for VAT must also know other aspects of how VAT will affect their businesses and accordingly formulate appropriate plans and strategies for VAT compliance from the very first day. Some of the vital regulations are listed below:
1. VAT Exempt Categories
The Sultanate of Oman has planned to levy VAT at the standard rate of 5 percent on most goods and services. The country, however, has announced some exceptions for essential food items, medical care, education, and financial services which will be exempt from VAT. According to OTA some 94 food items have been kept away from the VAT list including milk, meat, fish, poultry, fresh eggs, vegetables and fruits, coffee and tea, olive oil, sugar, nutritional products for children, bread, bottled drinking water, and salt to name a few.
2. VAT-Zero-Rated Categories
A zero-rated good doesn’t attract VAT owing to its social importance as a necessity. The sale of zero-rated goods is not taxed and credits are given on VAT paid on inputs. Any company engaged in dealing in zero-rated supplies is not included in the mandatory requirement of VAT registration.
Zero-rate or no VAT is imposed in Oman on essential commodities such as education and healthcare.
Businesses related to oil and gas; certain food items; cargo and passengers in global trade, some precious metals like gold, platinum, and silver; some life-saving medicines, medical equipment, and import and export of items can qualify for zero-rated VAT in Oman.
Besides the VAT exempt and zero-rated categories, some other categories classed as essential services also enjoy VAT exemption including financial services, reselling and renting of residential buildings, healthcare services and related goods and services, educational services, local passenger transportation services, import of goods to countries where there is no VAT and any return of imported items, goods, and services for military forces, supplies for no profit and charitable organizations, etc.
Commodities given free of charge such as any sample for business promotions will only attract VAT if the value exceeds either OMR 50 per person or OMR 1,000 in a year collectively and beyond these values, the commodities will be treated as deemed supplies and VAT will be levied on those.
Per Executive Regulation Article 73, any input tax incurred before the registration can be claimed within 3 years maximum and article 74 says that the input tax incurred before registration for supplies of services can be claimed within 6 months maximum.
OTA must be informed within 30 days of registration for submitting a claim. For a tax claim valuing more than OMR 50,000 for goods stored as stocks, the audited stock list must be submitted to OTA for a claim.
The Executive Regulations are mandated by the Omani Government stipulating certain compliance requirements which need to be compulsorily adhered to by an individual or company qualifying for VAT as per the regulations. Not complying with the stated compliance requirements may attract penalties as specified under the Executive Regulations.
The executive regulations mandate the preparation and issuance of proper tax invoices for every single taxable supply including a deemed supply and against receipt of advance. The tax invoice should have all information prescribed by the OTA such as serial no, date of supply and receipt of payments, description and quantity of goods, details of customers and sellers, etc.
There is also a provision for a simplified tax invoice with less information than that in a complete tax invoice and is subject to prior conditional approval of the OTA that is usually received within 15 days from the date of application. A simplified Tax Invoice Format is mentioned in article 147 of the Executive Regulation with mandatory inclusion of the phrase “Simplified Tax Invoice” on it.
The taxpayers will need to file their returns every quarter starting from 1st January to 31st December of any calendar year. The VAT returns need to be filed online through a government portal and in the format specified by the OTA. The tax return along with the payment of the VAT must be done within 30 days from the end of a specific quarter.
The Executive Regulations demand all VAT claims to be submitted in a prescribed claim application format designed by OTA with specific information of VAT refund claimed, the reason for the refund including the tax period for which the VAT claim applies. All claims of refund must be submitted to the area authority within a maximum of five years from the end of the tax period for which it is due.
The VAT return can be claimed under the following conditions.
- If an extra VAT amount is paid then the due amount
- If VAT is paid by a non-resident of Oman
- If the VAT is paid by a foreign government or military or diplomatic officials
- If VAT is paid by foreign travelers while purchasing personal goods in Oman and not in commercial quantity and for carrying with them
- Refunds arising out of changes in the regulations and as announced by the OTA through Executive decisions from time to time
As per article 151 of Executive Regulation concerning imported goods or services, the taxpayer is responsible for recording the RCM. Unlike forward charging, a Tax invoice must be issued to self with RCM VAT in his favor if the supplier is a foreign resident and not registered with the OTA for paying the VAT.
The Executive Regulations specify the records to be maintained by the taxpayers including but not limited to the following.
- Details of day to day transactions in chronological order.
- Details of Inventory with inventory levels, items name, and types on a regular periodic basis.
- Details of supplies of imported and exported goods and services.
- Details of supplies of goods and services from GCC countries.
- Details of all Customs related transactions.
- All tax invoices including supporting documents issued by the taxpayers.
- All tax invoices and supporting documents received by the taxpayers.
- Records of information for validation of appropriateness of individual tax treatment.
The Executive Regulations describe the method for putting an appeal before the OTA and in connection with the tax assessment or adjustment or any decision for VAT registration by the OTA. All appeals to the OTA need to be submitted in the Arabic language.
Penalties amounting to OMR 500 to 5,000 are imposed for certain non-compliance such as
- Delay in submitting compulsory VAT returns
- The VAT registration certificate is not displayed properly and not visible to everybody
- Record keeping, accounting records and books, and necessary documentation are not maintained as per the specified requirements.
Some non-compliance can attract higher penalties and maybe as high as OMR 10,000 which are
- Inappropriate refund claims not supported by authentic records and documents.
- Non-submission of registration cancellation request when compulsory by the regulations.
- Incorrect recovery of VAT and knowingly.
- Inappropriate processing of VAT inclusive goods and services.
Article 83 of Executive Regulations stipulates that hotel apartments, ungrounded structures, any place providing bed and breakfast, any tourist complex don’t come under the purview of residential buildings and are subject to usual VAT rates under rules of taxable supplies.
Article 19 of Executive Regulation makes it mandatory for any company acting as an agent and working in the name and representing the principal, the agent company must notify the Tax Authority about such arrangement by submitting a power of attorney and including this in its regular scope of activity. The details of principal and beneficiary must also be documented on all the records such as invoices and contracts. The agent must mention a disclaimer on all documents that he is performing all activities on behalf of the principal.
Though enough clarifications are provided in the VAT Executive Regulations, there are still areas needing further clarity. However, the articles specified in the Executive Regulations make it clear that the Tax Authority will be strict and vigilant on the actions of the taxable person. Adherence to these regulations is the key essence as evident in each article.
The introduction of VAT will surely help the country in generating an extra revenue stream though businesses dealing with capital goods may find the market and demand slightly subdued initially. As essential items are mostly kept out of the domain of VAT, it will not put much burden on common Omani citizens.