This article is intended for the basic users and the section of business and individuals to better understand the new concept and recently implemented VAT IN OMAN, as the law and regulations are new and its implementation is recently been in place so many individuals and businesses may be in two minds to better cope up with the concept including its pros and cons and its implementation and effects on their economic activity.
It’s a concept and section of law that has been in place in other GCC nations like Bahrain and Saudi and it is implemented according to unified GCC agreement for VAT, The Vat law was published in official gazette of Oman on 18th October 2020. The date of implementation was on 16th April 2021. This means that all businesses in Oman should prepare in time for the impact and implementation to their business.
Oman is the 4th GCC state among BAHRAIN, SAUDI and UAE to implement Vat, like others it is being implemented at 5% with exceptions of 0% and exemptions to certain area and fields of business. The taxability of vat is 5% for most of goods and services and also on imports of goods and services into Oman with certain supplies being at 0% and exempted, here the distinction between 0% and exempted is important as in both cases the rate applied will be 0% but in case where that supply is exempted the taxable person making the supply will not be able to collect input tax but in case where the supply falls under zero rated the taxable person can usually collect input tax. Here are some of the following supplies that are zero rated such as foodstuff but has to be decided according to the decision of the chairman, Medicine and Medical equipment same as to be decided by the chairman, Exports outside Oman, Re exports, International transport related services Supply and investments in precious metals like gold silver and platinum, Sea land and air transport used for commercial transports, Supply of rescue aircrafts, boats and auxiliary ships, Renting real estate for residential purpose, Resale of residential real estate, Provisions of education and related services, local passenger transport. Undeveloped lands among others which can be found in official gazette.
By Subjecting both health sector and educational sector as zero rated supplies it’s the first one among others in GCC to do that, but this means that collectability of tax will be restricted and business will have mix taxpayer state as they will supply both exempt zero rated and standard rate and in return their recoverability will be restricted.
Now moving onto the registration process in compliance to VAT in OMAN, there will be two basic thresholds for registration better known as mandatory and voluntary registration threshold and bars would be OMR 38,500 and 19,250 respectively. On these bases businesses will have their registrations for Vat purposes, with businesses that have no place of residence in Oman have to compulsory register themselves for Vat if they make any taxable supplies in Oman and for them there isn’t any minimum threshold.
As for all the laws and regulations there must be an tax clause to cater the situations where the law remains silent and it help the transitions, There can be two scenarios as where the invoice is issued prior to the implementation and service is also delivered before that that would not be counted for Vat, but if the invoice is raised before and service is completed after the implementation or Vice Versa then Vat would still be due on that.
Regarding Record keeping and Filling obligation certain things needs to be kept in check:
Businesses in Oman will need to keep VAT records for a minimum of 10 years from the end of the year to which they related. These records will need to be made available for review at any time.
VAT returns must be filed with the tax authority electronically. It is expected that the VAT period will be a minimum of one month, and VAT payments and returns should be filed within 30 days of the end of the tax period. Transactions with non-VAT-implementing GCC states will be treated the same as transactions with non-GCC states.
Some Important VAT regulations are:
To better understand Vat exemption and zero ratings guidelines are provided, the guidelines provide subtleties and explanation of the scope, conditions, limits, and degree of VAT zero-rating and exemption from VAT.
VAT zero-rating will apply to specific transactions within the following regions: supplies of and transactions connected with provisions of oil, oil subsidiaries, and gas; exports of good and service, supplies of specific food items; international goods and passenger transport; supplies of investment gold, silver, and platinum; supplies to customs duty suspension and special zones; and supplies of specific drugs and clinical gear VAT exemption will apply to specific supplies including financial services, educational services, healthcare, and real estate relating to private properties.
The guidelines determine specific compliance prerequisites applicable to all VAT taxable people. A taxable individual who doesn’t agree with the requirements could be subject to regulatory penalties recommended under the law and guidelines.
Certain points needs to be kept in mind while making simplified or detailed tax invoice such as
For simplified tax invoice, the rules also give the option to allocate a simplified tax invoice with less information as compared to a full tax invoice.
The rules also set out the procedure for getting a VAT refund. The refund application must be raised in the form to be specified by the OTA, declaring the refund amount requested, the cause for the refund, and the tax period to which it connects. A taxable individual can claim a VAT refund wherein the VAT expended surpasses the VAT due, or in respect of VAT paid by:
It is to be note that the refund claims must be raised within 5 years from the end of the tax period in which the refund becomes due.
The VAT rule defines the records needed to be managed by a taxable individual:
The guidelines characterize the process for a taxable individual to object to a tax assessment, tax return adjustment, or enrollment decision made by the OTA. Objections should be submitted in Arabic.
Regulatory penalties of OMR 500 to OMR 5,000 are defined for specific offenses, including inability to:
For offenses including the accompanying the administrative penalties range from OMR 1,000 to OMR 10,000:
For Payments and Records, Invoices certain things need to be in mind, there would be two main type of invoice as simplified invoice and Detailed tax invoice, its pattern is not finalized or issued by tax authority but it is known that it would be more or less same like Bahrain and UAE, and it can be issued in any currency but have to be converted according to central bank rates. Records must be kept for 10 years and must be able to present upon demand by the authority. Like other GCC states the filing and payment of tax would be same as The taxable person collecting tax on supplies will be its output tax and the taxable person paying tax on the supplies will be its input tax and the net would be payable or receivable by filing the tax return to official authorities.
Regarding penalties Oman has decided for strict penalties for the ones found deliberately not registering them for Vat as it may vary from 1 to 3 years of imprisonment and fine of 3000 OMR to 20000 OMR one or both and the fines and imprisonment is same for the ones found in evasion of taxes.
Usually we see rapid buying before implementation as purchases tend to buy in large quantity so that they could buy before the implementation of vat that may cause inflation, typically residents tend to buy usually luxurious items before implementation, but with implementation of vat at low rate such as 5% it will be absorbed in prices over the time.
Key dates in that expect are Dec-20 for publication of executive regulations, Jan 2021 for Opening registration, April 21 for implementation and June 21 for first vat filling.
Businesses that are not opened and will be opened will have to work efficiently for implementation of vat in their business and act accordingly, Key areas to have a readiness for implementation will be Vat treatment, its treatment for both domestic and international sales and purchase, free supplies, zero rated items and exempt supplies, Vat registrations and in further branches like individual, group and exempt businesses, contracts and pricing according to induction of vat, transitional supplies, invoicing and system evaluation for vat compliant invoices, Vat compliance as who will be responsible for vat related matters in your business.
The Sultanate’s government signed the Gulf Council Cooperation (GCC) VAT Framework or the Common VAT agreement in 2017 and back then, it was decided that VAT will be introduced in 2019. However, the process was postponed and Oman decided to introduce VAT in 2021. Oman’s decision to delay the process of introducing VAT has to do with its slow economic growth. Back then, the world was dealing with unstable oil prices and a global economic slowdown. The government in Oman feared that the addition of a new tax such as VAT to its taxation system could prove to be complicated.
However, in 2020, the coronavirus pandemic battered the global economy and also oil demand took a hit. According to the International Monetary Fund (IMF), Oman’s economy contracted by 6.4 percent in 2020. In its report, IMF said that sectors such as construction, hospitality, and wholesale and retail trade sectors experienced the heaviest toll. Even inflation turned slightly negative due to contraction in demand. Oman’s fiscal deficit rose to 17.3 percent of GDP, and central government debt increased to 81 percent of GDP. Reportedly, non-hydrocarbon GDP took a hit of about 10 percent during the period. Despite the economic distress and limitations, Oman finally introduced VAT in April 2021.
By introducing VAT, the Sultanate expects to raise around $1.04 billion each year. This is equal to around 1.5 percent of gross domestic product (GDP). The introduction of VAT will also help Oman successfully fulfil Saudi Vision 2040, which aims to diversify the economy and increase revenue from non-oil sectors such as logistics, construction and tourism. Oman is in need of new revenue streams and VAT is possibly one of them.
The major reason that Oman has levied a 5 percent VAT is to add to their revenue streams. An estimated $1.04 billion is expected to be added to the government’s chest from VAT and with time, the figure is expected to increase. Similar to other GCC economies, Oman is looking to diversify its economy and reduce its dependence on oil.
The diversification ambitions of Oman are also being driven by a slump in hydrocarbon reserves and revenues. The private segment activity in the economies still depends on government-backed projects and its consumption is backed by the revenues generated from the oil and gas sector. The policymakers in the Sultanate were under immense pressure to float alternate ideas. VAT can also be considered a part of its diversification process since it adds another revenue stream for the government.
VAT is also expected to impact Oman’s development and international competitiveness in a positive manner. A timely rollout of VAT is crucial for the Sultanate to maintain investor’s confidence. S&P Global Ratings affirmed its B+/B long- and short-term foreign and local currency sovereign credit ratings on Oman and also maintained its stable outlook. Further delays or any changes whatsoever would surely inflict only more economic damage for the Sultanate.
New rules require businesses to display their VAT registration numbers on business documents. This will add to the credibility of businesses in the Sultanate. Considering the registration threshold and with proper documentation in place, businesses appear well established. Also, auditing is an integral part of any business be it in the Sultanate or any other part of the world. Now, businesses will require to ensure proper documentation for a period of at least 5 years and such documentation should be easily available upon the request of the FTA. This would lead to compliance and transparency and at the same time give shareholders the actual picture of the company’s financial condition.
Compliance and transparency mean businesses in the Sultanate will be able to attract investors, both domestic and foreign. Investors often prefer transparency as it gives them the confidence to put their money into the firm. VAT could possibly lead to an increase in foreign direct investments (FDI) into the Sultanate.
Overall it will bring in tax revenue for the state and also for businesses to have solid base to tackle vat as noncompliance could bring in the penalties, businesses and individuals would be active to have better systems in place for implementing vat. Overall it’s a new phase and it will bring in changes in the system which have to be adopted to better run the business and over the time it will have a permanent impact so if you think you can ignore that it’s not the case as now or after few months one has to be vat compliant and there is no way they could evade that as businesses and individuals would have to be registered for vat if they are eligible because over the time when that will be implemented govt. and other departments will ask for the certificates and not having one will affect the business dealing and one will not be benefited for not having vat registered but will be at the receiving end, so Vat is here to stay and everyone will have to be compliant to it to have better chance of conducting business effectively and efficiently.
Certain benefits for applying VAT in OMAN are such as:
Input VAT is the tax borne by the taxable person in respect of the goods or services supplied to him or imported for the purpose of conducting the activity. The tax due and payable by any taxable person for any tax period, shall be computed as the excess amount, of the total value of output tax less than the total value of input tax deductible for that period. The taxable person may claim the input tax deduction within 3 years from the date of a valid tax invoice.
Since VAT registration number is to be displayed on business documents, mandatorily, such invoices which provides credibility and authorization of businesses. With proper documentation in place, businesses appear well established, considering the registration threshold. Due to input VAT deduction, companies would prefer doing business with registered organizations which are truth worthy.
Auditing is an integral part of any business. It is only with a thorough and periodic audit checks, businesses can ensure complete adherence to VAT laws. With the implementation of VAT, businesses will need to ensure that they are keeping the correct records for at least 5 years and that they are able to provide these documents to the FTA upon request. This not only ensures complete compliance, but also gives business owners and shareholders the actual picture of the company’s financial condition.
These are the advantages of the VAT that is to be implemented in Oman. Now the next agenda for you would be to make your business ready for VAT implementation and can be done by choosing a business management software like Tally Prime, which will make you VAT-ready in a jiffy. Take a free demo right away, stay VAT compliant at all times!