VAT in Oman: Key Recommendations from Tax Experts
Implementation of VAT framework and compliance must be a top priority for businesses
Oman welcomes VAT from April 16, 2021, following Royal Decree No. 121/2020. The Oman Tax Authority also approved the executive regulations, setting out its implementation path. All preparations and requirements, including the tax computer system and electronic linking with the concerned authorities, are now in place. The value-added tax (VAT) law has 13 Sections and 106 Articles. The move will raise OMR400 million annually and generate 1.5 per cent of GDP value.
The VAT laws provide that goods and services, except for select exempted items, traded in and imported into the Sultanate of Oman shall be subject to 5 per cent VAT. Every taxable person importing goods to Oman shall pay VAT. For suppliers based outside Oman, the VAT shall be calculated on the reverse charge mechanism and paid by the recipient.
All businesses with a place of residence in Oman and whose value of supplies in the last 11 months and the current month have exceeded, or is anticipated to exceed in the following 11 months and current month, OMR38,500 must register under Oman VAT. A non-resident (i.e. without a place of residence) taxable person must also register irrespective of the threshold limit.
Implications for business enterprises
The following are a few of the key action points businesses must be mindful of and plan for:
Appointment of responsible person: The law makes it mandatory for every taxable person to appoint a 'responsible person' for executing obligations under the law. This person is not allowed to be outside the Sultanate for more than 90 days in a tax year without prior tax authority permission.
Records, invoices, and tax filing: All transactions must be executed through a VAT compliant invoice with clear disclosure of the tax due. Invoices must show the transaction amount, date, and place of supply. The taxable person must file tax returns through the online portal in the prescribed form for a tax period not less than 30 days. VAT records must be kept for a minimum of 10 years, to be made available on-demand for review by the tax authority.
VAT impact assessment: Businesses should study the impact of VAT on their financial transactions. They should revisit their pricing and cash flow management. Every transaction type should be analysed. Critically, businesses must plan for input VAT credit management i.e., where an input is not eligible for set-off under credit mechanism, as it becomes an additional cost and may adversely impact the pricing. Businesses must also analyse VAT positions and seek professional advice.
IT and accounting system infrastructure: Businesses should evaluate their IT infrastructure for compatibility with VAT provisions. Updates for effective implementation include the development of tax codes, customised tax reports, account mapping for general ledger, and the generation of tax invoices/credit notes.
Redrafting of contracts: Contracts with vendors and customers must be suitably modified to absorb the levy of VAT, use of taxable invoices, penal exposures indemnification, and other commercial aspects.
Organisational VAT trainings: Every department in the organisation is impacted by VAT. So it is necessary to train resources across departments to manage their business transactions in compliance with the law.
Penalties for non-compliance
Businesses should anticipate penalties in case of any inadvertent breach or violation as the law administers financial levies, e.g., fines between OMR5,000 and OMR20,000 for not registering on time or for providing incorrect information, and OMR1,000 to OMR10,000 for not issuing a VAT compliant invoice or not submitting a VAT return on time
At MBG Corporate Services, our tax experts are well versed in VAT applicable in the region. Please connect with us to know more about VAT in Oman and how we can help with your planning and compliance needs.
WhatsApp/Phone: +971 52 6406240
- Vipin Ahuja and Vaibhav Matta are directors - taxation at MBG Corporate Services
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