Withholding Tax: Recent Developments

The Secretariat General for Taxation in Oman recently declared withholding tax to be applicable on all payments for services made to foreign persons without permanent establishments in Oman, irrespective of the place of performance. This clarification materially alters the previous position held by the SGT following the recent tax reforms made pursuant to Sultani Decree 9/2017, where soon after it was clarified that services rendered wholly abroad by foreign persons would not be subject to withholding tax.

What happened?

The Government of the Sultanate of Oman, represented by the Ministry of Finance, introduced significant changes to the Income Tax Law (promulgated by Sultani Decree 28/2009) in 2017, by promulgation of Sultani Decree 9/2017 (the Amendments).

The Amendments affected a number of aspects of taxation in Oman, such as increasing the rate of corporate tax from 12 per cent to 15 per cent, scrapping the tax-free threshold of OMR 30,000, along with broadening the scope of withholding tax (WHT).

Prior to 27 February 2017, WHT in Oman was applicable only to: (i) royalties; (ii) management fees; (iii) consideration for the use of or right to use computer software; and (iv) consideration paid for research and development by Omani establishments, and permanent establishments (the Taxpayer) to foreign persons without a permanent establishment in Oman.

However, with the introduction of the Amendments, WHT was extended to dividend payments declared and paid by Omani joint stock companies to their foreign shareholders, interest payments due and paid by the Taxpayer on loans from foreign-based lenders and payments for services to foreign persons at a rate of 10 per cent.

Clarifications issued by the Secretariat General for Taxation (SGT)

FAQs were published on the SGT's website shortly after the introduction of the Amendments, clarifying various aspects of the Amendments which were causing some confusion in the marketplace. Amongst other clarifications, the FAQs stated that WHT would not be applicable on payments made by the Taxpayer for services provided by foreign persons that were rendered entirely outside of Oman. However, this clarification has recently been withdrawn by the SGT, indicating that WHT is payable regardless of the place where services are rendered.

The scope of WHT appears, therefore, to have been extended (or arguably not reduced as previously thought) in respect of services provided by a foreign person wholly outside...

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