April 7, 2025
Finance

How to Calculate Tax in Oman?

Oman’s tax system is straightforward but requires careful attention to compliance with the Oman Tax Authority (OTA) rules. The two main taxes affecting businesses are VAT (introduced April 16, 2021, under Royal Decree No. 121/2020) and Corporate Income Tax (governed by Royal Decree No. 28/2009, amended 2020). Individuals do not pay personal income tax, making Oman attractive for expatriates and locals alike. Here’s how to calculate each tax type.

Calculating VAT in Oman

VAT in Oman is a 5% consumption tax applied to most goods and services, with zero-rated and exempt categories. Businesses collect VAT on sales (output tax), deduct VAT paid on purchases (input tax), and remit the difference to the OTA quarterly.

Steps to Calculate VAT:

  1. Determine Taxable Supplies: Identify sales subject to VAT (5% standard rate, 0% for zero-rated items like exports or food).
  2. Calculate Output VAT: Multiply taxable sales by 5% (or 0% for zero-rated).
  3. Identify Input VAT: Sum VAT paid on business purchases (e.g., supplies, equipment).
  4. Net VAT Payable: Subtract input VAT from output VAT. If input exceeds output, you may claim a refund.
  5. File Quarterly: Submit returns within 30 days after each tax period (e.g., April 30 for January-March).

Example:

  • Scenario: A Muscat retailer sells goods worth OMR 10,000 (excluding VAT) and buys supplies for OMR 4,000 (excluding VAT) in a quarter.
  • Output VAT: OMR 10,000 × 5% = OMR 500 (charged to customers).
  • Input VAT: OMR 4,000 × 5% = OMR 200 (paid to suppliers).
  • Net VAT Payable: OMR 500 – OMR 200 = OMR 300.
  • Action: The retailer remits OMR 300 to the OTA by April 30.

Special Cases:

  • Zero-Rated Supplies: An exporter selling OMR 20,000 abroad charges 0% VAT (OMR 0) but reclaims OMR 1,000 input VAT on shipping costs, netting a OMR 1,000 refund.
  • Exempt Supplies: A healthcare provider with OMR 15,000 in services charges no VAT and cannot reclaim input VAT (e.g., OMR 500 on equipment).

Calculating Corporate Income Tax in Oman

Corporate Income Tax applies to businesses’ profits, with rates varying by entity type and size. It’s calculated annually and filed within four months of the fiscal year-end (e.g., April 30 for December 31).

Steps to Calculate Corporate Tax:

  1. Determine Taxable Income: Start with total revenue, subtract allowable expenses (e.g., salaries, rent), and adjust for non-deductibles (e.g., personal expenses).
  2. Apply the Tax Rate:
    • 15%: Standard rate for Omani companies and foreign permanent establishments (PEs).
    • 3%: For small and medium enterprises (SMEs) with registered capital up to OMR 60,000, gross income up to OMR 150,000, and fewer than 25 employees.
    • 55%: Petroleum companies under Exploration and Production Sharing Agreements (EPSAs).
  3. Exemptions: Check for tax holidays (e.g., industrial firms, free zones like Duqm SEZ).
  4. File Return: Submit with audited financials (IFRS-compliant) to the OTA.

Example 1: Standard Business (15% Rate)

  • Scenario: A Sohar manufacturing LLC earns OMR 100,000 in revenue and incurs OMR 60,000 in deductible expenses (e.g., materials, wages).
  • Taxable Income: OMR 100,000 – OMR 60,000 = OMR 40,000.
  • Tax Payable: OMR 40,000 × 15% = OMR 6,000.
  • Action: File by April 30, paying OMR 6,000 to the OTA.

Example 2: SME (3% Rate)

  • Scenario: A Muscat café (LLC, OMR 50,000 capital, 10 employees) earns OMR 80,000 revenue and spends OMR 50,000 on expenses.
  • Taxable Income: OMR 80,000 – OMR 50,000 = OMR 30,000.
  • Tax Payable: OMR 30,000 × 3% = OMR 900 (qualifies as SME).
  • Action: File by March 31 (three months for 3% rate), paying OMR 900.

Example 3: Petroleum Company (55% Rate)

  • Scenario: An oil firm under an EPSA earns OMR 1 million in profit after expenses.
  • Tax Payable: OMR 1,000,000 × 55% = OMR 550,000.
  • Action: File by April 30, paying OMR 550,000.

Adjustments:

  • Loss Carryforward: Offset prior losses against current profits (recently allowed in Oman).
  • Withholding Tax: 10% on payments to foreign entities (e.g., OMR 1,000 royalty = OMR 100 tax), deductible if treaties apply.

Additional Taxes in Oman

  • Withholding Tax: 10% on dividends, interest, or royalties paid to non-residents, unless reduced by double taxation agreements (e.g., with India or the UK).
  • Customs Duties: 5% on most imports, waived in free zones.
  • Municipal Taxes: Property-related fees (e.g., 3% on rentals), not profit-based.

Practical Tips for Tax Calculation in Oman

  1. Maintain Accurate Records: Use bookkeeping to track revenue, expenses, and VAT for five years (15 for real estate), per OTA rules.
  2. Understand Thresholds: Register for VAT if turnover exceeds OMR 38,500; voluntary at OMR 19,250.
  3. Leverage Software: Tools like QuickBooks or Xact Auditing’s OTA-compliant systems simplify calculations.
  4. Check Eligibility: Confirm SME status or free zone benefits to lower tax liability.
  5. Hire Experts: Firms like Xact Auditing ensure accuracy, avoiding penalties (e.g., OMR 5,000 for late VAT registration).

Example with Expert Help:

A Duqm exporter with OMR 200,000 in zero-rated sales and OMR 50,000 in taxable sales hires Xact Auditing:

  • VAT: OMR 0 (zero-rated) + OMR 2,500 (5% on OMR 50,000) – OMR 1,000 input VAT = OMR 1,500 payable.
  • Corporate Tax: OMR 80,000 profit × 15% = OMR 12,000. Xact files both, reclaiming OMR 5,000 input VAT from exports.

Conclusion

Calculating tax in Oman involves understanding VAT (5% on taxable supplies, netted quarterly) and corporate tax (15%, 3%, or 55% on profits, filed annually), with adjustments for exemptions and special rates. For a retailer, it’s OMR 300 VAT quarterly; for an SME, OMR 900 corporate tax yearly. Accurate records, compliance with OTA deadlines (30 days for VAT, four months for tax), and expert support ensure smooth calculations. Whether you’re in Muscat or a free zone, mastering these steps—or outsourcing to pros like Xact Auditing—keeps your business tax-ready in Oman.