NEW INCOME TAX LAW TO OPEN GATES TO FDI

By V L Srinivasan

Muscat: Allaying investors’ fears over double taxation when the new Income Tax Law comes into effect from January 1, 2010, the sultanate has so far entered into agreements with 27 countries.

The countries with which the sultanate has concluded agreements for the avoidance of double taxation include the UK, France, Canada, Republic of Korea, India, Pakistan, Singapore, Belgium, China, The Netherlands and Thailand. Negotiations are underway in signing similar agreements with other countries such as Germany and Japan.

The new law allows relief to Omani companies when they invest outside Oman and pay taxes on the overseas income in both Oman as well in the host country. The relief ill be in the form of deduction of the overseas tax paid against the tax payable in Oman and will be given whether Oman has a double taxation treaty with the host country or not.

“This provision has been made to fall in line with the provisions of the agreements for avoidance of double taxation on income entered into by the sultanate with various countries worldwide,”H E Saud bin Nasser al Shukaily, secretary general of taxation, Ministry of Finance said.

The new Income Tax Law is a sequel to Royal Decree No 28/2009 which was issued in June this year. Under the new law, the system of income taxation will be changed to the “global system of taxation.”

The new legislation will be a blend of the existing two tax laws, one for corporate tax including the tax on foreign companies operating in Oman and the other for profit tax on establishments in Oman that are owned by both Omani and foreign individuals. It is also aimed at wooing more foreign direct investment (FDI) into the sultanate.

Although the present law on corporate tax, which came into effect from 1981, exempted wholly Omani owned companies, they too were brought under its remit from 1994, and the profits of businesses owned by individuals became taxable from 1994.

“The objectives or underlying policies of the new law are clarity, brevity and the removal of complexity and uncertainties in the present tax laws, fairness, efficiency and transparency incorporating both the present tax laws, rules and court interpretation into one law that is supplemented by rules issued by the Minister, which are being finalised,” he said and added that the new law would keep Oman abreast of international economic development and meet the country’s future needs. He said that in order to attract FDI, the government offers foreign investors the same tax treatment as local companies.

At present, the foreign companies operating in Oman through permanent establishments are taxed at rates varying from five per cent to 30 per cent depending on the level of income.

Under the new law, all entities will be taxed at 12 per cent flat of the taxable income in excess of RO30,000. Added H E Shukaily, “The calculation of tax
depreciation of capital assets is made easy by allowing depreciation for pooled assets instead of individual assets. There is no tax on the salaries of employees.”