With a flat corporate income tax rate of 12% on annual profits above RO 30,000, and no personal income tax, Oman has a well-deserved reputation as a business-friendly jurisdiction from a tax perspective. Nevertheless, there are a number of tax-related issues that businesses in Oman would do well to heed carefully. Most such tax issues are, of course, best addressed by accountants; however in this month’s client alert we wanted to highlight one tax issue that we sometimes encounter in our legal work: customs duty.
In Oman, customs duty is normally a flat 5% of the value of the goods being imported. For businesses that import significant quantities of goods or high-value goods into Oman, customs duty could add up to a high operational cost and could significantly reduce profit margins. Many companies thus look for ways to reduce their exposure to customs duties. There are three possible ways that companies can do so, which we briefly discuss below.
The first – and often best – way for a company to reduce its exposure to customs duty is to arrange, by contract, for its customers to reimburse the company for the Omani customs duty it pays to bring in the goods or equipment necessary to carry out the work for the customer. For example, an oil services company that will provide drilling services for an oilfield customer in Oman, which will require the use of high-value machinery which must be imported into the Sultanate from abroad, could provide in the oil services contract that the customer must reimburse the service provider for any Omani customs duties that the service provider incurs importing the equipment and supplies that are required to carry out the work for the customer.
The second way that a company could reduce its customs duty exposure is to secure a temporary duty-free importation permission from the Royal Oman Police Directorate General for Customs. This is a limited category of exemption – it applies only to machinery and heavy equipment to be used for Government or investment projects, it is granted at the discretion of the Royal Oman Police, and most importantly it is valid only for a temporary period (six months at a time, renewable consecutively for a total period up to three years). However, temporary importation can be an attractive option for companies that seek to import high-value equipment into Oman for a brief period of time to carry out a Government or investment project, and will then re-export the equipment out of Oman.
The third route that companies could pursue to reduce their Omani customs duty exposure is to apply for a customs duty exemption pursuant to the Foreign Capital Investment Law. This exemption, which is granted at the discretion of the Ministry of Commerce & Industry and the Ministry of Finance, is not an easy one to secure – it tends to be granted only for key industrial and infrastructure projects for national economic development – however it is an option that companies can pursue. The process to seek this exemption is to first apply to the Ministry of Commerce & Industry, and if the Minister of Commerce approves the application he will forward the application to the Ministry of Finance, which would study the application and make the final determination of whether to grant the customs duty exemption.