Oman levies value added tax at a standard rate of 5% on the import and supply of taxable goods and services, alongside a category of supplies subject to the zero rate, and another category fully exempt from the tax under the law.
The Standard Tax Rate
The Value Added Tax Law provides that the tax is imposed on the import and supply of taxable goods or services at 5% of the value subject to tax, subject to the provisions on supplies that are zero-rated. A taxable person must also display the prices of goods and services inclusive of the tax.
The Difference Between Exempt and Zero-Rated Supplies
The law clearly distinguishes between two categories of supplies that fall outside the standard rate. Exempt supplies are supplies on which no tax is imposed at all, and input tax related to them may not be deducted. Zero-rated supplies, on the other hand, remain legally taxable supplies, and the person making them is entitled to deduct the related input tax, while the customer bears no actual tax amount.
Supplies Exempt from Tax
The law provides for the exemption of a number of supplies from the tax, subject to the conditions and controls set by the executive regulations, including:
- Financial services.
- Healthcare services and the goods and services related to them.
- Education services and the goods and services related to them.
- Undeveloped land (bare land).
- The resale of residential real estate.
- Local passenger transport.
- The leasing of real estate for residential purposes.
Supplies Subject to the Zero Rate
The law also identifies a group of supplies that are subject to the zero rate, within the limits and conditions set by the executive regulations, most notably:
- The supply of food items to be determined by a decision of the Chairman of the Tax Authority.
- The supply of medicines and medical equipment in accordance with controls to be determined by a decision of the Chairman, after coordination with the relevant authorities.
- The export of goods outside the Gulf Cooperation Council states.
Accordingly, classifying a supply under one of these three categories (standard rate, zero rate, or exemption) has a direct effect on the taxable person's entitlement to deduct the input tax related to its activity, and on how the tax due is calculated when filing the tax return for each tax period.
The Importance of Correctly Classifying Business Activity
Confusing these three categories has direct consequences for businesses. A business that makes only exempt supplies has no right to recover the input tax it incurred on its purchases, whereas a business making zero-rated supplies retains its full right to deduct related input tax even though it collects no actual tax from its customers. Reviewing the nature of each supply individually, and confirming that the conditions and controls set by the executive regulations apply to it, is therefore an essential step before calculating the tax due or claiming an input tax deduction.
Legal References
- Royal Decree No. 121/2020 Promulgating the Value Added Tax Law No. 121 of 2020 — Article 36
- Royal Decree No. 121/2020 Promulgating the Value Added Tax Law No. 121 of 2020 — Article 47
- Royal Decree No. 121/2020 Promulgating the Value Added Tax Law No. 121 of 2020 — Article 51
For questions about your specific situation, you can ask the Oman Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.