Oman’s Special Economic Zone and Free Zones classified as ‘Special Zones’ and are zero-rated for VAT

Introduction

On 27 April 2021, the public authority for Special Economic Zones and Free Zones (OPAZ) announced that the Special Economic Zone at Duqm (SEZAD) and the free zones in Salalah, Sohar and Al Mazunah are classified as Special Zones in accordance with the provisions of Article (102) of the Executive Regulations of the VAT. To see the OPAZ Circular please click here.

This announcement has comes post coordination with the Tax Authority regarding the implementation of VAT. In accordance with the conditions specified in the Article (103) of the VAT Regulations, these special zones are subject to zero rate (0% tax).

OPAZ declared in its press release that the provisions of Article (54) of the VAT Law stipulates that supplies of goods or services to or from the Special Zones, or within them, may be zero-rated, following the conditions laid down in Articles of (101), (102), (103), (104), (105), (106) and (107) of the VAT Executive Regulations.

Consequently, all companies operating in these zones need to comply with the conditions stipulated in the VAT Executive Regulations, until the Tax Authority of Oman publishes detailed procedures for the purposes of applying VAT at a rate of zero percent in the Special Zones. These conditions include VAT Registration and VAT Administration.

VAT Registration

In accordance with the VAT Executive Regulations, companies working in the Special Zones and whose entire supplies of goods or services are taxable at the zero rate, must apply to the Tax Authority for authorisation and VAT registration.Applications may be submitted online in the portal of the Tax Authority through the following link:https://www.taxoman.gov.om/.

The VAT registrant must attach to the VAT registration application a copy of the commercial registration certificate and a copy of the license certificate issued by the relevant Special Zone Authority for carrying out economic activity in the Zone.

VAT Administration

Supplying Goods

For supplying or transporting goods to or within Special Zones, Article (103) of the VAT Executive Regulations stipulates the following:

• That the customer or the recipient are subject to Tax.

• That the customer or the recipient be licensed and registered by the operating and supervising authority of the special zone to conduct the activity within the Special Zone.

• That the customer or the recipient has received the goods for the purposes of the activity within the special zone.

• The goods shall not be among the goods excluded from the right of deduction in accordance with the provisions of Article (56) of the Executive Regulations.

In all cases, documents proving the transfer of goods to, within or between the special zones must be kept; to be certified by the entity operating and supervising the Special Zone with regard to the supply of goods within the Special Zone. This also applies to documents issued by Oman Customs, with regard to the supply and transportation of goods to the Special Zone or from one Special Zone to another.

Supplying Services

With regard to the supply of services to a Special Zone see Article (107) of the Executive Regulations that requires the following:

• That the customer is registered for VAT in accordance with the VAT registration rules above.

• The client must be a person licensed and registered by the Authority operating and supervising the Special Zone.

• That the client has received services for the purposes of activity in the Special Zone.

• These services do not include restaurant and hotel services, food and beverage undertakings and cultural, artistic, sports, educational and entertainment services provided for in (5) Article (24)(5) of the VAT Law.

• These services should not be exempt from VAT in accordance with the provisions of Article (47) of the VAT Law.

How we can help?

Our team is available to discuss and bring clarity to the specific challenges that your businesses will face in getting ready for VAT, that can be regarding registration, training employees, advisory on a legal position etc.

At Narayan Tax, we have organized VAT work streams that involve impact assessments, service design and implementation, as well as ongoing VAT technical analysis, advisory, training, project and change management.

We can help you through all phases of implementation, providing advice and recommendations for managing VAT compliance, addressing VAT costs and avoiding significant penalties.