Oman provides two main incentives regimes under the law. The regimes provide tax exemptions for several key industries in Oman, including manufacturing, exports, health care, education, etc. Oman also has two special economic zones providing tax exemptions and certain other benefits for companies established in the zones. The following outlines the main incentives.
Under the Foreign Capital Investment Law, Oman provides tax exemptions for certain foreign invested companies in Oman. The exemptions include:
- A 5-year corporate income tax exemption from the date of establishment, with the possibility for an additional 5-year exemption. However, effective 27 February 2017, new industrial establishments will not be eligible for renewal of the exemption for the additional 5-year term;
- Permanent tax exemption for qualifying investments in the healthcare and education sectors. However, effective 27 February 2017, new establishments in the healthcare and education sector will not be eligible for the exemption; and
- Import duties exemption on machinery and equipment, and on raw materials required for the business.
Effective 1 January 2020, a new Foreign Capital Investment Law (‘New Law’) was adopted in replacement of the previous Investment Law. The New Law includes the following measures:
- Introduction of an income tax exemption for establishing, operating, and managing strategic development projects involving public facilities, infrastructure, energy renewables, roads, transport, and ports; and
- Introduction of new procedures for foreigners to invest through the Omani Investment Services Centre .
It is clarified that the New Law shall not affect the existing privileges, incentives, and assurances granted for investment projects until the expiry of their respective durations, as also existing legislation concerning GCC investments, the special economic zone at Duqm, and the public establishment for industrial estates or free zones.
To be eligible for the exemptions, the following criteria must be met:
- The company must be incorporated and licensed in Oman;
- The head office of the company must be in Oman; and
- The primary business activity of the company must be industrial manufacturing.
Prior to 27 February 2017, an entity engaged in the primary business activity of mining, export of products manufactured in Oman, tourism (including hotel operation), farming and agriculture processing, fishing and fish processing, education, and other industries, was eligible for the tax exemption detailed above. Whilst newly established entities engaged in any such activity will no longer benefit from the tax exemption regime post such date, the changes/ amendments do not affect any existing approved establishments claiming exemptions as on such date.
In order to enjoy the exemptions provided under the Foreign Capital Investment Law, the application must be made, and approval be obtained from the Ministry of Commerce and Industry, and the Ministry of Finance.
Exemptions granted can be cancelled if a company fails to meet any of the eligibility requirements during the course of operations. In addition, a company which had been granted the exemptions cannot benefit from any other exemptions granted under Omani law.
The Income Tax Decree 47 of 1981 provides for corporate income tax exemptions similar to those provided for under the Foreign Capital Investment Law covered above: 5-year exemption with a possible 5-year extension. The decree applies to companies carrying on industrial activities or exporting products manufactured in Oman.
Eligibility requirements for the corporate income tax exemption include:
- Minimum investment of OMR 1 million (effective 11 February 2019, earlier OMR 750,000) in fixed assets;
- At least 40% of the company's production in the last 2 years was exported;
- No more than 10% of the company capital can be distributed to shareholders during the exemption period;
- The average percentage of Omanization exceeds the percentage set by regulation (Omanization is the replacement of expatriate staff with Omani staff), and Omani staff should be employed at all levels of the company in accordance with the minimum percentages specified by the Labor Ministry; and
- The company's products must be considered significant strategic goods as set by the regulation.
Oman has the following free zones and special economic zones:
- Salalah Free Zone - an industrial free trade zone;
- Al Mazunah Free Zone;
- Sohar Port and Free Zone;
- Knowledge Oasis Muscat - a technology park near Muscat; and
- Duqm Special Economic Zone- key hub and gateway for Middle East, South Asia, and Africa.
Companies established under the Salalah Free Zone, Al Mazunah Free Zone, and the Duqm Special Economic Zone are allowed a corporate income tax exemption of up to 30years or the term of the lease or usufruct agreement, whichever is shorter. The companies operating in Sohar Port free zone are eligible for a 25-year tax holiday.
Other benefits available include
- 100% foreign ownership of capital;
- Relaxed minimum capital requirements;
- Relaxed foreign exchange rules;
- Relaxed import restrictions, etc.; and
- Customs duty exemption.
In order to qualify, the taxpayer must:
- Be registered in the SEZ;
- Be licensed to perform qualifying activities in the SEZ and perform those licensed activities within the zone’s boundaries; and
- Commit to the required level of Omanization as set by the SEZ authority (Omanization is the replacement of expatriate staff with Omani staff).
The tax exemption and other benefits are restricted for certain sectors, including banks, financial institutions, insurance, reinsurance, telecommunications services, and land transport companies. In order for the exemption and benefits to apply for these sectors, the company must be registered with SEZ authority and conduct their business permanently within the boundaries of the zone.
Further, in March 2021, as a part of an economic stimulus plan, a reduction in the land rental value by 25% is introduced for companies operating in the Duqm SEZ and the industrial zone of the Public Establishment for Industrial Estate. If the qualifying activities are no longer regularly performed in the SEZ or if any of the requirements are no longer met, the tax exemption and other benefits will be cancelled.
Qualifying entities established in the Scientific and Other Specialized Zones are entitled to the following incentives:
- Exemption from taxes for a period of 5 years from the commencement of activities, which may be extended for two terms (i.e., the maximum period of exemption is 15 years);
- Benefit from lands in the zone for a period of 25 years;
- Exemption from the minimum capital and the minimum local participation requirement provided for in the capital under the commercial company law and the foreign capital investment law;
- Free importation of goods required for business purposes, except for those that are prohibited by law; and
- Exemption from customs duties for imports into the zone.
To be eligible for incentives, the following requirements must be met:
- Entities are validly registered in the zone;
- Entities are licensed to carry on the activities that are permitted in the zone; and
- Entities carry on only the permitted activities.
The above incentives are not available to entities whose activities are not in line with the scientific purpose of the zone such as banks, insurance and re-insurance companies, telecommunication companies, etc.
Effective 1 June 2019, entities making qualifying investments in the tourism industry in Musandam region are entitled to the following incentives:
- Corporate income tax exemption for a period of 10 years;
- Exemption from municipal tax and tourism tax until the end of 2021; and
- Exemption from customs duties levied on building materials and equipment needed for the construction of tourism projects.
In March 2021, Oman introduced an economic stimulus plan as part of the Oman Vision 2040, which provided various tax incentives for companies including:
- Corporate tax exemption for companies operating in economic diversification sectors for a period of 5 years beginning from the date of registration in the Commercial Registry during the period from 1 January 2021 up to 31 December 2022;
- An exemption from the tax due by hotel establishments for the tax years 2020 and 2021; and
- Reduced tax rate of 12% instead of 15% for small and medium enterprises (SME) registered during 2020 and 2021 tax years. An enterprise may be classified as a SME based on the classification set by the Public Authority for Small and Medium Enterprises Development and their counterparts not registered with the Public Authority but are registered with the Ministry of Commerce, Industry and Investment Promotion for the tax years 2020 and 2021 (see Sec.8.1.).