Oman is recognised for its tax-friendly policies, offering businesses and residents some of the most attractive fiscal conditions in the Gulf. There’s no personal income tax, corporate tax is relatively low, and the government has actively used incentives to attract investment.

But things are changing. Oman is gradually reshaping its tax system to support economic diversification and reduce dependence on oil revenues. Corporate tax applies more broadly than before, VAT is now in place, and a tax on high earners is expected in the coming years. These shifts make it more important than ever for businesses and individuals to stay informed.

This article breaks down the key taxes in Oman, from corporate tax and VAT to industry-specific levies, and looks at what these changes mean for those living and operating in the country.

Corporate tax in Oman

Oman’s corporate tax system is relatively straightforward. Businesses pay a standard rate of 15% on taxable profits, regardless of their structure. Smaller businesses, such as Omani-owned proprietorships and limited liability companies (LLCs) meeting certain criteria, benefit from a lower rate of 3%. This applies if annual revenue stays under OMR 100,000, capital does not exceed OMR 50,000, and the company employs no more than 15 people.

The oil and gas sector operates under different rules. Companies engaged in petroleum exploration and production face a significantly higher tax rate of 55%, as outlined in government agreements.

There are incentives for companies operating in free zones and special economic zones, where tax exemptions and reduced rates may apply.

Businesses must file their corporate tax returns within four months of the financial year-end. Late submissions can result in penalties. While Oman doesn’t currently impose local or regional taxes, changes to the system are always under review as the government looks to balance economic growth with revenue needs.

Value Added Tax (VAT) in Oman

Oman introduced a value-added tax (VAT) system in April 2021, applying a 5% levy on most goods and services. While businesses across many sectors factor this into their pricing, key exemptions remain. Healthcare, education, financial services, and essential food items either fall under zero-rated or exempt categories, ensuring that certain costs remain manageable for consumers.

Companies generating annual revenue above OMR 38,500 must register for VAT and submit quarterly filings. Compliance requires maintaining detailed records, as errors or delays in registration, filings, or payments can result in fines.

Though VAT is still a relatively new addition to the Sultanate’s tax system, it’s quickly become an integral part of government revenue. Businesses must stay on top of their obligations to avoid penalties and ensure smooth operations.

Withholding tax in Oman

Oman applies a 5% withholding tax on payments made to non-residents for services, royalties, interest, and dividends. These deductions are meant to ensure that tax is collected at the source before funds leave the country.

Domestic payments between Oman-based companies are not subject to withholding tax, reducing compliance burdens for local businesses. For companies making payments to non-residents, the responsibility lies in ensuring proper deductions and timely filings. Any failure to do so could result in penalties.

As international transactions grow, businesses need to remain aware of their obligations and any developments in tax treaties that might affect withholding tax liabilities.

Excise tax and customs duties in Oman

Oman applies excise tax on selected goods, mainly those considered harmful to health. Tobacco products and energy drinks are taxed at 100%, while carbonated drinks are subject to a 50% levy. The aim is to discourage consumption while generating additional revenue.

For imports, the standard customs duty is 5%, though goods originating from GCC countries move freely without these charges. Businesses operating in free zones also benefit from duty exemptions, offering cost advantages for import-heavy operations.

If you’re trading across borders, understanding these taxes is crucial for taking advantage of exemptions and managing costs effectively.

Common tax compliance challenges in Oman

Tax compliance comes with its share of challenges, and businesses that fail to stay on top of their obligations risk penalties, audits, and operational disruptions. Late tax filings are a common issue, often resulting in fines that could have been avoided with better planning. Mistakes in VAT calculations can trigger audits, while misclassified expenses and deductions can lead to further scrutiny.

Multinational companies also need to consider transfer pricing rules to ensure transactions between related entities are properly documented. Keeping accurate records and working with experts can help businesses avoid costly errors and ensure compliance.

How can Sovereign PPG help?

Sovereign PPG has extensive experience in Oman’s business environment. We assist companies in understanding and complying with tax regulations, from corporate tax and VAT registration to withholding tax and customs duties and our client accounting outsourced services are designed to support businesses in being tax compliant. 

If you need support with tax compliance, company setup, restructuring, local partnership, or PRO services in Oman, the UAE, Qatar, or KSA, please contact us at +971 (0)4 456 1761 for Dubai, +971 (0)2 448 5120 for Abu Dhabi, email oman@SovereignGroup.com, or complete the contact form below. We would be delighted to assist you.