On 12th October, 2020, Oman announced that it would implement Value Added Tax (VAT) at the standard rate of 5% starting 16th April, 2021. Oman will be the fourth country in the GCC to implement VAT after the UAE, KSA, and Bahrain.
According to initial estimates, the new tax is expected to raise OMR400 million annually to the Sultanate’s economy and generate 1.5% of the total value of its GDP. Considering the country’s economy shrank 6.4% in 2020, VAT is expected to help with the recovery, albeit modestly.
While basic food commodities, medical and educational services will remain zero-rate i.e. will be exempt from VAT, many elastic goods and services, luxury items, and a few non-essential products will be subject to VAT. SO what would this mean for retailers in Oman who trade in products that aren’t zero-rated?
Bastiaan Moossdorff, Senior VAT Adviser at Baker McKenzie Habib Al Mulla highlights some key areas that retailers should think about before the tax comes into effect.
Pricing
Retailers that supply goods or services that are subject to the standard rate of VAT are obliged to collect 5% VAT on each sale from 16 April 2021 onwards. If possible, retailers may seek to pass on this tax in full to the customer by increasing the pre-VAT price with 5%. If this is not possible, the retailer would still be required to account for 5% VAT effectively reducing its profit margin. This is especially a concern for cash based business where the additional 5% may result in a decimal price which may be inconvenient (or in certain case impossible) to collect.
Prices should be displayed inclusive of VAT. It is not allowed to add the VAT at the counter. In other words; the price inclusive of VAT should be known at the time the customer decides to make the purchase.
Invoicing
Tax compliant invoices should be issued for all supplies. These invoices may be issued in Arabic or English provided an Arabic translation is provided upon the tax authority’s request. Simplified invoicing is allowed for low value supplies (under 500 Omani Rial), provided approval has been obtained from the tax authorities.
Advance payments
VAT is due on the date of supply. The date of supply is the earliest of the date that the goods or services are provided, 2) issuance of the tax invoice 3) date of full or partial payment to the extent of the received amount. An advance payment therefore triggers a requirement to account for VAT (and issue an invoice) for the amount of advance payment received.
Standard rate or zero rate
Under the Oman VAT legislation certain supplies of food items are subject to the zero rate of VAT. The list of food items subject to the zero rate of VAT is published on the website of the tax authorities. Retailers that sell food items should assess whether the zero rate applies.
Discounts, vouchers and loyalty schemes
Retailers may undertake promotional activities such as providing discounts, free products, vouchers or the opportunity to participate in a loyalty schemes. The VAT treatment of these promotional activities can be quite complex and should be carefully considered.
Discounts should in principle reduce the value of the supply (e.g. the base on which the VAT is applied) whilst samples and gifts are not considered supplies provided that these are below a certain monetary threshold. Under the Oman VAT legislation a distinction is made between single purpose vouchers and multipurpose vouchers. In case of the former VAT is due when the voucher is issued and in the latter when the voucher is redeemed to obtain services or goods.
Transitional rules
Retailers that have sold services that commenced before 16 April 2021 may need to consider whether they are required to account for VAT on the part of the service that is provided after 16 April 2021. Examples are warranties, insurance and subscriptions/memberships.
Non-resident business
Business selling goods or services to Omani based customers have to consider whether they have an obligation to register and account for Oman VAT.
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