basic concepts of value added tax (vat) in oman
TRANSCRIPT
Basic Concepts of Value Added Tax (VAT) in Oman
May 2021
Contents
1 VAT Exemptions Vs. Zero-Rating
2 Tax Implications on Key Business Transaction – Sale of Goods, Reverse Charge Mechanism, Exports, Sales Return, Damages, Discounts, Bad Debts, etc.
VAT Exemptions Vs. Zero-Rating
Types of Supplies
What is VAT exemption and Zero-rating? Certain supply of goods and services listed as exempt from VAT
No VAT to be charged from customer on supply of such goods/ services
Credit of VAT paid to vendors on procurement of goods/ services for making an exempt supply is not available
Increases the cost of supplies since the VAT credit is not available
Needs to be reported in the VAT returns
Turnover not taken into account while determining the threshold for registration
VAT Exemption
Taxable supply, only the rate of VAT is 0%
Certain supply of goods and services listed as zero-rated from VAT
VAT to be charged from customer @ 0% on supply of such goods/ services
Credit of VAT paid to vendors on procurement of goods/ services for making a zero-rated supply is available
Needs to be reported in the VAT returns
Since it is a taxable supply, turnover needs to be taken into account while determining the threshold for registration
Zero-Rated
Illustration
Oman Vendor Oman Business Oman Customer
Zero-rated Supply
Credit of RO 5 charged by Oman Vendor can be availed, as under:
Can be set off against any other VAT liability from other business
Can be claimed as refund from the Government
TAX INVOICE VALUE RO 100 VAT @ 5% RO 5 TOTAL RO 105
TAX INVOICE VALUE RO 100 VAT @ 0% RO 0 TOTAL RO 100
Oman Vendor Oman Business Oman Customer
Exempt Supply
Credit of RO 5 charged by Oman Vendor cannot be availed by Oman Business
Since the cost increased by RO 5 in hands of Oman Business, it increases the cost of supplies to Oman customer to RO 105
TAX INVOICE VALUE RO 100 VAT @ 5% RO 5 TOTAL RO 105
TAX INVOICE VALUE RO 105 VAT Exempt RO 0 TOTAL RO 100
List of Exempt Supplies
Financial Services – other than amount charged as fee, commission, etc.
Provision of health care and associated goods/ services
Provision of education and associated goods/ services
Undeveloped (bare) land
Resale of residential real estate
Renting of real estate for residential purpose
Local passenger transport
Import of used personal/ household items by citizens residing abroad/ foreigners shifting to Oman
Import of necessities of non-profit organizations
Returned goods (when re-imported)
Personal belongings/ gifts received by passengers traveling to Oman, and for people with special needs
List of Zero-rated Supplies
Specified foodstuff – list of such foodstuff has been released by the Tax Authority
Specified medicines/ medical equipment
Investment gold, silver and platinum
International transport and intra-GCC transport of goods/ passengers and the related services
Supply of sea, air and land means of transport for transporting goods/ passengers for commercial purposes and the related services
Supplying rescue aircrafts/ boats etc.
Supply of oil and its oil derivatives and natural gas
Export of goods outside GCC countries
Supply of services to a customer residing outside GCC countries, if the customer benefits from the services outside the GCC countries
List of Non-Taxable Supplies
Supplies made between members of the same tax group (except deemed supplies)
Supplies between Insurer and Insured during settlement of an insurance claim
Supply of goods/ services as a part of the transfer of business activity, whether wholly or partly
Tax Implications on Key Business Transaction
Domestic Sale of Goods
Oman Vendor
Oman Business
Oman Customer
VAT Return Computation
Output VAT 7.5
Less: Input VAT (5)
Net cash liability 2.50
Implications
Oman Supplier to charge VAT @5% on sale value of goods i.e., RO 100 and issue Tax Invoice to Oman Business
Oman Business to claim credit of VAT charged by Oman Vendor
On re-sale of goods, Oman Business to issue Tax invoice to Oman Customer and charge 5% VAT on sale value of goods, i.e., RO 150
Net cash liability to be deposited in the tax period by Oman Business would be after adjusting the VAT paid on purchase of goods
Oman Business to disclose both purchase of goods and sale to Oman customer in its VAT return
Sale Value – 100
VAT – 5 (5% of 100)
Sale Value – 150
VAT – 7.5 (5% of 150)
Concept of Reverse Charge Mechanism
Typically, liability to discharge VAT liability is on the supplier of goods/ services. However, in certain specified cases, the liability to pay tax is on the recipient of goods/ services instead of the supplier which is called as RCM
Some of the cases on which RCM is applicable are as follows:
Import of goods from outside Oman in Oman unless specifically exempted
Receipt of services from a supplier outside Oman and place of supply of such service is in Oman (determination of place of supply in case of various services has already been discussed in the presentation) unless specifically exempted
Further, the recipient importing services/goods shall be required to keep following documents in relation to the import:
Supplier’s invoice showing details & consideration paid for goods and services
Customs department statement showing details and the value of the goods
All the invoices from overseas suppliers on which tax is payable under RCM should be endorsed by the importer in its favor indicating the equivalent amount in Omani Rials, tax due and also stating that the supply is subject to RCM
Concept of Reverse Charge Mechanism
Import of Services - Recipient should be able to account for VAT on its normal VAT return and he may be able to claim that VAT back on the same return, subject to the normal VAT recovery
Import of Goods: As per scheme of payment mechanism under RCM, applicable VAT on import of goods should be paid in cash
Possibility of claiming deferment of tax payable on import of goods can be explored by fulfilling the following conditions:
Imported goods are for the purpose of business
Application should be submitted at least 1 month before import of goods into Oman
Bank or other guarantee as specified by the Tax Authority should be furnished
If application is not decided within 30 days by the Tax Authority, it is deemed to be rejected
Where VAT is paid under RCM, the same should be available as recoverable ITC and can be utilized for payment of output VAT liability subject to the fulfilment of conditions prescribed under VAT Law
Where ITC is not available, value for RCM would be highest of market value, invoice value or payment made
Computation of VAT under RCM
Particular Amount (RO)
CIF Value 100
Custom Duty 5
Taxable Value (for VAT purpose) [A]
105
VAT @ 5 % of [A] (paid under RCM)
5.25
Particular Amount (RO)
Value of Services (as per invoice) 100
Withholding tax @10% 10
Net Payment to Overseas Vendor 90
Taxable Value (for VAT purpose) 100
VAT @ 5 % of Taxable Value (paid under RCM)
5
Import of Services Import of Goods
Import of Goods (under RCM)
Overseas Vendor
Oman Business
Oman Customer
VAT Return Computation
Output VAT 7.5
Less: Input VAT (5.25)
Net cash liability 2.25
Implications
Oman Business to pay VAT @5% on import of goods at landed value i.e., OMR 105 under RCM (at customs)
VAT to be paid in cash (unless deferral scheme has been opted and granted by the Tax Authority)
VAT paid on RCM can be availed as credit by Oman Business
On re-sale of goods in Oman, VAT has to be paid @5% on sale value of goods, i.e., OMR 150 (for which Tax Invoice to be issued to Oman Customer)
Net cash liability to be deposited in the tax period would be after adjusting the VAT paid on import of goods
Oman Business to disclose both import of goods and sale to Oman customer in VAT return
Import Value – 100
Customs Duty – 5 (5% of 100)
VAT – 5.25 (5% of 105)
Sale Value – 150
VAT – 7.5 (5% of 150)
Outside Oman
Oman
Export of Goods/ Services
Export of Goods
Qualifies as zero-rated supplies subject to VAT @0%
Only physical export of goods outside Oman qualifies as export of goods
Documentation to be maintained establishing physical movement of goods outside Oman, i.e., documentary evidence attested by the competent authorities in addition to commercial documents related to exports
Input VAT can be claimed in respect of expenses incurred for effecting exports
Exporter on record should be person claiming the benefit of zero-rated supply
Export of Services
Qualifies as zero-rated supplies subject to VAT @0%
Only services which benefit the overseas customer outside the Oman would qualify as exports
Documentation to be maintained to establish the customer and beneficiary of service is outside Oman specifically the contract/ agreement and ideally receipt of payment from overseas customer
Input VAT can be claimed in respect of expenses incurred for effecting exports
Export of Goods/ Services
Indirect Export of Goods
Covers the cases where the purchaser of goods in Oman (‘Indirect Exporter’) is responsible for transportation/ export of goods outside Oman
The supply to the Indirect Exporter in Oman qualifies as zero-rated supplies subject to VAT @0%
The goods should be exported by Indirect Exporter within a period of 90 days from the date of supply
The goods should be exported as such (without any change by the Indirect Exporter)
If the conditions of the indirect export are not complied with, applicable VAT on supply of goods to Indirect Exporter will apply
Documents to be maintained in support of Export of Goods
The supplier/exporter in Oman should retain the documentary evidence for export attested by the competent customs authorities in addition to commercial documents related to exports
Direct Export of Goods
Overseas Customer
Oman Business
(Exporter)
Oman Vendor
VAT Return Computation
Output VAT Nil
Less: Input VAT (5)
Net cash liability (5)
Implications
Oman Vendor supplies goods to Oman Business (Exporter) for RO 100 and charges VAT @5%
On export of goods outside Oman, Oman Business (Exporter) would pay VAT @0% on sale value of goods, i.e., RO 150
Oman Business (Exporter) to claim input VAT credit of OMR 5 against
Any output VAT liability; or
Carry Forward to next tax period; or
Claim refund from Government
Oman Business (Exporter) to disclose both purchase of goods and exports to Overseas Customer in VAT return
Export Value – 150
VAT @0% - Nil (zero-rated)
Purchase Value – 100
VAT – 5 (5% of 100)
Outside Oman
Oman
Indirect Export of Goods
Overseas Customer
Oman Business
(Exporter)
Oman Vendor
VAT Return Computation
Output VAT Nil
Less: Input VAT Nil
Net cash liability Nil
Implications
Oman Vendor supplies goods to Oman Business (Exporter) for RO 100 and charges VAT @0%, if:
Goods are exported by Oman Business (Exporter) within a period of 90 days from the date of supply by Oman Vendor
Goods are exported as such, i.e., without any change by the Oman Business (Exporter)
If the aforesaid conditions of the indirect export are not complied with, applicable VAT @5% would be charged by Oman Vendor on supply of goods to Oman Business (Exporter)
On export of goods outside Oman, Oman Business (Exporter) would pay VAT @0% on sale value of goods, i.e., RO 150
Oman Business (Exporter) to disclose both purchase of goods and exports to Overseas Customer in VAT return
Export Value – 150
VAT @0% - Nil (zero-rated)
Purchase Value – 100
VAT – Nil (0% of 100)
Outside Oman
Oman
Treatment of Discounts Given
Activity VAT Implications Key Aspects
Upfront Discounts Any discounts provided upfront on Tax Invoice would be deducted VAT would apply on the net value (after discounts)
There should be a clear policy for giving discounts
After-sales discounts/ rebates/ incentive that can be linked to original Tax Invoice
Where additional discounts, rebate, price difference, etc., are extended subsequently to raising the Tax Invoice, such discounts etc. could be reduced from the taxable value
Adjustment from output tax can be made in the period in which discounts is extended and credit note is issued
On similar lines, Customer would be required to reduce its ITC credit by VAT amount adjusted in Tax Credit Note
Since this is a post-sale discount, it should be adjusted by issue of Tax Credit
The Tax Credit note should contain a reference to the original Tax Invoice
There should be a clear policy for giving discounts
After-sales discounts/ rebates/ incentive that cannot be linked to original Tax Invoice
Sales incentive etc., extended to customers on achieving certain sales volume, which may not be linked to specific sales invoices
Although the same is in the nature of a discount, on account of the fact that the same cannot be linked with the invoices, there may be practical challenges in issuance of ‘Tax Credit Note’
In such cases, although supplier can issue a commercial credit note (i.e., not a tax credit note), VAT adjustment would not be allowed
Credit note can be issued, however, adjustment to output VAT cannot be made
Treatment of Sales Return of Goods
Activity VAT Implications Key Aspects
Return of goods by customer after sale (i.e., after accepting the delivery
Return of goods by customer after sale of goods would be treated as Sales returns
‘Tax Credit Note’ is required to be issued to customer for adjusting output VAT already paid by supplier at the time of sale of goods
On similar lines, Customer would be required to reduce its ITC credit by VAT amount adjusted in Tax Credit Note
‘Tax Credit Note’ needs to be linked with the original invoice For sales return, (whether partly or fully), credit note has to be
issued within a period of 3 months from the date of supply, in case VAT adjustment has to be claimed
In case credit note is not issued within 3 months, VAT adjustment would not be allowed
Tax Credit Note to be issued in prescribed format
Proper accounting entries to be made
Treatment of Sales Return of Goods
Activity VAT Implications Key Aspects
Non-acceptance of delivery of goods on account of Delay in
delivery Doesn’t need
goods If the goods are
damaged or quality issues are present, then the entire lot is sent back by customer without even accepting the delivery
It may be part or full non-acceptance
In this case, Customer did not account for goods in its Stock since it was rejected upfront without accepting the delivery
In such case, it would be appropriate to cancel the Tax Invoice in case of entire quantity mentioned in the Tax Invoice has been rejected
Where there is part non-acceptance of goods, then original Tax Invoice may be cancelled, and credit note may be issued to the Customer
Customer would be required to reduce its ITC credit by VAT amount adjusted in Tax Credit Note
Any manual alteration in the already issued Tax Invoice should not be made
For cancellation, rejection of supply (whether partly or fully), credit note has to be issued within a period of 3 months from the date of supply, in case VAT adjustment has to be claimed
In case credit note is not issued within 3 months, VAT adjustment would not be allowed
Tax Credit Note to be issued in prescribed format
Proper accounting entries to be made
FoC supplies/ Samples/ Gifts etc. Activity VAT Implications Key Aspects
FoC supplies Samples/ Gifts given as a part of commercial activity for promoting sale of specific product (e.g., given to distributors, dealers, retailers, trade partners etc.)
Such supplies would not qualify as Deemed Supply up to the following limit: Value of gifts or free samples to each recipient during the tax
year shall not exceed RO 50 without tax Total value of all gifts and free samples to all recipients during
the tax year shall not exceed RO 1,000 No requirement for reversal of ITC if within the abovementioned
limits No VAT on such supplies to be paid by supplier if within the
abovementioned limits
Appropriate documentation/ supporting to be retained to establish the linkage of supply with the commercial activity
FoC supplies Samples/ Gifts: Not given as a part of
commercial activity Exceeding the limits
stated above Not given for promoting
sale of specific product (e.g., donated for charitable purposes, personal use etc.)
Qualify as a deemed supply VAT implications would be as under:
Applicable VAT should be charged (by issuing Tax Invoice) on cost price of goods distributed as FOC/ samples/ gifts, etc., or
ITC claimed on goods given on FOC should be reversed
Tracking of such transactions from compliance perspective is necessary
Issue of Tax Invoice in case ITC is not reversed
Other Key Transactions Activity VAT Implications Key Aspects
Destroying expired items/ Loss/ Damage/ Theft of goods
In case of proven loss, damage or theft of goods – no requirement for reversal of ITC credit provided Tax Authority is notified within 30 days, in the prescribed form and manner
In case the same cannot be proved or Tax Authority is not notified: Applicable VAT should be charged should be charged on cost
price of goods destroyed/ damaged, stolen, etc., by issuing a Tax Invoice; or
ITC claimed on goods destroyed/ damaged, stolen, etc., should be reversed
Documents in support of establishing the loss, damage etc., should be retained
Sale on approval basis/ consignment basis
No VAT is to be paid on sending goods to customer on approval/ consignment basis
Liability to pay VAT triggers on acceptance of goods by customer – at the time acceptance, Tax Invoice to be raised with applicable VA
If customer does not accept/ approves goods within one month from the date of transportation/ delivery of goods, liability to pay VAT would trigger – tax invoice has to be raised with applicable VAT
Tax invoice to be raised in accordance with time period in which the goods are accepted/ approved by the customer
Bad Debts
Deduction on account of bad debts up to RO 5,000 available from the Output tax liability, subject to fulfilment of the following conditions:
a) Appropriate VAT has been charged and paid at the time of supply of goods/ Services
b) Consideration for the supply has been written off in full or part as a bad debt in the accounts of the supplier
c) More than twelve months has passed from the due date of payment as per invoice
d) Supplier has notified the recipient of supply the amount that has been written off in the accounts of the supplier
e) Recipient to be notified in writing of the modified amount. The note should include “This is the amount of input tax to be modified in the tax returns for the period during which the date of such note falls.”
f) Payment has not been received from recipient on such bad debts amount
g) Supply should not have been made to a related party
h) The tax adjustment should be carried out within a period of 3 years
Additional conditions prescribed for deduction on account of bad debts exceeding RO 5,000 available from the Output tax liability, such as, filing of legal case, obtaining of decree etc.
Questions and Answers
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Disclaimer
Our comments made in the presentation are based on our understanding of the translated version of the VAT law in Oman and the VAT law other GCC countries and does not constitute any written view/ opinion
Unless specifically requested, we have no responsibility to update the presentation for any events, transactions, circumstances or any changes of law that may occur subsequently
Aspects covered in the presentation are purely a matter of interpretation and not binding on any regulatory or tax authorities. Therefore, there can be no assurance that the regulatory or tax authorities will not take a position/ view contrary to the same
This presentation must be solely used for the purpose of awareness about the broad concept of VAT and therefore should not be used for any other purpose. Further, we recommend that no decision should be arrived basis the details mentioned in the above slide decks and accordingly, we or any other person associated with us are not solely/ jointly or collectively responsible for any loss (i.e., financial and non-financial) occurred to the person, if any position is adopted basis the details mentioned in the above slide decks