Income Tax and Business in Oman

I was intrigued by the article in the hard-hitting Times Of Oman on the Majlis Al Shura debating a draft law on Income tax in Oman Income Tax Law debated

Al Shukaili explained that the income tax draft would not include individuals or personal income.

I must admit I was a bit disappointed with that. I would have thought that a mild tax, say 10%, on high-earning individuals would be a good idea for Oman to start with now, so that the Government has levers to pull later if required. There are a lot of people making some serious money lately, as the record oil price and the Government's investment-lead boom feeds through the economy. And given the resulting increased gap perceived by average Omanis between the so-called 'haves' and the 'have-nots', this would have been a good opportunity to start the debate on these individuals paying their fair share. Of course, a the side effect would be perhaps to just push them to living outside Oman, but that could be covered by making it a tax on international income required of all citizens of Oman resident here or not, as is done by other countries such as Australia and the USA.

But, no, its just a revision and consolidation of Company taxation. At the moment this is predominantly 12% for normal companies registered in Oman (but 32% for Foreign registered companies – more on that later). For those interested, this usually doesn’t apply to the oil concessions, or big capital intensive projects, as the agreements with the Government will normally explicitly exempt them from any changes in the tax law. This is to stop the Government waiting until the investment have been made and then changing the law to take all the profits, and is completely normal. The Private Shareholders in Omans biggest oil company, Petroleum Development Oman, effectively pay a tax rate of around 85%, which is pretty high compared to comparable international deals. Most Omanis don’t know this, and think that Shell (the main private shareholder in PDO) is taking an unfair amount, but they’re wrong. Oman gets a really great deal. The real tax rate they pay is more like 93%. The newer concessions operated by the likes of Occidental and BP pay a lot less tax, by the way.

The big difference in tax rate between an Omani registered company and a foreign one is a big driver that helps the 'big families' and other well connected businessmen and women in Oman. An Omani registered company has to have an Omani sponsor, and of course, he or she will require a share of the spoils. But as the alternative is a 32% tax bill vs 12%, it's obviously in the interests of the foreign company to do a deal and register locally. This usually entails a 'carry deal' of some kind, whereby the foreign owners take all the risk and effectively the sponsor gains a risk free 5%-10% take. Sweet eh? In exchange, the sponsor will be able to facilitate connections for Government, other businesses, contracts, arrange logistical support, distribution, import/export assistance, arrange a friendly bank to supply financing (usually one in which the sponsor is a shareholder, heh heh), provide offices and suppliers (and hence take a cut from that side as well, or even be the owner or sponsor of those companies too!). It’s a great racket. As sponsor you can also then get the company to employ family members, or the family members of other well connected people. A virtuous circle.

And with the large influx of new business lately, and the booming economy, you can see why the number of nice new Lexus, Porsche and big palaces is also skyrocketing.