Oman Double Taxation Agreements Explained (2025 Edition)

Purpose of DTAs:

• Eliminate Double Taxation: The primary goal is to ensure that income earned by a resident of one country from a source in another country is not taxed twice.

• Prevent Fiscal Evasion: DTAs often include provisions for the exchange of information between tax authorities, enhancing transparency and combating illegal tax practices.

• Promote Trade and Investment: By reducing the tax burden and providing certainty, DTAs make cross-border trade and investment more attractive and predictable.

• Fair Allocation of Taxing Rights: They establish clear rules for how different types of income (e.g., business profits, dividends, interest, royalties) are to be taxed by each country, based on internationally accepted principles.

• Resolve Disputes: DTAs provide mechanisms, such as the Mutual Agreement Procedure (MAP), for resolving disputes that may arise between taxpayers and tax authorities regarding the interpretation or application of the treaty.

Most of Oman’s DTAs are based on the OECD Model Tax Convention, which provides a standardized framework for allocating taxing rights and preventing double taxation.

Oman’s Approach to DTAs

Oman views its network of Double Taxation Agreements as a strategic tool to enhance its global economic integration and attract foreign direct investment. The Sultanate has been proactive in signing new treaties and, as seen recently with the India DTAA amendment, updating existing ones to align with evolving international tax standards, including those related to Base Erosion and Profit Shifting (BEPS).

Oman’s DTA network is continuously expanding, covering a diverse range of countries across Asia, Europe, Africa, and North America. This broad coverage reflects Oman’s growing economic partnerships and its commitment to facilitating seamless cross-border business.

Key Provisions in Oman’s DTAs (Common Articles)

While each DTA has its unique nuances, most of Oman’s agreements share common articles and principles, derived from the OECD Model:

1. Persons Covered (Article 1): DTAs apply to “persons” who are residents of one or both of the Contracting States. This includes individuals, companies, and other bodies of persons.

2. Taxes Covered (Article 2): DTAs typically cover direct taxes on income and capital. In Oman’s case, this primarily refers to Corporate Income Tax and the recently introduced Personal Income Tax (effective 2028).

3. Tax Residency (Article 4): This crucial article defines who is considered a “resident” of a contracting state for treaty purposes. For individuals, “tie-breaker rules” (e.g., permanent home, centre of vital interests, habitual abode, nationality) are used to determine residency if an individual is a resident of both countries under their domestic laws. For companies, residency is usually based on the place of effective management or incorporation.

4. Permanent Establishment (PE) (Article 5):

   • A “Permanent Establishment” is a fixed place of business through which the business of an enterprise is wholly or partly carried on (e.g., a place of management, branch, office, factory, workshop, mine).

   • If a foreign company from a DTA country has a PE in Oman, its business profits attributable to that PE can be taxed in Oman. Without a PE, business profits are generally taxable only in the company’s country of residence.

   • DTAs often include specific thresholds for construction projects (e.g., a site lasting more than 6 months) to constitute a PE.

5. Income Articles & Reduced Withholding Tax (WHT) Rates: DTAs specify how different categories of income are taxed. A key benefit is often the reduction or elimination of Withholding Tax (WHT) at source on:

   • Business Profits (Article 7): Generally taxable only in the country of residence of the enterprise, unless it carries on business through a PE in the other country.

   • Dividends (Article 10): Often subject to a reduced WHT rate (e.g., 0%, 5%, 10%) in the source country, especially for significant shareholdings (e.g., 10% or 25% ownership). Oman’s domestic WHT rate on dividends to non-residents is typically 10% for unlisted shares.

   • Interest (Article 11): Often subject to a reduced WHT rate (e.g., 0% or 5%) in the source country. Oman’s domestic WHT rate on interest to non-residents is typically 10%.

   • Royalties (Article 12): Often subject to a reduced WHT rate (e.g., 0% or 8%) in the source country. This covers payments for the use of intellectual property, trademarks, patents, software, and technical know-how. Oman’s domestic WHT rate on royalties is typically 10%.

   • Independent Personal Services (Article 14): Income derived by a resident of one state from professional services or other activities of an independent character is generally taxable only in that state, unless the individual has a fixed base regularly available to them in the other state, or stays beyond a certain period (e.g., 183 days).

   • Dependent Personal Services (Employment Income) (Article 15): Salaries, wages, and similar remuneration are generally taxable only in the state of residence, unless the employment is exercised in the other state. Even then, there are usually “183-day rules” and employer residency conditions that may exempt the income in the source state.

   • Capital Gains (Article 13): Gains from the alienation of property (e.g., shares, real estate) are often taxed only in the residence country, though gains from immovable property are typically taxed in the country where the property is located.

6. Methods for Elimination of Double Taxation (Article 23): DTAs specify how double taxation is actually relieved. Common methods include:

   • Exemption Method: Income taxed in the source country is entirely exempt from tax in the residence country.

   • Credit Method: The residence country allows a credit for the tax paid in the source country against its own tax on that income. Oman typically uses the credit method for its residents.

7. Non-Discrimination (Article 24): This clause ensures that nationals or enterprises of one contracting state are not subjected to more burdensome taxation in the other contracting state than nationals or enterprises of that other state in similar circumstances.

8. Mutual Agreement Procedure (MAP) (Article 25): Provides a mechanism for the competent authorities of the two contracting states to consult and resolve disputes concerning the interpretation or application of the DTA, or to eliminate double taxation in cases not provided for by the DTA.

9. Exchange of Information (EOI) (Article 26): Allows tax authorities to exchange information relevant for carrying out the provisions of the DTA or for the administration or enforcement of domestic tax laws concerning taxes covered by the DTA.

Benefits of DTAs for Businesses and Individuals

For companies and individuals engaged in cross-border activities involving Oman, DTAs offer significant advantages:

• Reduced Tax Burden: The most direct benefit is the reduction or elimination of WHT on dividends, interest, and royalties, directly impacting cash flow and profitability for international transactions.

• Enhanced Tax Certainty: Clear rules on taxing rights reduce ambiguity and potential disputes, making financial planning more predictable.

• Protection Against Tax Evasion: The EOI provisions contribute to a fairer global tax system.

• Competitive Advantage: Businesses operating under DTA benefits can offer more competitive pricing for services or products in the cross-border market.

• Facilitation of Investment: Reduced tax barriers encourage foreign investment into Oman and outbound investment by Omani entities.

How to Claim DTA Benefits in Oman

To claim benefits under an Oman DTA, the non-resident recipient of income (e.g., a foreign company receiving royalties from an Omani payer) typically needs to provide certain documentation to the Omani payer:

1. Certificate of Residency (COR): This is the most crucial document. It is issued by the tax authority of the non-resident’s country of residence, confirming their tax residency in that country for the relevant period.

2. Formal Request/Declaration: The non-resident may need to provide a formal declaration or request to the Omani payer, stating their intention to claim DTA benefits and citing the relevant DTA article.

3. Supporting Documents: Depending on the DTA and the type of income, additional documentation might be required (e.g., contracts, invoices).

The Omani payer (the entity making the payment to the non-resident) is responsible for applying the correct DTA-reduced WHT rate at the time of payment. They must obtain and retain all necessary documentation (especially the Certificate of Residency) to justify the reduced withholding, in case of an audit by the Oman Tax Authority (OTA). Failure to do so could result in the Omani payer being liable for the full domestic WHT rate, plus penalties.