Oman: VAT Guide for Financial Services
The Oman Tax Authority (OTA) has finally released its long-awaited VAT Guide for the Financial Services Sector in English. The Guide gives interpretation and guidance on the application of the VAT Law and Executive Regulations, and it covers banking, insurance, and Islamic Finance.
Islamic Financial Services
The Guide outlines VAT treatments for many transactions and items, making it a useful reference for banks and other financial institutions when establishing suitable VAT treatment.
The VAT treatments are classified as follows:
- Standard rate 5% services for an explicit fee, commission, or commercial discounts
- Exempt services by an implicit margin or spread interest
- Zero-rated resident outside Oman condition for zero-rating services
Islamic financing products would be subject to the same VAT treatment as conventional financial goods. In a traditional financial products in Oman like Murabaha, Musawama, Mudaraba, Ijara, Mushakara, and others the profit earned by the provider of an Islamic finance product is treated as interest.
- Shariah concept, VAT treatment on buying and selling transactions done by Islamic banks is applied.
- Input VAT on goods and services by actual customers through an Islamic financial arrangement.
- Customers’ profit income is to be viewed as being beyond the scope of VAT because it is passively obtained.
VAT Treatment of Insurance Services
A circumstance in which a contract protects the policyholder (the insured) against loss or harm caused by an unknown future event. Warranties are not typically considered insurance services for VAT reasons, it is noted.
- VAT exemption will be lawfully entered and licensed by the authorized entity in Oman.
- Additional explicit fees, such as administration fees, and intermediate services, such as broker and management services, are not covered.
- Settlements made by an insurer in connection with an insurance claim are exempt from VAT.
Input VAT on expenses incurred in making exempt supplies is not recoverable under Oman VAT legislation. Businesses that engage in both taxable and exempt activities, such as banks, must apportion their input VAT to ensure that they only recover the amount that they are entitled to. The Guide explains the rules and conditions for this frequently complicated process, including how to calculate partial deductions and recover input VAT on capital assets.
Source: tms.taxoman.gov.om
