Depreciation is taken on a straight-line basis on the following classes of assets at the annual rates shown.
|Docks, quays, jetties, sea barriers in ports, pipelines, roads, and railway lines||10|
|Aircraft and ships||15|
|Hospital buildings, educational establishments, and equipment for scientific research||100|
The rate of depreciation allowed is doubled in the case of buildings used for industrial purposes.
The tax law also provides for calculation of depreciation on a net book value basis for the following classes of assets. A 'pooling' concept is permitted, whereby assets subject to the same rate of depreciation may be pooled together for purposes of depreciation.
|First pool is comprised of tractors, cranes, and other heavy machinery and equipment, including computer software installations, furniture and fixtures, vehicles, computer software, and intellectual property (IP) rights||33.33|
|Second pool is comprised of drilling equipment||10|
|Third pool is comprised of 'other machinery and equipment' not included above||15|
Goodwill is amortisable for tax purposes, generally over the life assigned for International Financial Reporting Standards (IFRS) accounting purposes.
Expenses incurred before the commencement of business are allowed as a deduction in the first taxable year (or period).
Deduction of expenses incurred for the purpose of earning income is generally allowed. Interest expense is allowed for loans from unrelated parties or on loans from banks. Interest paid to related parties is allowed only to the extent the loan terms are at arm's length and subject to satisfaction of the 2:1 debt-to-equity ratio (see Thin capitalisation in the Group taxation section).
Bad debts and other contingencies
Amounts charged to the profit and loss account for creating provisions in respect of bad debts, stock obsolescence, warranties, and similar types of contingencies are not tax deductible. Deduction is allowed only at the time of write-off. However, provisions created by licensed banks in respect of bad debts are allowable within the limits approved/required by the Central Bank of Oman.
Charitable donations (in cash or kind) are limited to specified institutions and organisations and are subject to an overall limitation of 5% of gross income.
Meals, entertainment, officers’ compensation, etc.
All expenses incurred for the generation of gross total income are allowed. There are no specific restrictions on deduction for expenses like meals and entertainment, compensation for officers, and life insurance payments for employees. There are limits on the deductibility of directors' fees.
Social security payments
Social security contributions paid by employers in respect of employees may also be deducted.
Contributions to pension funds, domestic and foreign, are deductible, provided the fund is licensed (in Oman or the country where it was established) and complies with certain other specified conditions.
Payments of bribes or kickbacks, and other illegal payments, are not deductible.
Fines and penalties
Civil fines and penalties are not deductible.
Taxes on income, whether incurred in Oman or elsewhere, are not deductible in arriving at taxable income. A credit may be available for taxes paid in a foreign jurisdiction.
Other significant items/restrictions on allowable expenses
The tax law has imposed restrictions on the deductibility of certain other expenses. The principal items affected are the following:
- Sponsorship fees paid to Omani sponsors are restricted to 5% of net taxable income before sponsorship fees. Net taxable income is determined after offsetting any losses carried forward.
- Charges or expenses allocated from the head office or other group companies are limited to 3% of gross income (5% for banks and insurance companies, and 10% for high-tech industrial activities).
- Commissions paid by insurance companies are restricted to 25% of net premiums collected.
- Leasing companies are treated at par with banks as far as deduction for loan loss provision is concerned. Leasing companies are allowed deductions for loan loss provisions, subject to the limits or recommendations of the Central Bank of Oman.
- Losses arising on sale of investments listed on the Muscat Security Market are not allowed as a deduction from taxable income.
- Any expense or costs that have been incurred to generate income exempted from tax are not allowed as a deduction from taxable income.
- Amounts paid as tax consultancy or advisory fees are disallowed.
- For leases classified under IFRS 16, amortisation of right-of-use (ROU) assets and interest on lease liability are disallowed, with an allowance for actual lease rental payments.
Net operating losses
Carryforward of losses is limited to five years, except in the case of companies that incurred losses during a mandatory tax-exempt period, where the net losses may be carried forward indefinitely for offset against future profits.
Carryback of losses is not allowed.
Payments to foreign affiliates
Payments to foreign affiliates normally receive in-depth scrutiny from the tax authorities. Accordingly, proper documentation should be obtained in order to establish that these transactions are made at an arm's-length basis.