Preparing for Oman's phased VAT registration

The Oman Tax Authority (TA) issued guidance in January 2021 (13-page / 1.1MB PDF, Arabic only) providing clarity on the VAT registration process, following the issuance of the Oman VAT law in October 2020. The guide is aimed at supporting businesses in assessing their VAT registration obligations and complying with them on a timely basis as we work towards a 'go live' date of 16 April 2021.

By confirming a phased approach to VAT registration, Oman is following in the footsteps of neighbouring Saudi Arabia and Bahrain, which each took similar approaches when introducing their own VAT regimes.

The phased approach is good news for smaller and domestic indigenous Omani businesses, as it will provide them the time they need to get familiar with the Oman VAT legislation, understand how VAT will impact their business and sufficiently prepare to be compliant. Larger businesses, however, must submit their VAT registration application by 15 March 2021 if they wish to avoid the risk of a late registration penalty of up to OMR 20,000 (approx. US$52,000), per article 101 of the Oman VAT Law.

Phased VAT registration

Under article 106 Royal Decree No. 121/2020 ('Oman VAT Law'), any person with a place of residence in Oman who undertakes business activities is required to perform a 12 month 'look back' and 12 month 'look forward' exercise in order to assess if and when the mandatory VAT registration threshold was or will be exceeded. This exercise should reflect the business position as of October 2020, when the Oman VAT Law was published in the Official Gazette.

In assessing the threshold, article 56 of the Oman VAT Law requires a person to calculate the total value of all taxable supplies, including exports, and purchases subject to the reverse-charge mechanism - i.e. where the business customer self-accounts for VAT on the transaction.

The law states that the due date for the submission of a VAT registration application will be confirmed in a decision from the chair of the TA. The TA's new VAT registration guide has now confirmed that VAT implementation will be phased across a one-year period between April 2021 and April 2022, subject to the taxable person's total turnover.

The specific period during which the person must submit their VAT registration application, and the date from which their VAT certificate will be effective, are:

Any resident person with turnover between OMR 19,250 and OMR 38,500 may register voluntarily. The TA will be accepting voluntary registration from 1 February 2021.

While the TA's guide is welcomed so as to support businesses in their VAT registration readiness, experience and insights from the implementation of VAT in a number of the other GCC states reminds us that the initial VAT registration process can often be tedious and time consuming. In particular, the types of documentation which must be submitted with the application tends to cause issues, particularly when evidencing turnover levels or where documents need to be certified, notified and translated into Arabic. Oman's reasonably new tax card system may help the TA to alleviate some of these transitional teething issues.

Non-resident businesses have been particularly frustrated by the tedious VAT registration processes across the Gulf Cooperation Council (GCC) countries. The new guide re-emphasises that there is no registration threshold applicable to non-residents. While non-resident businesses are not subject to requirements to appoint a tax representative in order to register, this may be an efficient approach for many in order to ease issues during the process caused by the lack of a local contact number, premises or bank account.

Preparing for VAT

The TA issued additional guidance in January 2021 (6-page / 626KB PDF, Arabic only) on preparing for the implementation of VAT throughout the business.

The guide encourages businesses to act early by appointing a steering committee and a specialist working group made up of key personnel from across all internal business divisions, to give the business time to prepare. These individuals should meet regularly to track progress on preparations. Businesses should make themselves familiar with the VAT legislation and TA guidance, and identify any areas of ambiguity early so that they may be clarified with the TA.

The TA encourages businesses to properly plan their VAT implementation projects. The guide provides examples of steps that should be taken in order to ensure a successful implementation project, including:

• identifying the financial and other impacts of VAT on all the organisation's transactions, including whether those transactions should be treated as standard rated, zero rated or exempt;
• assessing the impact of VAT on pricing;
• developing a 'map' of all tasks required in order to be ready for VAT;
• holding VAT awareness workshops for employees and external stakeholders;
• determining and implementing any required changes to IT systems including point of sale, template documentation including VAT invoices, and record-keeping procedures;
• identifying any opportunities to take advantage of 'optional' aspects of the law, such as VAT grouping and bad debt relief provisions;
• seeking sufficient support from external consultants such as tax advisers, ERP specialists and lawyers; and
• ensuring the business is able to produce sufficient tax reports in order to prepare and support periodic VAT returns.

The guide also highlights the importance of testing any new systems, processes and procedures before the 'go live' date, and implementing ongoing monitoring and internal auditing in order to ensure continued compliance.

While the guide is brief and does not go into the granular detail of a full VAT implementation change management project, it does indicate that the TA expects businesses to undertake sufficient planning in order to be compliant on a timely basis with the law. Businesses should therefore be cautious of expecting the TA to apply a 'transition period' during which it would tolerate late compliance or non-compliance.

Businesses continue to await the publication of the final Oman VAT Regulations in the coming weeks.