1. 38 Business Today FEBRUARY 2015 www.businesstoday.co.om
INTERVIEW
ESSENTIAL TIPS FOR
BETTER BUSINESS
KPMG Middle East's new tax guide helps investors understand
the laws related to setting up businesses in the MENASA region
By Maheswaran P
ASHOK HARIHARAN
Partner & Head of Tax, Middle East and South Asia, KPMG
The Middle East, North Africa and
South Asia (MENASA) region is
one of the most attractive desti-
nations for companies across the
globe mainly because of lower
taxes and huge economic poten-
tial. But most companies are not
fully aware of the local laws
governing foreign businesses and
taxation.
To assuage any fears and to
avoid confusion among compa-
nies willing to invest in the region,
global auditing firm KPMG
recently launched its MENASA Tax
KPMG-Interview/E1:BusinessToday 1/28/15 3:57 PM Page 1

2. Guide 2014-15. Ashok Hariharan,
partner and head of Tax, KPMG
Middle East and South Asia
region speaks to BusinessToday
about things that need to be con-
sidered when setting up a busi-
ness in Oman and how taxation
has changed in the country over
the years.
How will the MENASA Tax
Guide help investors?
The tax guide is intended to help
investors understand the laws
relating to setting up businesses
and taxation in 19 countries that
fall under the MENASA region.
Before a business is set up, it is
important to have an understand-
ing amongst others, of the invest-
ment laws, the commercial laws
and the tax laws.
Whilst in Oman and the rest of
the GCC region, there is only lim-
ited taxation, in the wider
MENASA region there are differ-
ent types of taxes including cor-
porate tax, personal tax, VAT and
transfer taxes. In the guide, we
have summarised the framework
of doing business in each of the
countries and identified key tax
provisions and regulatory modali-
ties, which need due considera-
tion by corporates operating in
the region.
What are some of the most
important things to consider
when setting up a new busi-
ness in Oman?
Whenever anyone sets up a busi-
ness anywhere (including Oman),
there are certain aspects they
need to look into. The most
important one is to undertake a
feasibility study for the project.
This will need understanding of
the country, the political stability,
ease of doing business, incentives
provided by the government and
availability of infrastructure such
as industrial estates or special eco-
nomic zones.
One needs to assess the avail-
ability of financing and skilled
labour. Finally one will undertake
an assessment of revenue
and cost for the project including
various taxes applicable to under-
stand whether it is viable
economically to invest one’s
capital and lenders' money in
the project.
One also needs to undertake a
legal and tax due diligence for the
proposed investment. The invest-
ment may either be in an existing
or a greenfield project. The differ-
ent forms of doing business
including legal structures for the
proposed investment, the need to
setup a local company, require-
ment to have local ownership, or
listing in the stock market need to
be determined. One needs to
consider whether there are any
legal requirements for employing
local work force and if there are
any foreign exchange restrictions.
In Oman it is possible to oper-
ate as a 100 per cent foreign
owned company in free trade
zones (FTZ) or special economic
zones (SEZ) like Duqm, Sohar and
Salalah. It is also possible to have
100 per cent foreign ownership
outside the FTZ/SEZ in certain cas-
es with the approval of the Coun-
cil of Ministers. Otherwise, there
would be a need to have 30 per
cent local ownership.
Oman is the only country that
allows majority foreign ownership
automatically. In most of the oth-
er GCC countries only 49 per cent
foreign ownership is permitted
except in FTZs. There aren't too
many taxes in Oman to be consid-
ered. You only have the corporate
income tax which is 12 per cent.
Interestingly, Oman's tax rate is
the third lowest globally.
Do you need a dedicated
team/individual to handle tax-
ation laws or can it be a part
of finance?
It is important that somebody
in-house is responsible for taxa-
tion even if it is not a full time
resource and even if the company
has an external tax adviser. This
because the ultimate responsibili-
ty for compliance rests with the
company. Besides, it is important
to have a dedicated person
who could liaise effectively with
the tax advisers to ensure that the
company gets the right advice.
What are the most important
requirements for a new busi-
ness going through their first
audit?
Oman had taken a prudent step
in this direction way back in 1986
by making it mandatory for com-
panies operating in the country to
comply with IFRS (International
Financial Reporting Standards).
Further, companies have to get
their financial statements audited
by an auditor based in Oman. The
Central Bank of Oman also
requires all lenders to obtain
audited financial statements from
their borrowers within four
months after the end of the finan-
cial year. This has been done to
ensure that the lending banks
gets sufficient information on a
timely basis about the financial
performance of the borrowers.
For tax purposes you need
to file your tax returns supported
by audited accounts within
six months of the end of the
financial year.
Oman's new tax law came
into effect in 2010. So over the
years how has taxation
changed in the country and
what has been the impact of
www.businesstoday.co.om FEBRUARY 2015 Business Today 39
You should be aware of the legal
rules that will be applicable to Your
business particularlY if You are not
used to doing business in that countrY
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3. 40 Business Today FEBRUARY 2015 www.businesstoday.co.om
the current tax framework on
businesses in Oman?
Oman issued the new tax law in
2009 and it became effective
from 2010. The new law has
brought uniformity in tax rates.
Earlier foreign branches used to
pay taxes at 50 per cent rates;
then it came down to 30 per cent.
Now it is uniform for all compa-
nies at 12 per cent.
Another significant change
introduced in 2010 was the shift
from a territorial system of tax to
a global system of tax. Earlier only
profits earned in Oman were
liable to tax. This meant that
Omani companies which had
businesses outside Oman were
not liable to tax on their overseas
income. Now Omani companies'
global income has been brought
under the tax bracket.
However, tax credits are given
to companies liable to pay tax in
overseas countries. For example if
an Omani company pays taxes in
the US then it will be able to get
credit in Oman for the taxes paid
in the US. This is a unilateral relief
given in the tax law. However, this
tax credit is limited to the Omani
tax rate. You may pay tax at
30 per cent in the US but will only
get tax credit at 12 per cent.
Effectively there is no double tax-
ation. But if you are doing busi-
ness in the UAE where there is no
tax then you have to pay tax on
the profits earned from the emi-
rates too without getting any
credit.
Another important aspect is
the withholding tax. Oman was
probably the first country in the
region to introduce withholding
taxes of ten per cent on certain
categories of income realized by
foreign companies not having a
permanent establishment in
Oman, way back in 1996. In the
recent tax law, Oman enlarged
the scope of withholding tax to
specifically cover payments for
using softwares. For example, if
you buy or download a software,
normally it comes with intellectual
property rights where the owner-
ship remains with the software
provider. Such payments are
subject to a withholding tax of
ten per cent.
Companies should be should
also be aware of the effective tax
rate. The 12 per cent rate is the
legal tax rate. However, the effec-
tive tax may vary depending on
the tax rules which may not allow
deduction for certain expenses.
For example, if the accounting
profits are RO100 certain expens-
es may not be allowed as deduc-
tions. This may increase the tax-
able profit to RO120. So the tax
payable will be RO14.4 which
translates into an effective rate of
14.4 per cent.
What is the law on transfer
pricing in Oman? Can you
elaborate on that?
Transfer pricing is the tax rule
regarding the amount a company
should pay to its related parties or
associated companies for services
or goods purchased or sold. If
there is a multi-national group
based abroad that has a sub-
sidiary in Oman there may be a
temptation for the group to shift
its profits from the Omani
subsidiary to the foreign country if
that country has a lower tax
rate. Transfer pricing rules are
made to ensure that this doesn't
happen and the transaction
between two parties remains at
arms length.
Earlier in the region, tax rates
were very high with Oman, Saudi
Arabia and Kuwait charging as
much as 45 to 55 per cent on
profits. This resulted in taxpayers
seeking to reduce profits in these
countries. The tax authorities in
Oman have been focusing on
transfer pricing since the 1980s.
But Oman, however, does not
have formal transfer pricing rules.
This is good and bad. It gives you
a flexibility with the onus on the
INTERVIEW
In the guide we have summarised
the framework of doing business in
each of the 19 countries that fall
under the MENASA region. We have
identified key tax provisions and
regulatory modalities which need
due consideration by corporates
operating in the region
KPMG-Interview/E1:BusinessToday 1/28/15 3:57 PM Page 3

4. www.businesstoday.co.om FEBRUARY 2015 Business Today 41
taxpayer to show that the transac-
tion with a related company is at
arms length. In the absence of
formal rules, however there is
uncertainty on whether your
transfer price will be accepted by
the tax authority.
We have seen a more rigorous
audit of related party transactions
in Oman in the last 12 to 18
months. I would expect this to
continue in the coming year par-
ticularly given the government’s
budgeted growth in corporate tax
revenues by 25 per cent.
What is the law on capital
gains tax especially in the case
of mergers and acquisitions?
The Oman tax law in 2009, unlike
the old law, specifically has a pro-
vision which says that profits in
the nature of capital gains are
liable to tax at the same rate of
12 per cent. So if you sell or trans-
fer your business you will be liable
to tax. For example, when foreign
companies sell their branches,
they will have to pay tax on the
profits made from the sale.
With the oil revenues declin-
ing what can the government
do to increase tax revenue?
Do you feel there is a need to
increase taxes?
The budgeted price of oil for
2015 is US$75/barrel compared
to US$85/barrel last year. But the
question that is much asked
about is whether US$75/barrel is
realistic considering that today's
price is between US$45 and
US$50/barrel.
The government clearly has its
own assessment of what the
price is likely to be during 2015. I
have seen some reports that
indicate the median of various
industry estimates in December
2014 of oil prices to be US$75 per
barrel for 2015. The government
could have relied on such esti-
mates. As a result, oil revenues are
expected to decline only by five
per cent and gas revenues by
three per cent.
The overall revenues are how-
ever, expected to decline by one
per cent because of the significant
increase expected from taxes and
fees (29 per cent). Since there is
no increase in tax rates, the expec-
tation would be that more taxes
could be collected from compa-
nies who may report more profits
in 2014 compared to 2013.
Further, there could be an
increased push from the tax
authority to assess the open
years of tax payers which could
mobilise additional revenue if the
assessments result in higher taxes
being determined than what was
declared in the tax returns. The
corporate income tax revenues is
budgeted to rise by 25 per cent
from RO 400mn to RO 500mn.
Another area where revenues
are expected to increase is cus-
toms duty, which is projected to
rise by 22 per cent from
RO270mn to RO330mn. The
GCC custom duty rate is at
five per cent and there is no
increase in this rate. The expecta-
tion of the government to have
increased customs duty revenue
must be based on increased
imports for various projects being
executed in Oman.
The third significant increase is
expected from the non-Omani
labour license fees which is
expected to go up by 65 per cent
from RO150mn to RO245mn.
Whilst no details are available,
one would expect that the
increase in these fees must be on
account of increase in the level of
fees payable for obtaining such
non-Omani labour licences.
There may be also a limited
increase in the non-Omani labour
force which may be required
to help implement the ongoing
projects.
On the question of implement-
ing new taxes, it needs lot of
study and discussion. The easiest
thing for the government to do is
to increase the corporate income
tax from 12 per cent to 15 per
cent or may be even 18 per cent.
But the government hasn't done
that which is a good thing
because you should not react to
short term fluctuations.
You need to have a longer
term view. For so many years in
the recent past, oil was budgeted
at a lower price compared to the
market price which helped the
government to increase its
reserves. They can always draw
from the reserves or they can
also borrow.
Today, Oman's borrowing is
very low compared to global stan-
dards. If you look at the budget,
the interest cost on borrowing is
only RO50mn. The government
has also indicated that privatisa-
tion of companies is another
option to raise revenues and
improve efficiency.
The government has projected
an increase in expenditure by four
per cent despite the revenues
declining by one per cent.
This is very positive as it signals
the government’s intention to
continue driving growth. The gov-
ernment is expecting a five per
cent growth in GDP which would
be a creditable achievement if
accomplished.g
FOR SO MANY YEARS OIL
WAS BUDGETED AT A
LOWER PRICE WHILE THE
ACTUAL PRICE WAS
HIGHER. SO WHEN IT FALLS
BELOW THE BUDGETED
PRICE FOR A YEAR THEY
CAN ALWAYS DRAW FROM
THE RESERVE WHICH THEY
HAVE OR THEY CAN
BORROW
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