Last week, Oman took a groundbreaking step towards economic sustainability by being the first GCC country to introduce the long awaited personal income tax through Royal Decree 56 Issuing the Personal Income Tax Law. The impact that this law is expected to have on the economy and the relationship between the government and residents in Oman cannot be understated. However, it is also important to note that even though this law relates only to the taxation of individuals, it imposes a number of significant obligations on employers. This blog post will outline these key obligations under the Personal Income Tax Law that all companies in Oman need to be aware of to be in compliance with the law in their capacity as employers.
Withholding Tax
The Omani Personal Income Tax Law adopts a withholding tax approach for salaries and wages, pensions, end-of-service gratuities, and board membership bonuses. Under this approach, the employer has a legal obligation to deduct the income tax directly from the amount to be paid to the employee, pensioner, or board member and periodically transfer them to the Tax Authority. This is somewhat similar to the situation of Social Protection Law contributions, which are partially paid by the employee and the employer is required to withhold the contribution amount from the salary of the employee and transfer it to the Social Protection Fund directly.
In addition to the standard withholding tax obligations, article 44 of the Personal Income Tax Law imposes additional obligations on public and private sector entities to withhold tax in regard to payments made for matters other than wages, salaries, pensions, end-of-service gratuities, and board membership bonuses, if these payments exceed 20,000 Rial Omani. If this provision is triggered, the law makes a distinction between the percentage of the tax to be withheld based on the tax residency status of the person receiving the payment.
Failure to comply with these withholding tax provisions can result in a fine of 1% per month of the amount of the withhold tax. There are also criminal punishments for deliberately failing to withhold tax.
Tax Returns Filing
The Personal Income Tax Law also imposes an obligation on employers to file tax returns on behalf of their employees if certain conditions are met and the employee in question requests that the employer files these tax returns on their behalf.
Retention and Supply of Documents
Employers are required to retain all records, documents, data, information, invoices, and others documents relating to the for a period of 5 years from the date of filing any tax return, and must provide the Tax Authority with any evidence it requests.
Sufficient Time to Comply
The Personal Income Tax Law was published at the beginning of this week, but it enters into force on 1 January 2028. This should give employers sufficient time to comply with this new law. The executive regulation of this law—which is vital to comply with the law—is expected to be released within the next 12 months.
You can read the new Personal Income Tax Law in English in full on Decree. You can also view our downloadable compliance Toolkit on the link below: