Oman Issues a Law to Introduce an IIR and Domestic Top-Up Tax from 2025

General

On December 31, 2024, Oman issued Royal Decree No. 70/2024 (‘the Law’) that implements the Pillar 2 15% domestic minimum top-up tax (DMTT) and an Income Inclusion Rule (IIR) from January 1, 2025. (See our English Translation of the Law)

The Law is similar to Kuwait’s original draft law in that it is very high level, with Article 2 of the introductory provisions providing that the Tax Authority will issue Executive Regulations that will contain the detailed operation of the provisions. 

Article 2 provides that the IIR/DMTT will apply to the members of a multinational group whose revenues in Omani Rials amount to or exceed the equivalent of 750,000,000) Euros according to the consolidated financial statements of the UPE during at least 2 years of the 4 fiscal years immediately preceding the relevant fiscal year (as provided in Article 1.1.1 of the OECD Model Rules).

Application

Article 5 of the Law states that it will apply to:

1 – A constituent entity located in the Sultanate of Oman during any period during the fiscal year (this applies the DMTT)

2 – An entity located in the Sultanate of Oman, which is the UPE of a multinational group, and which owns, at any time during the fiscal year, directly or indirectly, an ownership interest in a constituent entity subject to a low tax rate (ie below 15%). This applies one key aspect of the IIR which applies to UPEs of low-taxed entities in other jurisdictions. 

3 – An intermediate parent entity located in the Sultanate of Oman, which owns, at any time during the fiscal year, directly or indirectly, an ownership interest in a constituent entity subject to a low tax rate. This applies another aspect of the IIR which applies to an intermediate parent entity on foreign low-taxed entities. 

Article 6 of the Law excludes the IIR in Oman if a parent entity up the chain applies the IIR. 

Partially-owned parent entities (POPEs) are covered in Article 7. This provides that a POPE in Oman that owns, at any time during the fiscal year, directly or indirectly, an ownership interest in a constituent entity subject to a low tax rate, must pay a top-up tax under the IIR unless the POPE is fully owned (directly or indirectly), by another POPE that is subject to an IIR for the fiscal year. 

Article 8 confirms that the IIR will only apply to a parent entity located in Oman in relation to a low-taxed foreign constituent entity (ie it will not apply to wholly domestic groups – unlike for instance the IIR applied under the EU Minimum Tax Directive). 

Definitions

Article 1 of the Law includes some definitions with reference to the OECD Pillar 2 Rules:

– Rules for Combating Global Tax Base Erosion

The rules and guidelines related to combating tax base erosion and profit shifting issued by the OECD.

– Income inclusion rule

The rules included in the rules for combating global tax base erosion.

– Entity

Any legal person legally obligated to prepare separate financial accounts, excluding units of the state and other public legal persons.

– Ultimate parent entity

An entity that directly or indirectly owns a controlling stake in any other entity, and is not itself owned by a controlling stake in another entity directly or indirectly, or the main entity of a group (ie with a PE in another jurisdiction).

– Group

A – Multiple entities related through ownership or control, whose assets, liabilities, income, expenses and cash flows are either included in the consolidated financial statements of the ultimate parent entity, or excluded from these statements on the basis of size or materiality or because the entity is held for sale.

B – Entities located in one jurisdiction which have one permanent establishment or multiple permanent establishments located in other jurisdictions, provided that the entity is not part of another group.

– Multinational Group

A group that includes at least one entity or one permanent establishment that is not located in the jurisdiction of the ultimate parent entity.

There is therefore no detail on the calculation of the effective tax rate and the Executive Regulations will determine how to calculate the top-up tax and the rules for its application.

The intention from the Law is to apply the OECD Model Rules. Whether this will be a direct transposition of these (as for instance Switzerland, Guernsey and Liechtenstein have done) or whether they will draft detailed regulations to reproduce the Pillar 2 rules will be determined in the Executive Regulations.

Excluded Entities

Article 3 of the Law does track (at a very high level) Article 1.5.1 of the OECD Model Rules for Excluded Entities.

It provides that the following entities, are excluded from the IIR/DMTT:

. Government entities
. Non-profit organizations
. International organizations
. Pension funds
. Investment funds that are the ultimate parent entity
. A real estate investment vehicle that is an ultimate parent entity

QDMTT?

The Law includes no detailed provisions for the operation of the DMTT aside from a provision for Excluded Entities.

As such there are none of the mandatory or optional deviations for the design of the DMTT rules as provided by the OECD Administrative Guidance (eg no provisions on push down taxes or the accounting standard to be used). As such, it is not possible to determine whether the DMTT will be a QDMTT under the OECD Model Rules.