If you are a business owner in Oman, then you will need to prepare your business to become compliant with the new tax regime. The transitional provisions are a set of regulations that are supposed to help businesses modify their processes and ensure a smooth move to the new tax system.
Under Oman VAT law, VAT will be applicable on transactions based on either the implementation date of VAT or the registration date of your business.
In order to manage questions about when VAT will start to apply, the Oman Tax Authority (TA) has come up with transitional provisions for levying VAT on supplies of goods or services and contracts.
In this guide we will cover the following rules:
- Transitional rules for supply of goods and services
- Transitional provisions for contracts
Transitional rules for supply of goods and services
Scenario 1: Normal supply
If you raise invoices and receive payments for a supply before mid-April 2021 (VAT implementation date in Oman), and the actual supply is scheduled for a date on or after April 2021, then VAT will be applicable on this supply.
Example: Let us assume that you run a furniture business and you have received an order to deliver new furniture for a company. You raised invoices and received payments from the customer in March 2021, and your goods are to be delivered on 1 June 2021. In this case, VAT will be applicable on the invoices.
Scenario 2: Continuous supply
If the supply of goods or services takes place in parts—for instance, one part before the implementation date and one part after the implementation date—then VAT will be charged on the part of the supply that was made after the VAT implementation date.
In other words, for all the supplies or parts of supplies taking place after April 2021, VAT rates will be applicable.
Example: Let us assume that you have committed to provide office supplies to a customer from 1 February 2021 to 31 December 2021. In this case, VAT will not be applicable for the invoices raised before April 2021. However, VAT will be applicable on the invoices raised for the supplies that you deliver from May 2021 to December 2021.
Transitional provisions for contracts
If you have signed a contract before April 2021 and this contract will continue after the VAT implementation date, then the application of VAT will depend on whether the contract includes a VAT clause:
For contracts containing a VAT clause, VAT will be charged along with the agreed price of goods and services (if the VAT clause permits).
For contracts which do not have a VAT clause, the price of goods/services will be considered inclusive of VAT and it will be the seller's responsibility to collect it.
Example: Let us assume you are a service provider who has included a clause about VAT in your contract for services rendered between April 2021 and November 2021. In this case, the invoice amount for the services provided will be treated as VAT exclusive and the applicable VAT will be paid by your customer. If you are charging OMR 100 for monthly services, for the taxable period, you will need to collect OMR 100 plus 5% VAT for a total of OMR 105.
However, if the contract does not have a VAT clause and you are charging OMR 100 for the service, then the customer will pay a total of OMR 100 which will be inclusive of VAT.
As a business owner, it is important for you to ensure that VAT is reported correctly during transitional transactions. For instance, you must keep in mind that under transitional provisions, if a contract does not have a VAT clause, then the charges will be considered inclusive of VAT. This can have a serious impact on your revenue and the cost of your business, so it is important that you review all your contracts which are expected to be active after the implementation date of April 2021. To avoid any adverse financial consequences, it is imperative that you come up with a plan to ensure compliance with the transitional rules at all times.