Executive summary

On 31 December 2024, the Sultanate of Oman issued Royal Decree No. 70/2024, regarding the Supplementary Tax Law on Entities Affiliated with Multinational Groups (Law). The Law introduces a Domestic Minimum Top-Up Tax (DMTT) to ensure that constituent entities, including companies, branches and permanent establishments (PEs) of multinational enterprises (MNEs) situated in Oman pay a global minimum tax of 15% on their profits. The Law also introduces the Income Inclusion Rule (IIR) which allows the Oman Tax Authority to collect taxes under these rules from the Ultimate Parent Entity (UPE) or Intermediate Parent Entity (IPE) of MNEs for their low-taxed foreign Constituent Entities. The global minimum tax is part of Pillar Two of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on the Base Erosion and Profit Shifting (BEPS) 2.0 project.

The rules are effective for fiscal years starting on or after 1 January 2025. It applies to MNEs operating in Oman with a consolidated annual revenue amounting to or exceeding the Omani Rial equivalent of €750m in two of the last four financial years.

Background

The Law represents Oman's commitment to the OECD/G20 Inclusive Framework on the BEPS 2.0 project. The introduction of the Law marks a significant milestone, as Oman joins other Gulf Cooperation Council (GCC) countries to legislate the implementation of BEPS 2.0 Pillar Two Rules. This allows Oman to retain the right to tax Oman-sourced income and to prevent foreign governments' collection of tax on such income. Further, it also gives Oman the right to collect applicable taxes from the UPE or IPE on their low-taxed foreign constituent entities.

Key provisions of the Law

Scope and applicability

An MNE group is defined as a group that includes at least one entity or one PE that is not located in the jurisdiction of the UPE.

The Law applies to entities operating in Oman that are part of MNEs with revenues amounting to or exceeding the Omani Rial equivalent of €750m as per the consolidated financial statements of the UPE for at least two out of the four financial years immediately preceding the financial year under assessment.

The Law does not apply to governmental entities, international organizations, nonprofit organizations, pension funds, investment funds, and real estate investment entities considered as UPEs.

Tax rate and charging mechanism

The supplementary tax is imposed at a rate that brings the total tax to an effective rate of 15% of the profit computed as per regulations to be issued by the Chairman of the Oman Tax Authority.

The obligation to pay the supplementary tax lies with:

• The Constituent Entity (a defined term referring to an entity or a PE) of an MNE Group that is located in Oman — this introduces the DMTT under the BEPS 2.0 Pillar Two rules in Oman
• The Constituent Entity in Oman that is the UPE of an MNE Group — this introduces the IIR under BEPS 2.0 Pillar Two in Oman
• The IPE in Oman owning an interest in a Constituent Entity subject to a low tax rate — this is a related rule that applies in connection with the IIR

Further, a Partially Owned Parent Entity (POPE) located in Oman, which at any time during the financial year, directly or indirectly owns an interest in a Constituent Entity subject to a low tax rate, shall pay tax equivalent to the portion allocated to that Constituent Entity, unless there is another POPE that is required to apply the IIR in priority to the POPE located in Oman.

The above provisions shall not apply in cases where a qualified IIR is applicable at a level above the affected Oman entity (i.e., a top-down approach is expected to apply).

Implementation and compliance

The Law is effective from fiscal years starting on or after 1 January 2025.

The Chairman of the Oman Tax Authority shall issue Executive Regulations and necessary decisions for implementing the Law. Detailed regulations are expected to clarify the mechanism for calculating the supplementary tax, provisions related to safe harbors, treatment of certain PEs, and other necessary rules and procedures.

Implications

MNEs operating in Oman must evaluate the impact of the Law on their operations and ensure compliance with the new requirements. Future regulatory updates are expected to offer more clarity on compliance requirements.