Value Added Tax (VAT)

Frequently Asked Questions (FAQ)

Version 1.0
Table of Contents
1. What is VAT...................................................................................................................................................................................................... 4
2. Which countries in GCC have implemented/will be implementing VAT? .................................................................................................... 4
3. When will VAT be introduced in Oman? ........................................................................................................................................................ 4
4. How does VAT affect Oman? .......................................................................................................................................................................... 4
5. How does it affect Omani businesses? .......................................................................................................................................................... 4
6. What is the rate VAT will be charged at? ....................................................................................................................................................... 4
7. What are the VAT-related responsibilities of businesses?............................................................................................................................ 5
8. Who can or will be able to register for VAT? ................................................................................................................................................. 5
9. How often are businesses required to file for VAT?...................................................................................................................................... 5
10. Will VAT be levied on bonus given to contractors?....................................................................................................................................... 5
12. How is VAT applicable for volume discounts and incentives? ...................................................................................................................... 5
13. Is VAT applicable on supply of manpower services? ..................................................................................................................................... 5
14. If a service is provided by one department/section in PDO to another, would VAT be applicable on such services? ............................. 5
15. There are scenarios where a material can be shipped from multiple countries. Will PDO system handle this dynamically? ..................5
16. Some equipment is assembled in Oman by contractor after sourcing related items from various countries. How will PDO system
factor this? ....................................................................................................................................................................................................... 5
17. How do we treat transactions where PDO procures materials and installation services which cannot be separated? ........................... 5
18. Does VAT apply to online purchases through card? ..................................................................................................................................... 6
19. Does dual taxation treaty apply for VAT? ...................................................................................................................................................... 6
20. Is VAT applicable on services procured from outside Oman? (E.g. Online training from UK, Support/Consultancy from Canada, etc.) 6
21. For ongoing projects, the contracts extend beyond the cut-off date (16th April 2021). Will PDO have to pay VAT on such contracts? 6
22. Is PDO planning to increase the CAPEX and OPEX considering VAT introduction in Oman? ...................................................................... 6
23. How will milestone payments be categorized for VAT if they include materials & services? .................................................................... 6
24. How should the old contracts, where no specific Oman VAT provisions exist, should be treated after 16th April 2021? ........................ 6
25. Is VAT applicability dependent on the planned delivery date? .................................................................................................................... 6
26. If a contractor is paid on monthly basis for services provided, do they have to issue separate invoices - one before 16th April 2021
and another after 16th April 2021? ............................................................................................................................................................... 6
27. Should VAT be exclusive in the revised T&Cs? .............................................................................................................................................. 6
28. How will PDO ensure there are no mistakes on service entries from CH side? .......................................................................................... 7
29. Regarding extensions of existing contracts, would there be a difference if the extension is executed before or after the 16th of April
2021? ............................................................................................................................................................................................................... 7
30. Does the foreign vendor have the right to charge Oman VAT to PDO?....................................................................................................... 7
31. What impact will VAT have on ACV? .............................................................................................................................................................. 7
32. Can we communicate to our contractors on VAT requirement in relation to the invoicing requirements, particularly where services
are supplied before and after the cut-off date (16th April 2021)? .............................................................................................................. 7
33. Who will update the vendors on VAT applicability and when will this be done? ........................................................................................ 7
34. Would custom duty still be levied, or will it be substituted by import VAT? ............................................................................................... 7
35. What about the ongoing support and maintenance contract that have been in place for the last 3 years? ............................................ 7
36. Petrofac EP Contract under the Frame Agreement is based on Cost + Profits Schedule. Is VAT applicable on the Profits?.................... 7
37. If the profits are paid throughout the Contract duration, some payments will extend beyond 16th April 2021. Will VAT be applicable
on profit and gainshare? ................................................................................................................................................................................. 7
38. How long will it take to approve service masters so that we can add them to SAP agreements? ............................................................. 7

2
39. We understand that all existing SAP Service line updates will be automated but Contract Engineers must update the new SAP lines
either manually or through Mass Upload. Can you please confirm the understanding? ........................................................................... 7
40. Do we need to issue VTCs to reflect the new VAT provisions in our existing contracts? ........................................................................... 7
41. What is the impact on all PDO contracts? Do we need to revise all C sections? ........................................................................................ 7
42. Can Service Specialists correct the service group if it’s created wrong? ..................................................................................................... 8
43. After April 16, will the CE need to execute changes to Service Masters? ................................................................................................... 8
44. In SAP, we have two items (Material/Service) but practically, we have work contracts, service contracts, and material contracts. In
PDO, we refer to work contracts as service contracts even though work contracts consist of materials also. Do we have any plans in
the future to rectify this? ................................................................................................................................................................................ 8
45. Will the CE community be trained on the new contract creation process in SAP? ..................................................................................... 8
46. Many frame agreements for the supply of materials have multiple manufacturers. How practical is it to select the country of origin
for each item?.................................................................................................................................................................................................. 8
47. Is it required to reflect new requirements of VAT in C2 as per new C3 /C5 amendments in VTC, from legal point of view?.................. 8
48. Have the RFX and PO been updated with VAT requirements?..................................................................................................................... 8
49. What happens if delivery date was initially set before 16th April 2021, but delivery was delayed to a date after 16th April 2021? ..... 8
50. What about the services/projects which are executed by internally FEED office? ..................................................................................... 8

3
1. What is VAT
VAT has been implemented in more than 160 countries around the world. It is an indirect tax charged on nearly all goods and
services that are bought and sold in the Sultanate, including goods and services imported into the Sultanate. VAT is a tax on
consumption that is paid and collected at every stage of the supply chain; from a manufacturer’s purchase of raw materials to a
retailer’s sale of an end-product to a consumer.1

2. Which countries in GCC have implemented/will be implementing VAT?

Country Implementation date

KSA 1st Jan 2018
UAE 1st Jan 2018
Bahrain 1st Jan 2019
Country Expected Implementation date
Oman 16th April 2021
Qatar Yet to be announced
Kuwait Yet to be announced

3. When will VAT be introduced in Oman?

The Oman VAT Law was published in the official gazette on 18 October, according to Royal Decree No. 121/2020 issued by the
Sultan of Oman on 12 October. This triggered a 180-day countdown to the effective date of 16 April 2021.

4. How does VAT affect Oman?

The VAT in the Sultanate of Oman is similar to other countries around the world but is a relatively new form of tax in Oman.
Adopting VAT in Oman will have a positive impact on its development and international competitiveness and will contribute to
building a sustainable knowledge-based economy for future generations. The tax collected will provide additional financial resources
for the country which will enable it to improve its services and continue developing upcoming infrastructure.
The new VAT rate (i.e., 5%) is among the lowest internationally and its effects on individuals will be minimal, as it relies mainly on
the averages and patterns of individual spending. The contributions to economic and social development will be considerable and it
will help improve government services – enhancing the welfare of individuals.
The Sultanate of Oman government provides various public services to citizens and residents, including hospitals, roads, public
schools, parks, waste management and police services. Therefore, the VAT will provide an additional source of income for the
country that will ensure the continued quality of public services. It will also help Oman achieve its goal of decreasing the country’s
reliance on oil and other hydrocarbon products as its main sources of revenue.
• Generates a more stable and predictable tax income to the country in both good and weak economic environments.
• An efficient tax due to the comparatively lower cost of administration and collection.
• Helps the government to avoid introducing personal incomes taxes, and in turn encourages more foreign direct
investment. This leads to overall economic growth.1

5. How does it affect Omani businesses?

Effectively, Omani businesses act as a tax collector for the Sultanate of Oman and bear the costs of charging, collecting and
claiming back the VAT – and staying compliant.
Businesses will need to run a robust accounting and invoicing system and keep accurate records. Note that a taxable person (i.e., a
person who carries on any business at any place in Oman and who is registered or required to be registered as per the VAT
Regulations) can be an individual, partnership, corporation or any other legal entity.1

6. What is the rate VAT will be charged at?

VAT is calculated as a percentage of the value of supply of goods and services. As per the Oman VAT law, depending on the type
of goods or services being supplied, the following rates would apply:
• Standard rate (5%)
• Zero rate (0%)
• Exempt

1
‘VAT Basics for Individuals’ by Oman Tax Authority

4
7. What are the VAT-related responsibilities of businesses?
VAT-registered businesses generally:
• Must charge VAT on taxable goods and services they supply;
• May reclaim any VAT they have paid on business-related goods or services;
• Keep a range of VAT related business records (e.g. Tax invoices); and
• Report their taxable supplies and purchases in periodic VAT returns

8. Who can or will be able to register for VAT?

A business must register for VAT if its taxable supplies and imports exceed the mandatory registration threshold of OMR 38,500.
Furthermore, a business may choose to register for VAT voluntarily if its supplies and imports are less than the mandatory
registration threshold but exceed the voluntary registration threshold of OMR 19,250. Tax authorities have indicated that the
registration process will be rolled out in a phased manner starting with supplies above OMR 1 million effective 1 st Feb 2021.

9. How often are businesses required to file for VAT?

VAT registered businesses will likely be required to file their VAT returns on a quarterly basis as per the current VAT law provisions.

10. Will VAT be levied on bonus given to contractors?

VAT is applicable on any consideration paid to suppliers in relation to services provided under the contract. Hence VAT will be
applicable on bonuses paid to suppliers under the contract for the provision of taxable supplies.

11. PDO contracts with third party service provider contain mark-up charges. Will VAT be levied on such charges?

VAT is applicable on any consideration paid to supplier in relation to services provided under the contract. Hence VAT will be
applicable on mark-up charges paid to suppliers under the contract for the provision of taxable supplies.

12. How is VAT applicable for volume discounts and incentives?

Volume discounts and incentives related to a taxable supply will also have equivalent VAT included within the Tax Credit Note
issued by the contractor to PDO.
A Tax Credit Note issued by a registered supplier will have 2 impacts:
• Reduction in tax payable by the supplier on the supply
• Reduction in input tax recoverable by the recipient on the supply

13. Is VAT applicable on supply of manpower services?

Yes, VAT would be applicable on supply of manpower services provided by any PDO supplier who is registered for VAT in Oman.

14. If a service is provided by one department/section in PDO to another, would VAT be applicable on such services?
Intercompany transactions do not attract VAT.

15. There are scenarios where a material can be shipped from multiple countries. Will PDO system handle this
dynamically?
Yes, new fields (i.e. ship from and ship to) are part of SAP systems for goods/material movements. Those fields are expected to be
updated correctly in the system by PO creator/initiator.

16. Some equipment is assembled in Oman by contractor after sourcing related items from various countries. How will
PDO system factor this?
Contractor is responsible in relation to the VAT on items/equipment imported from various countries. Supplier can charge VAT to
PDO as per applicable Oman VAT Law, on the total taxable supplies made to PDO.

17. How do we treat transactions where PDO procures materials (i.e. equipment) and installation services which cannot
be separated?
Ideally, goods and services need to be separated wherever possible for VAT purposes. However, if it is not practical to separate
goods and services, then the rule of principle component should be applied. Please refer to Material / Service Coding Guideline
document (Gu-973)

5
18. Does VAT apply to online purchases through card?
Yes, VAT applies to purchases made through procurement/credit card subject to Oman VAT law provisions.

19. Does dual taxation treaty apply for VAT?

There are no tax treaties in place for VAT. However, we expect GCC framework agreement to regulate intra GCC supplies in the
coming years.

20. Is VAT applicable on services procured from outside Oman? (E.g. Online training from UK, Support/Consultancy from
Canada, etc.)
There are different VAT treatments to services based on the place of supply rules. Each service needs to be reviewed to determine
if Oman VAT is applicable on it or not.

21. For ongoing projects, the contracts extend beyond the cut-off date (16th April 2021). Will PDO have to pay VAT on
such contracts?
All supplies received after the cut-off date under such contracts would be subject to VAT.

22. Is PDO planning to increase the CAPEX and OPEX considering VAT introduction in Oman?
Generally, VAT incurred for oil and gas operations are expected to be claimed back from the Tax Authority. Hence, there won’t be
any impact on CAPEX and OPEX.
However, If the procurements are in relation to exempt category (i.e. School, Clinic, Residential units…etc.), then VAT incurred
could result in cost escalation and hence would increase CAPEX and OPEX.

23. How will milestone payments be categorized for VAT if they include materials & services?
General rules for goods/services under VAT law will be applicable for milestone payments as well.

24. How should the old contracts, where no specific Oman VAT provisions exist, should be treated after 16th April 2021?
Currently it is expected that business follow the existing contract provisions within their contracts. VAT project team will be updating
the business on changes in this regard after the approval from management.
For new VTCs, the new VAT provisions can be considered for inclusion in the contract via the same VTC subject to tender board
approval.

25. Is VAT applicability dependent on the planned delivery date?

Tax on the Supply of Goods or Services is charged on any of the following dates, whichever is earlier, and as determined by the
Regulation:
1. Supply date
2. The date of the issuance of the Tax Invoice.
3. The date of partial or full receipt of the Consideration and to the extent of the received amount.
Special attention needs to be paid for the transition rules i.e. pre-VAT (before 16th April 2021) and on/post-VAT (16th April and
forward). For materials delivered before 16th April 2021 the invoices must NOT include any VAT regardless if VAT clauses were
included in the relevant POs or not. This holds good even if it was agreed to deliver the material after 16th April 2021 but was
delivered prior to 16th April 2021.
However, if the material was delivered on/after the VAT effective date (16th April 2021) even if it was agreed to be delivered before
16th April 2021, the following should be ensured:
1. VAT registered vendors should submit a valid Tax invoice to PDO (otherwise the invoice will be rejected and returned)
2. VAT registered vendors should charge PDO, applicable VAT in the invoice as per Oman VAT law. This is applicable for all
new POs

26. If a contractor is paid on monthly basis for services provided, do they have to issue separate invoices - one before
16th April 2021 and another after 16th April 2021?
Ideally yes, one invoice without VAT, and another with VAT after go-live. If the contractor is issuing a single invoice without
distinguishing the supplies for the periods pre and post-VAT, then the entire supplies will be subject to VAT.

27. Should VAT be exclusive in the revised T&Cs?

The new standard contract/tender documents provisions consider the rates exclusive of VAT.

6
28. How will PDO ensure there are no mistakes on service entries from CH side?
The tax determination is at material/services item level. The CH/CE is required to use the correct material/service item which is
linked to the relevant material group to ensure accurate tax application.

29. Regarding extensions of existing contracts, would there be a difference if the extension is executed before or after the
16th of April 2021?
There is no difference if the extension is made before or after 16th April 2021. VAT is applicable on all supplies after the VAT cut-off
date (i.e. 16th April 2021). Contracting team is expected to review the existing contract provisions to ensure correct VAT treatment is
agreed with the supplier.

30. Does the foreign vendor have the right to charge Oman VAT to PDO?
Foreign vendors registered for VAT in Oman are entitled to charge VAT on taxable supplies made to PDO in Oman.

31. What impact will VAT have on ACV?

VAT will not be consumed from the ACV. Hence, there is no requirement to increase the ACV in order to pay VAT to suppliers.

32. Can we communicate to our contractors on VAT requirement in relation to the invoicing requirements, particularly
where services are supplied before and after the cut-off date (16th April 2021)?
Yes, CH/CE can communicate to the contractors to issue invoices for the supplies provided prior to VAT cut-off date excluding VAT
and for supplies provided after VAT cut-off date including VAT, in line with agreed contractual provisions. For specific invoicing
requirements, contractors are encouraged to refer to local legislatives to be fully compliant with the law requirements.

33. Who will update the vendors on VAT applicability and when will this be done?

VAT project team along with C&P focal point has already started engaging with contractors on VAT related changes required.

34. Would custom duty still be levied, or will it be substituted by import VAT?
Yes, customs duty will remain in place as per the current custom law. VAT is a new tax which will be applied over and above the
customs duty.

35. What about the ongoing support and maintenance contract that have been in place for the last 3 years?
All supply of goods and services received post VAT cut-off date (16th April 2021) from both existing and new contracts will be
subject to VAT as per the Oman VAT law.

36. Petrofac EP Contract under the Frame Agreement is based on Cost + Profits Schedule. Is VAT applicable on the
Profits?
VAT is applicable on total value of taxable supply from any contractor, including Petrofac. Profits, overheads, etc. included in the
contract as consideration for the services are subject to VAT.

37. If the profits are paid throughout the Contract duration, some payments will extend beyond 16th April 2021. Will VAT
be applicable on profit and gainshare?
Any profit paid after the VAT cut-off date will be subject to VAT as such profits are paid as consideration for the services/goods
received.

38. How long will it take to approve service masters so that we can add them to SAP agreements?
It will take a maximum of 24 hours, provided details are correct.

39. We understand that all existing SAP Service line updates will be automated but Contract Engineers must update the
new SAP lines either manually or through Mass Upload. Can you please confirm the understanding?
Confirmed.

40. Do we need to issue VTCs to reflect the new VAT provisions in our existing contracts?
This is under discussion with Management and will be communicated to CEs at a later stage.

41. What is the impact on all PDO contracts? Do we need to revise all C sections?
C3 has already been updated to cater for VAT. C5 and C8 updates are in progress.

7
42. Can Service Specialists correct the service group if it’s created wrong?
No, they would reject the transaction and CE shall correct, and resave it.

43. After April 16, will the CE need to execute changes to Service Masters?
CE shall be cautious when selecting the Service group and there must be a link between the service group and the service
description.

44. In SAP, we have two items (Material/Service) but practically, we have work contracts, service contracts, and material
contracts. In PDO, we refer to work contracts as service contracts even though work contracts consist of materials
also. Do we have any plans in the future to rectify this?
Please refer to Material/Service Coding Guideline document (Gu-973)

45. Will the CE community be trained on the new contract creation process in SAP?
The slides with all relevant steps have already been shared with CE community. For further clarifications, kindly reach out to Said
(FPH51) or Husni (Ref indicator)

46. Many frame agreements for the supply of materials have multiple manufacturers. How practical is it to select the
country of origin for each item?
It may be noted that we are not referring to the “country of origin”, but the “ship from country” and “ship to country” For local vendor
which they do keep stock in Oman, then the “ship from country” will be Oman. For those that they don’t keep stock and ship from
different country, then they need to specify accordingly. Also, to emphasize the important of the incoterm in their contract as
deciding factor of their pricing in the contract.

47. Is it required to reflect new requirements of VAT in C2 as per new C3 /C5 amendments in VTC, from legal point of
view?
Requirement of VTCs to clarify VAT for existing contracts is still being considered by management and shall be communicated in
due course of time.

48. Have the RFX and PO been updated with VAT requirements?
The reference document PCI001 is updated with VAT terms and is available on Rabitah.
FPP22 is updating the FPP POs text with some specific VAT guidance in coordination with FPH2. Buyers in FPD, FPR & FPW must
ensure they refer to the latest version of PCI001 (revision: Oct 19).

49. What happens if delivery date was initially set before 16th April 2021, but delivery was delayed to a date after 16th
April 2021?
VAT is not a cost, so it shall only be reflected in invoices and not in PO.
All supply of goods and services received/delivered post VAT cut-off date (16th April 2021) will be subject to VAT as per the Oman
VAT law. By virtue, if supply of goods and services received/delivered before the cut-off date it wouldn’t attract VAT.
In the context where material was delivered on the VAT effective date (16th April 2021) but which was agreed to be delivered before
16th April 2021, the following steps should be undertaken by the vendor:
• For new POs:
o Vendor should submit a valid tax invoice to PDO.
o Vendor should charge PDO the applicable tax rate.
• For the existing POs where VAT has not been factored, CE/CH should wait for further advise from management.

50. What about the services/projects which are executed by internally FEED office?
If these are internal procedures, there is no VAT linked with it.