Oman’s Top-Up Tax for Multinational Enterprises: An Explainer

Oman’s Top-Up Tax Law, effective from January 1, 2025, mandates multinational enterprises (MNEs) to ensure a minimum 15 percent tax rate, with compliance steps including impact assessments, financial disclosures, and aligning with GloBE rules. MNEs must prepare for interim and year-end reporting, transfer pricing reviews, and ensure proper registration and filings.

By Giulia Interesse

On December 31, 2024, the Sultanate of Oman introduced a new tax regime with the issuance of Royal Decree No. 70/2024 (hereinafter referred to as “Top-Up Tax Law”), establishing a top-up tax for multinational enterprises (MNEs). This legislation is part of Oman’s commitment to align with the Organisation for Economic Co-operation and Development (OECD) framework, specifically the “Pillar Two” measures aimed at addressing Base Erosion and Profit Shifting (BEPS).

The Top-Up Tax Law seeks to ensure that constituent entities of MNEs operating in Oman are taxed at a minimum effective tax rate of 15 percent, in line with global tax standards. This move is designed to promote fairness in the international tax system and prevent tax avoidance through shifting profits to jurisdictions with lower tax rates.

With a focus on enhancing transparency and compliance, the Top-Up Tax Law is set to impact both inbound and outbound investments, urging MNEs to reassess their tax strategies in Oman.

Overview of Oman’s Top-Up Tax Law

Scope and applicability

Within Oman’s Top-Up Tax Law, a “Constituent Entity” refers to any entity within a MNE that is subject to the provisions of the law. It includes entities such as subsidiaries, branches, or permanent establishments located in Oman, provided they meet the required revenue thresholds and other criteria set by the law.

To be subject to the Top-Up Tax, the total consolidated revenue of the Ultimate Parent Entity of the MNE must exceed EUR 750 million (approximately OMR 300 million) in at least two of the last four fiscal years.

Notably, the law applies to MNEs that operate across more than one jurisdiction. This includes groups that have entities in multiple countries or even standalone entities with branches or permanent establishments in other jurisdictions.

Effective date

The Top-Up Tax Law came into effect for fiscal years starting on or after January 1, 2025. This means that businesses must have prepared for compliance with the law beginning from that date.

A fiscal year refers to the accounting period of the Ultimate Parent Entity of the MNE. If the fiscal year spans more or less than 12 months, the EUR 750 million revenue threshold must be adjusted proportionally to account for the non-standard fiscal period.

Tax rate and Top-Up Tax mechanism

The law establishes a minimum tax rate of 15 percent, in line with the OECD Pillar Two framework. This ensures that MNEs are taxed at a minimum effective tax rate, preventing profit shifting to low-tax jurisdictions.

Moreover, the Top-Up Tax is applied through the Income Inclusion Rule (IIR), which ensures that if a constituent entity of a MNE is taxed below the minimum rate, the top-up tax will apply to bring the effective tax rate up to the required 15 percent.

Top-Up Tax obligations

For inbound investments in Oman, the Top-Up Tax applies to Constituent Entities located in Oman, with an exception where the IIR is applied to the Ultimate Parent Entity of the MNE, if applicable.

For outbound investments from Oman, the law covers several entities, including:

• Ultimate Parent Entities located in Oman that hold ownership interests in low-taxed constituent entities in other jurisdictions;
• Intermediate Parent Entities in Oman that hold ownership interests in low-taxed constituent entities outside Oman, with exceptions based on IIR application at other levels; and
• Partially-Owned Parent Entities in Oman with ownership interests in low-taxed entities, with similar exceptions based on IIR application.

Excluded entities

In line with the Global Anti-Base Erosion (GloBE) Rules, the following entities are excluded from the provisions of the law:

• Government units and other public legal persons;
• International organizations;
• Not-for-profit entities such as associations, federations, and private entities of public interest;
• Pension funds; and
• Investment funds and real estate vehicles considered as the Ultimate Parent Entity.

Computation mechanism

While the specific details for calculating the IIR under Oman’s Top-Up Tax Law are not yet defined, it is expected that the mechanism will align with the GloBE Model Rules. Below is a revised calculation mechanism based on these rules:

Once the top-up tax for each jurisdiction is calculated, it will be allocated to each CE based on ownership percentages, with the parent entity responsible for the allocated tax.

For Joint Ventures or Minority-Owned Entities, the IIR liability will be calculated separately. Minority-Owned CEs are those where the Ultimate Parent Entity (UPE) holds 30 percent or less of ownership.

Next steps for MNEs in Oman

To ensure compliance with Oman’s newly introduced Top-Up Tax Law, MNEs operating in the Sultanate must take several immediate actions. These steps are crucial for understanding whether they are within the scope of the law, fulfilling disclosure requirements, and preparing for both interim and year-end compliance.

Assessment of applicability

MNEs should immediately assess whether they fall within the scope of the IIR under the new Top-Up Tax Law. This involves conducting a thorough impact assessment to evaluate the financial and operational implications. The assessment should also include a gap analysis of data and systems to ensure readiness for compliance. MNEs need to identify any safe harbors or exclusions available under the law and determine whether registration is required, which will be clarified once the executive regulations are released.

Additionally, MNEs should involve their finance, legal, tax, and investment teams to ensure that all internal stakeholders understand the law’s impact and the need for cooperation in the compliance process.

Financial year 2024 disclosure requirements

For the financial year 2024, MNEs need to comply with the International Accounting Standard (IAS) 12 requirements related to Pillar Two disclosures. This includes preparing an assessment of the MNE Group’s Pillar Two profile, which will be critical for understanding their obligations under the new law in relation to fiscal year 2025.

Affected MNEs should ensure that they meet these disclosure requirements as part of their statutory financial reporting, as the disclosures will serve as the foundation for the first year of full compliance.

Use assessment for compliance planning and execution

Based on the results of the impact and gap assessments, MNEs should develop a detailed compliance plan that addresses both interim and year-end reporting obligations:

• Interim financial reporting: MNEs must prepare for interim financial statement disclosures, which may require provisions for the first quarter of 2025. These disclosures should account for any potential tax liabilities under the new law.
• Year-end roadmap: Companies should create a roadmap to ensure full compliance with the Top-Up Tax Law at year-end. This includes determining the year-end IIR tax liability and preparing for IIR filings. Additionally, MNEs need to map out timelines for filing requirements to avoid penalties or late submissions. Planning should also account for the timing of payments and ensuring that statutory financial reporting obligations are met.
• Qualified country-by-country reporting (CbCR): To access reliefs under the transitional CbCR Safe Harbour, MNEs must ensure that their CbCR meets the ‘qualifying’ criteria. The CbCR filings will play a critical role in the reporting and compliance process and must be aligned with the new law.

Review of transfer pricing policies

MNEs should also review their transfer pricing policies to ensure that they align with the Arm’s Length Principle, which will be addressed in the upcoming regulations. This includes mapping intercompany transactions and updating policies to remain compliant with both local and international tax standards. Transfer pricing adjustments may be required to ensure that the intercompany pricing reflects fair market values, as this could have significant tax implications under the Top-Up Tax rules.

By taking these steps, MNEs operating in Oman can better position themselves to comply with the new Top-Up Tax Law. Ensuring proactive planning and alignment with both the law and the GloBE rules will help companies manage their tax obligations and avoid unexpected liabilities. Furthermore, keeping abreast of updates and regulatory releases from Oman’s tax authorities will be key to maintaining compliance and minimizing the risk of penalties or non-compliance.

Also read:

• UAE Top-Up Tax for Multinational Enterprises: An Explainer

• Previous Article Major Changes in UAE VAT Regulations: Key Takeaways
• Next Article UAE’s Corporate Tax Deadlines and Compliance for 2025