Oman: VAT Taxpayer guide on oil and gas industry

Oman tax authority (OTA) has recently issued a guidance document to provide understanding and for the application of VAT law in the Oli and Gas industry and also to clarify important practical aspects for the industry in Oman.

Primarily, as per the Article 51(7) of the Oman VAT law, the supply of oil, oil derivatives and natural gas are subject to vat at zero-rate (0%) in accordance with the limits, conditions and circumstances determined by the Regulations.

Please find below some of the key highlights of the points covered in the Oil & gas VAT guide:

Upstream activities highlights:

Supply of unrefined crude oil subject to VAT at 0% as per Article 51. This supply includes any supply of crude after extraction and sale of crude to refinery.

Domestic supplies of refined oil products do not qualify for zero-rating.

Zero-rating also applies to any supply of natural gas done by or to the Ministry of energy and Minerals (“MEM”) in Oman.

Local supply of directly related goods/services by registered Contractors to Operators

Goods and Services destined for exclusive use in an upstream activity can qualify for Zero rating VAT provided that it does not fall within the exception categories defined in Article 93, also the Operator must provide confirmation to the Contractor that the goods/services are for an exclusive upstream use

Local supply of goods/services by Sub-Contractors to registered Contractors

Local supply of goods/services from a Sub-Contractor to a Contractor are not eligible for zero-rating under article 93, even if these are to be used by the Contractor in making a supply for upstream use, these supplies will be charged with VAT at standard rate (5%) for which input credit will be available to the contractor, as eligible.

Import of goods/equipment

Import VAT of 5% will be charged on all the Import of goods/equipment by Operators, Contractors and Subcontractors, intended for use in an upstream activity and will not qualify for zero-rating on import.

Services taken by Operators/contractors from non-residents

Zero-rate will not usually apply in such cases since non-residents most likely will not be tax registered in Oman and also not be registered with MEM. VAT will generally apply at 5% on reverse charge mechanism basis.

From	To	Transaction Detail	VAT treatment
Licensed Operator	Non-Operating Partners	-Cash Calls -Upstream Cost recharges	-Out of Scope -Zero Rated (0%)
Local Contractor	Licensed Operator	Supply of Goods/Services/Equipment (exclusively for upstream activity use)	Zero Rated (0%)
From Local Sub Contractor	Local registered Contractor	Supply of Goods/Services/Equipment	Standard rate (5%)
Outside OMAN	Licensed Operator/Local Contractor/From Local Sub Contractor	Supply of Services/Goods and Equipment Imports	-Import VAT 5%-Services to be reported under reverse charge mechanism (5%) – offset deduction in return in accordance with rules

Midstream activities highlights

Local supply of Goods and Services from Contractors to a midstream operator (OQ Gas network or Petroleum development Oman) which are destined for exclusive use in an midstream activity can qualify for Zero rating VAT provided that it does not fall within the exception categories defined in Article 93, also the Operator must provide confirmation to the Contractor that the goods/services are for an exclusive midstream use
Activities related to Capital works for OQ Gas network (OQGN) major projects/ Growth Projects which are mainly for construction of Gas transport network assets, including major maintenance and refurbishment activities, Operation and Maintenance (O&M) of the Gas Transportation Network assets to be covered in Zero rating VAT in accordance with the conditions as mentioned in the guidance document.
Activities such as Financing costs by banks, miscellaneous supplies by OQGN such as disposal of inventory and assets, connection fee for gas consumers will be treated at Standard rate (5%).

Downstream Activities:

Activities of supply of oil or gas after refinery and/or for consumption within Oman will be treated at Standard rate of VAT, however supply of crude or refined oil and gas products that will be exported from Oman will be treated at Zero rate of VAT.
In case of consignment stock, a supply of goods is made on the date on which the goods are placed at the customer’s disposal, even if ownership transfers at a later date. The supplier must issue a tax invoice based on the date of supply.
Supply of aviation and marine fuels to be used by a qualifying means of transport on an international voyage shall be zero-rated provided goods are physically placed onto the qualifying means of transport and it is departing for a destination outside Oman

VAT treatment on transactions related to Government:

Activities such as Government payments such as Royalties, Signature or Production bonuses, OGDR, Annual Rental, Training bonus, Training levy by Government will be considered as sovereign in nature and not subject to VAT.
Activities such as GAS Transportation Tariff (RAB), Crude Oil/Gas Revenue, Exploration and production sharing (EPSA) Overhead, will be treated as Zero rated supply
Activity of Disposal of Material or inventory other than to an operator shall be charged at 5% where these disposals are made through sale via operator within Oman to a third party and not related to Upstream/Midstream.

VAT treatment on transactions between Joint venture partners:

It has been clarified in the guidance document that a joint venture is not a separate Taxable Person for VAT purposes. The Operator, and the other JV Partners, must separately assess their need to register for VAT
Cash calls or similar funding arrangements made by an operator to other JV parties are not subject to VAT. The guide clarifies that any other arrangement (not involving simple cash request for future recharges of zero-rated upstream costs) should have prior approval for VAT treatment from Oman tax authority and the MEM.
Recharged upstream costs from operator to non-operating partners are clarified as zero-rated. Recharges of other costs to attract normal VAT based on the nature of goods or services.
Transactions between Shareholders who are partners – unrelated to upstream activities are not eligible for zero-rating as per Article 93 of VAT law

This document is only for information purposes and should not be construed as an advice. It does not necessarily cover each aspect of the topic with which it deals. You should not act upon the contents of this document without receiving formal advice on your particular circumstances.

If you would like to discuss Tax & VAT services, please drop us an email at info@premier-brains.com or call us at + 971 4 3542959.

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