GCC Tax Theatre | Oman Indirect Tax | Episode 01 | 25 October 2020 | “Every One is Responsible”

Passing through highways of major GCC cities such as Muscat, Dubai or Riyadh, you get to see a brilliant allusion to making people resist the complacency towards COVID19 in the following words displayed on digital sign boards:

“Everyone is Responsible”.

What a nice and soft way to say a serious thing! Bravo!

Well… when it comes to VAT obligations in newly introduced law of Oman … cheer up guys! … because everyone may not be responsible … so to say!

The words used by the Decree law of Oman are (“????? ???????”) or “Ash-Shakhs ul Mas’ool” meaning the “Shakhs” (English: Person), who will be “Mas’ool” (English: the one who will be asked) … hence Responsible Person. Any person who is related to the taxpayer in any relationship, and replaces the taxpayer in carrying out his obligations to pay tax, the provisions of this law are applicable to him in this regard. That is what the Definitions part of VAT Decree law says.

I have good friends in Oman, who’ve been asking me questions around this topic of the Oman VAT law. Thought I’d share some conversations with you.

(Episode spoiler alert: Mind you! the law uses conjunction “or” (“??” in Arabic) in identifying more than one type of Responsible Persons for each type of taxpayer. Thought I’d give you heads up, while you read on!)

1.      “Hi Muhammad … (chit chat)… Listen man, I’ve got a business that I own alone (sole proprietor). I’ve got a manager as well who runs it for me… If he makes a mistake in VAT return filing or does a tax fraud, will the law put everything on me?”

“Well… bro’ here’s the thing… the one who is managing your business (the law calls him/her “manager”) is Responsible, yes… but so are you as the ultimate owner of the business." (Ref. Clause 2.1)

(Now, that was a thing for “managers” of sole proprietorships to worry about, wasn’t it!)

“Ok, is that the same situation for a company operating in Oman as well?”

“Hmmm! … well! … that depends! Say, you own a single member company (meaning one shareholder only) then, again, it’s you “or” the manager, who is responsible." (Ref. Clause 2.2.A)

“Ok, what if I don’t have a company but I am a partner with another guy. Then what?”

“Ah! If you are a partner in a partnership firm in Oman then both / all of you partners are within the definition of “Responsible Person”. Oh, and if you had one or more directors then they are also under the ambit of Responsible Person." (Ref. Clause 2.2.B)

2.      “Yo Altaf, long time no see? Bro, I got a question for ya. You remember my company? We went into joint venture with another company. Then we hired a director for the JV, who handles all JV affairs - we hardly interfere. If the JV commits a VAT mistake or fraud, are our separate companies responsible for any tax violations of the JV? Especially, when we hired a dedicated director for the JV as well, you know!”

“Haha, good to hear from you man. About your question… Look, JV doesn’t mean that your separate companies are untouchable if the JV does a violation of VAT law (read non-compliance). Sorry to tell you that not only that director, who is appointed to handle the affairs of the JV, is seen as Responsible Person by tax authorities but also both JV partner companies are Responsible Persons for VAT law purposes in case of any VAT mess up at the JV." (Ref. Clause 2.2.C)

3.      “Hey, son, how are you doing? You know, I am a little worried now a days cuz I had invested quite a lot of money into the shares of this (XYZ) joint stock company. I’ve heard they’re not fully complying with VAT law. Who is to blame here and who is responsible? I’m going to attend a general meeting and I’ll quote what I learn from you.”

"Hi aunty. I am very well. thanks… That (XYZ) joint stock company? It’s quite big indeed. You know these companies always have a Chairman of the Board of Directors - the ultimate big boss. That Chairman of the Board of Directors is to blame. In the eyes of law, he is the Responsible Person. Oh, and if the big boss Chairman had authorized a director to oversee the tax affairs of that company then that director is to blame as well - he is also a Responsible Person." (Ref. Clause 2.2.D) 

4.      “Hey, Altaf, I am about to open a LLC. I’ve heard LLCs are different than those small single member companies or those giant joint stock companies. If I open the LLC, who will be seen as the Responsible Person for VAT affairs by tax authorities?”

“Yes sir, they’re three different types of companies. If you wanna open a LLC then you should know that any director you appoint will be seen as Responsible Person by tax authorities, or the person who is responsible for managing the company will be seen as a Responsible Person." (Ref. Clause 2.2.E)

5.      “Hi Altaf! I just came to Oman on a visit visa from USA. I've got a business in California, you see. And I sell pre-loved cars in Muscat through an agent. I hear they call this arrangement with some special name in Oman's VAT law... something like a “Fixed Establishment” - is that right? I'm confused, who'll be seen as the Responsible Person for VAT matters of my business?”

“Indeed, you’re right sir. It is by definition a Fixed Establishment according to Oman's VAT law, and the owner of this Fixed Establishment or the manager... as well as your agent through whom you sell cars... all will be seen as the Responsible Persons.” (Ref. Clause 3)

“Yeah, but you see, Altaf, the owner and their management do not really help me in my business. Only my agent does. But the problem is that he keeps coming to USA every other month to visit his family. Half the time he’s is US. Will that be a problem for me?”

“Oh, I am afraid it would be. You see, the Oman's VAT Decree law says that the Responsible Person cannot stay outside the Sultanate for more than 90 days without informing the Tax Authority … and another thing… your agent will need to take approval from the Tax Authority to appoint his alternative point of contact to act as the Responsible Person for your business’ VAT affairs for the duration he’s out of Oman beyond the allowed 90 days.” (Ref. Clause 4)

Dear readers, during all those dialogues, you would’ve observed that the expressions used in the clauses of Decree law sound quite like either-or scenarios: (either) partner or director … (either) owner or manager, etc. Does that mean that only one of the two persons stipulated will be seen as Responsible Person or they used the conjunction "or" to indicate that both types of Person shall be Responsible?

Well, the answer to this is quite interesting. It may sound like an either-or scenario but economic reality of business is that owner or partner can never absolve oneself from the tax liability even if a manager or director were appointed to handle the business. After all, who gets the real deal big bucks! Get it? Note here that quite a few people confuse the expression "director" as equivalent to "shareholder". Well! a shareholder can be a director but it is not necessary for a director to be a shareholder. Managers or directors of a business are the parties with primary responsibility to manage tax affairs of a business (they’re paid for it!). Hence they are also to blame if anything goes wrong with the VAT affairs of that business. Are you reading this, directors and managers?

The author, Muhammad Altaf Hussain, is the Territory Managing Partner for Tax and Advisory practice of AJMS Global in Oman (www.ajmsglobal.com). He may be contacted at [email protected] or 971 50 971 7890.

Disclaimer:

The use of complex legalese language is intentionally avoided in the text herein above to captivate attention and interest of the common layman reader. This LinkedIn article does not comprehensively cover the contents of the provisions laid out in the legal framework of the jurisdiction in question. Please use your own discretion before relying on the contents herein above. The Author or any party associated with him do not accept any responsibility for any actions taken on the basis of this LinkedIn article.