DTAA between Oman and India: A Complete Guide

In the realm of international taxation, the Double Taxation Avoidance Agreement (DTAA) between the Republic of India and the Sultanate of Oman stands as a cornerstone for facilitating cross-border transactions and ensuring tax compliance for residents of both countries. Signed in 1997, this agreement plays a pivotal role in preventing double taxation and fiscal evasion concerning taxes on income.

Understanding the India-Oman DTAA

India and Oman signed the Double Taxation Avoidance Agreement (DTAA) on April 22, 1997, which came into effect on January 1, 1998. This agreement aims to mitigate the issue of double taxation and provide a clear framework for taxation matters between the two countries. Here are the key aspects of the India-Oman DTAA:

Taxes Covered

The DTAA covers specific taxes in both countries:

• India: Income tax, including any surcharge.
• Oman: Company Income Tax and Profit Tax on Commercial and Industrial Establishments.

Withholding Tax Rates

The agreement stipulates reduced withholding tax rates compared to domestic laws, making cross-border financial transactions more efficient:

• Dividends: 10%
• Interest: 10%
• Royalties: 10%
• Technical Fees: 10%

Residence Determination

For individuals considered residents in both India and Oman, the DTAA provides a tie-breaker rule to establish residency based on:

• Permanent home
• Center of vital interests
• Habitual abode
• Nationality
• Mutual agreement between the countries’ authorities

Mutual Agreement Procedure

The DTAA includes provisions for a mutual agreement procedure, enabling competent authorities from India and Oman to resolve any issues regarding the interpretation or application of the agreement:

• India: The Central Government in the Ministry of Finance (Department of Revenue) or their authorized representative.
• Oman: The Ministry of National Economy and Supervisor of Ministry of Finance or his authorized representative.

Specific Provisions

• Taxation of Immovable Property – Income from immovable property can be taxed in the country where the property is located.
• Business Profits – Profits are generally taxed only in the country of residence unless the enterprise has a permanent establishment in the other country.
• Aircraft in International Traffic – Profits from the operation of aircraft in international traffic are taxed only in the country of residence.
• Entertainers and Sportspersons – Income earned from performances in the other country may be taxed in that country.
• Exchange of Information – The countries will exchange tax-related information to enforce the provisions of the DTAA.

Key Definitions and Scope

• Enterprise of a Contracting State
  An enterprise carried on by a resident of one contracting state.
• Fiscal Year
  
  • India: “Previous year” as defined under Section 3 of the Income-tax Act, 1961.
  • Oman: “Taxable year” as defined in the Company Income-tax Law, 1981.
• International Traffic
  Any transport by a ship or aircraft operated by an enterprise of a contracting state, except when operated solely between places in the other contracting state.
• National
  Any individual who holds the nationality of a contracting state, as well as any legal entity, partnership, or association that obtains its status according to the laws applicable in that contracting state.
• Person
  Includes individuals, companies, bodies of persons, and any other entities treated as taxable units under the respective taxation laws.
• Tax
  Refers to Indian or Omani tax, excluding penalties or amounts payable for defaults or omissions.
• Permanent Establishment
  The term “permanent establishment” refers to a fixed location where an enterprise’s business activities are conducted either wholly or partially. This includes a place of management, branch, office, factory, or workshop. Additionally, it encompasses mines, oil or gas wells, quarries, or other sites for the extraction of natural resources. It also covers building sites or construction or assembly projects, as well as any supervisory activities associated with these, provided that the site, project, or activity lasts for more than six months.
  
  However, certain activities are not considered to create a permanent establishment. These activities include the use of facilities exclusively for the storage, display, or delivery of goods or merchandise. Additionally, the maintenance of a stock of goods or merchandise solely for these purposes does not constitute a permanent establishment. Similarly, keeping a stock of goods or merchandise solely for processing by another enterprise, or maintaining a fixed place of business solely for purchasing goods, collecting information, or carrying out activities of a preparatory or auxiliary nature, are also excluded. An enterprise is considered to have a permanent establishment in a contracting state if a person, other than an independent agent, acts on its behalf and regularly concludes contracts in the name of the enterprise, unless these activities are limited to those previously mentioned. Enterprises are not regarded as having a permanent establishment merely because they conduct business through a broker, general commission agent, or another agent of independent status.

Impact on Investments

The DTAA plays a crucial role in fostering foreign investments between India and Oman and Preventing Double Taxation. It ensures income earned by foreign investors is not taxed twice. It encourages Indian companies to invest in Oman across various sectors, such as iron and steel, cement, fertilizers, textiles, and automotive. It benefits investors by lowering the tax burden on dividends, interest, and royalties. However, all investors must comply with local tax laws. The DTAA allows for easy repatriation of capital and profits, providing flexibility.

Key Investment Sectors

The main sectors attracting foreign investments in Oman due to the DTAA include:

• Oil and Gas Extraction – Almost 70% of foreign direct investments (FDI) in Oman target oil and gas extraction.
• Financial Sector – Significant investments in banking and insurance.
• Manufacturing – Investments in industries such as textiles, chemicals, and automotive.
• Real Estate – Growth driven by the construction and property development sectors.
• Ports and Logistics – Attracted by Oman’s strategic location and infrastructure projects like the Duqm Free Trade Zone.
• Tourism – Driven by the country’s cultural heritage and natural beauty.

Benefits for Technology and Startups

While the DTAA does not specifically mention provisions favoring technology or startup investments, it offers benefits that can be advantageous:

• Taxation of Business Profits – Ensures profits are taxable only in the state where the enterprise has a permanent establishment.
• Beneficial Withholding Tax Rates – Lower tax rates on dividends, interests, and royalties.
• Exchange of Information – Enhances compliance and transparency.
• Tax Credits – Allows for tax credits for foreign taxes paid, beneficial for cross-border transactions.

Oman’s Free Zones

Oman’s free zones offer several incentives that make them attractive for startups:

• Tax Incentives – A 30-year tax holiday, more extensive than many other regions. For example, Dubai offers a 50-year tax holiday but only for certain sectors.
• Customs Duties – Exemption from customs duties on imports and exports, a significant advantage compared to regions like the UAE, which has customs duties ranging from 5% to 10%.
• Foreign Ownership – 100% foreign ownership allowed, a significant advantage over regions like the UAE, where maximum foreign ownership is 49%.
• Minimum Capital Requirement – No minimum capital requirement, unlike the UAE, which requires AED 150,000 (approximately USD 40,000).
• Personal Tax – No personal tax, unlike the UAE’s personal tax rate of 5% to 20%.
• Omanisation Law – Lower Omanisation law threshold compared to other regions.
• Fast-Track Customs Handling – Offers fast-track customs handling, a significant advantage compared to the UAE’s more complex customs process.

Revised DTAA

Since its inception in 1997, the DTAA has not been revised. However, it continues to align with international standards and practices, ensuring its relevance in modern taxation.

Conclusion

The Double Taxation Avoidance Agreement between India and Oman serves as a vital framework for promoting cross-border trade and investment while ensuring that taxpayers are not burdened by the complexities of double taxation. By adhering to the provisions of this agreement and understanding its implications, businesses and individuals can navigate the intricacies of international taxation with confidence and compliance, fostering a conducive environment for economic cooperation between India and Oman.

The India-Oman DTAA provides a clear framework to avoid double taxation, benefiting individuals and businesses operating in both countries. By reducing tax rates and providing mechanisms for dispute resolution, the DTAA fosters a conducive environment for trade and investment. Understanding and complying with the provisions of this agreement is crucial for maximizing its benefits and ensuring smooth cross-border financial activities. Oman’s free zones, with their unique combination of incentives, further enhance the attractiveness for startups and foreign investors.

Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.