Oman-Russia Double Tax Treaty: A Closer Look

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The recent implementation of the Double Taxation Avoidance Agreement (DTAA) between Oman and Russia on January 1, 2024, marks a significant development for businesses and investors in both countries. This agreement aims to eliminate double taxation and promote economic collaboration by clarifying how various income streams will be taxed. 

Background 

Signed on June 8, 2023, the DTAA underwent ratification by Oman (Royal Decree RD 89/2023 on December 27th) and Russia (December 12th, 2023) before its official implementation. The effective dates are: 

• Withholding Taxes: January 1, 2024 

• Other Taxes: Tax year starting on or after January 1, 2024 

Key Provisions of the DTAA 

The agreement addresses various aspects of international taxation, including: 

• Applicability: The DTAA applies to residents of Oman and Russia as defined within the agreement. 

• Nature of Income Covered: Similar to other DTAAs, this agreement covers the tax treatment of various income sources, including: 

• Dividends 

• Interest 

• Royalties 

• Capital Gains 

• Business Income earned by a Permanent Establishment (PE) 

PE (Permanent Establishment) Related Provisions 

The DTAA's PE provisions are generally aligned with the OECD Model Tax Convention. It covers various types of PEs, including: 

• Fixed Place PE: A physical location for conducting business (e.g., office, factory) 

• Construction/Installation PE: A construction or installation project lasting more than a specific period (duration to be confirmed based on the DTAA text) 

• Agency PE: An agent who has the authority to conclude contracts on behalf of a resident enterprise, habitually acting in this capacity 

• Service PE: A provision of services by an enterprise through an employee or other representatives for a period exceeding a specific threshold (duration to be confirmed based on the DTAA text) 

Tax Rates under the DTAA 

The agreement specifies tax rates for certain income types: 

• Interest and Royalties: The general tax rate is equal to Oman's domestic withholding tax rate (currently 10%). 

• Dividends: 

• 10% if the beneficial owner is a company directly holding at least 20% of the capital of the dividend-paying company for at least one year before the dividend payment date. 

• 15% in all other cases. 

Important Note: Oman's Royal Directive issued on January 11, 2023, indefinitely suspended withholding tax on dividends and interest payments made to non-residents. It's crucial to consult with a tax professional to understand the implications of this directive in conjunction with the DTAA. 

• Fees for Technical Services: The DTAA currently lacks a specific article addressing "fees for technical services." 

Alignment with International Tax Reforms 

The Oman-Russia DTAA reflects Oman's commitment to implementing the Base Erosion and Profit Shifting (BEPS) Project's minimum standards. This is evident in the inclusion of: 

• Mutual Agreement Procedure (MAP) provisions (BEPS Action 14): This allows for resolving disputes arising from different interpretations of the DTAA. 

• Principal Purpose Test (BEPS Action 6): This provision aims to prevent the misuse of the DTAA benefits under certain circumstances. 

Who is Impacted by the DTAA? 

The DTAA is particularly relevant for: 

• Omani Businesses: It's crucial to consider the impact on corporate tax for transactions with Russian companies (and vice versa) regarding inbound and outbound investments, service provision, royalty payments, etc. 

• Russian Businesses: Similar considerations apply to Russian businesses engaging in economic activities with Omani entities. 

Conclusion 

The Oman-Russia DTAA offers a framework for clearer tax treatment, potentially boosting trade and investment between the two nations. Businesses and investors in both countries should consult with tax professionals to understand the DTAA's implications for their specific circumstances and optimize their tax positions.