On June 8, the Double Taxation Avoidance Agreement between Russia and Oman (hereinafter, the DTT) was signed in Muscat. Nearly a year has passed since the Government published Order No. 2073-r of July 28, 2022, in the Official Gazette, approving and authorizing the signing of the new draft Income Tax Agreement with Oman. A similar treaty had previously been concluded and signed in 2001, but it was never ratified. The new treaty was signed on June 8, 2023 and is to be ratified by the Russian side by the end of 2023.
What does the new DTT provide?
The text of this Agreement has not yet been published; however, the Government order is publicly available and expressly states that only “changes that are not of a fundamental nature” may be introduced. In addition, on June 9, the Russian Ministry of Finance announced its key provisions, which are of greatest interest to the parties:
The general tax rate for dividends is 15%.
The reduced dividend tax rate is 10% provided that the following conditions are met simultaneously:
the beneficial owner holds at least 20% of the equity interest in the company paying the dividends;
the beneficial owner’s holding period in the equity interest of the company paying the dividends must be at least 365 calendar days.
The tax rate on interest income is 10%.
The tax rate on royalties is 10%.
The Ministry of Finance notes that the DTT takes into account the specific features of bilateral economic cooperation and the level of economic development of the two countries. At the same time, it reflects the President’s stated objective of preventing capital outflows from the country and incorporates the recommendations of the BEPS Action Plan.
In this context, it should be noted that the provisions of the Multilateral Instrument (MLI) apply to this Agreement, as evidenced by the inclusion in its text of the principal purpose test, which not only correlates with Article 54.1 of the Russian Tax Code, but also once again underscores the trend in Russian tax practice toward countering the artificial reduction of the tax base.
When will the DTT take effect?
The Agreement must be ratified in 2023 (the exact date is not yet known) and will enter into force on January 1, 2024. However, its tax provisions will apply only from January 1, 2025.
What awaits Russian business in Oman?
It is important to note the taxation features applicable to foreign investors and lenders within Oman itself. Non-residents, including individuals, may be subject to withholding tax at a rate of 10%.
However, according to news reports published on January 11, 2023, a Royal Directive was issued suspending withholding tax on dividends and interest paid to tax non-residents, without specifying an end date for the validity of the document’s provisions. Other income from Omani sources is also subject to tax at a rate of 10%.
This is not the first regulatory act suspending withholding tax on dividends and interest payments; however, the previous Royal Directive set a final expiration date for this provision in 2024. The text of the 2023 Royal Directive has not been published, but even without it, one may conclude that Oman is interested in attracting foreign capital. Indeed, such a decision (together with the existing DTT) may generate significant interest among Russian groups and individuals in using Oman for structuring their foreign presence and holding assets.
In addition, the tax exemption on interest and dividends for Russian state entities and companies points to the growing role of the Russian public sector in the economy and the Omani side’s interest in mutually beneficial cooperation at the interstate level, which will enable our country to derive maximum benefit, especially in the context of the so-called pivot of the Russian economy to the East.
What should be considered?
The signing of the DTT between Russia and Oman was not only the result of mutual interest in expanding economic cooperation and interaction between the two states, but also a reflection of global trends in structuring business in the Gulf countries. The signing of this DTT, as well as the issuance of the Royal Directive in January 2023, are clear evidence that Oman’s tax policy aligns with the aforementioned reorientation of global capital. All this only underscores the authorities’ efforts in this country to create the most favorable conditions possible for attracting foreign loan capital and investment.
In the view of ALPINE TAX specialists, the combination of emerging conditions and prerequisites makes the Omani jurisdiction one of the promising alternatives to the United Arab Emirates for the purposes of business structuring through the establishment of a holding or subsidiary company, as well as for the placement of assets and investments of Russian legal entities and individuals with a view to lawful tax optimization and improving the economic efficiency of doing business.
