Did The New Income Tax Law Limit Foreign Dividend Exemptions

Oman’s tax system has developed significantly over the years, not only in terms of procedures and compliance, but also in relation to the legislative policy behind tax exemptions under the Oman Income Tax Law One issue that clearly reflects this development is the tax treatment of dividend distributions and foreign investments, particularly when comparing the old Companies Income Tax Law issued by Royal Decree 47/81 with the current Income Tax Law issued by Royal Decree 28/2009.

Under the old law, Article 8 bis provided a tax exemption on dividend distributions received by a company from its shares, interests, or participation in the capital of “any other company”.

The wording was broad and unrestricted. The law did not limit the exemption to dividends received from Omani companies only. As a result, disputes arose during that period regarding whether the exemption also extended to foreign dividend distributions.

In Supreme Court Appeal No. 395/2018, which involved a tax dispute in Oman relating to dividend distributions generated from investments outside Oman, the taxpayer argued that Article 8 bis of the Companies Income Tax Law used the phrase “any other company” without restricting the exemption to Omani companies. The taxpayer also argued that if the legislator had intended to limit the exemption to domestic dividends, it would have said so expressly.

The Supreme Court confirmed that the wording of Article 8 bis was broad and unrestricted, and that the text did not distinguish between Omani and foreign companies. This ultimately led the Court to accept the exemption in relation to foreign dividend income under the old law.

This judicial approach appears consistent with the later legislative development under the current Oman Income Tax Law.

Article 115(1) of the current Income Tax Law issued by Royal Decree 28/2009 no longer uses the phrase “any other company”. Instead, it limits the exemption to dividend distributions resulting from participation in the capital of an “Omani company”.

From a practical perspective, it is difficult to view this amendment as merely a drafting change, particularly given the clear difference between the two provisions.

The shift from the broad concept of “any other company” to the narrower concept of an “Omani company” appears to reflect a legislative intention to narrow certain tax exemptions relating to foreign income and foreign investments, while linking exemptions more closely to local investments and activities.

As Omani companies and investment groups continue expanding into regional and international markets, these issues have become increasingly important when structuring overseas investments, assessing dividend distributions, planning exits from investments, and evaluating the tax treatment of foreign investment returns.

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