Oman free zone taxation: corporate income tax, VAT and customs

01

A zone is a legal regime, not a ready-made tax answer

Oman has free zones, special economic zones and industrial cities. Their commercial offers may look similar, but the tax result follows the statute, the zone's establishing decree, OPAZ decisions, the enterprise licence, the tax decision and the actual transactions.

Before modelling savings, determine the site's legal status, commencement date, transitional regime, licensed activity and the geography of each supply. An office or warehouse in a zone does not replace that analysis.

02

What Royal Decree 38/2025 changed

Royal Decree 38/2025 introduced a unified Special Economic Zones and Free Zones Law and repealed the former general Free Zones Law 56/2002.

Article II preserves incentives already granted to existing operators and enterprises until the relevant periods expire. Two businesses in the same zone may therefore rely on different instruments and exemption periods.

• 01

  New project: start with Law 38/2025 and the implementing framework.

• 02

  Existing project: review the original decision, agreement and remaining incentive period.

• 03

  Expansion: confirm separately whether the additional activity or assets qualify.

03

Income tax: ten years, but not automatic

Article 27 exempts a zone enterprise and operator from taxes imposed under the Income Tax Law for ten years from commencement of activity. Two similar renewals may be available for activities of a special nature under the implementing rules.

The exemption requires a Minister of Finance decision. Tax returns and attachments must still be filed, so accounting records, contracts and evidence of compliance remain essential.

• 01

  Evidence the actual start of the licensed activity.

• 02

  Obtain the applicable exemption decision.

• 03

  Keep filing returns and supporting schedules.

• 04

  Reassess mainland, related-party and additional activities.

04

Activities excluded from the exemption

The new law excludes banks, financial institutions, insurance and reinsurance, telecommunications, construction, land transport and maritime transport businesses operating in the zone.

The boundary follows substance. Freight forwarding, warehousing, port services and maritime carriage are not automatically the same activity. Contracts, income streams and licences must be reviewed before an application is filed.

• 01

  Do not treat “logistics” as a universal tax classification.

• 02

  Separate carriage, agency, warehousing and service functions.

• 03

  For financial products, analyse CBO or FSA licensing and tax together.

05

VAT: a Special Zone is not a blanket zero rate

Oman's standard VAT rate is 5%. The Tax Authority guide applies special treatment only to areas recognised as Special Zones for VAT. It identifies Al Mazunah, Sohar, Salalah and Duqm; the status of a new site must be checked at transaction date.

Zone businesses follow the normal registration tests: OMR 38,500 mandatory and OMR 19,250 voluntary for residents. The application includes the commercial registration and zone licence, and the guide states that an accredited Special Zone person cannot join a VAT group.

• 01

  Check the zone's VAT status separately from the company licence.

• 02

  Zero-rated supplies count towards registration tests.

• 03

  Returns and records remain necessary at a zero rate.

06

Goods and customs: the route drives the outcome

Goods supplied to or within a Special Zone may be zero-rated when the conditions in Articles 101–106 are met. Moving goods from a zone into Oman is treated as an import, with import VAT generally payable by the importer.

Articles 28 and 29 of Law 38/2025 provide customs relief for qualifying operational assets and materials and for products exported outside Oman. Diverting imported assets to another purpose may require consent and payment of duty.

• 01

  Record supplier, customer, route and customs status.

• 02

  Align invoice, transport document, declaration and zone licence.

• 03

  Model mainland sales separately from re-export.

07

Services: when 0% VAT may apply

Services supplied to, from or within a Special Zone remain within the Omani VAT framework. Article 107 may allow zero rating where the customer is taxable, registered and licensed by the zone operator and receives the service for its activity in the zone.

The supplier needs the customer's signed statement. Listed hospitality, food, cultural, sporting, educational and entertainment services are excluded from this route. Services from a zone to a mainland customer are generally taxed at 5% unless another rule applies.

• 01

  Verify the customer's status and VAT number.

• 02

  Obtain the Article 107 statement before zero rating.

• 03

  Evidence the use of the service in the zone activity.

• 04

  Review reverse charge for non-resident suppliers.

08

Building an auditable tax model

For each revenue stream, map the counterparty, goods or services, place of supply, physical route, VAT treatment, customs status and income-tax exemption basis.

Compare mainland and zone scenarios before incorporation, including premises, staffing, Omanisation, banking, domestic sales and exports. Update the matrix whenever the product, market, warehouse, contract or law changes.

• 01

  Select the zone for operating logic, not the headline incentive.

• 02

  Obtain CR, zone and sector licences.

• 03

  Complete the exemption and VAT procedures.

• 04

  Separate zone/mainland and goods/services accounting.

• 05

  Review evidence quarterly.