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The Oman Tax Authority has issued Decision No. 180/2026, introducing an important amendment to the Executive Regulation of the Income Tax Law. The Decision inserts a new Article 18 bis into the Executive Regulation, establishing specific conditions under which certain business expenses may qualify as deductible for income tax purposes. The amendments apply from the tax year commencing 1 January 2027. While the amendment is concise, its practical implications are significant for businesses operating in Oman, particularly those incurring costs as a result of directives or decisions issued by government authorities and public entities.

What Has Changed?

Decision No. 180/2026 introduces Article 18 bis to the Executive Regulation of the Income Tax Law. The new provision governs the deductibility of expenses incurred by taxpayers in complying with decisions issued by state administrative units and other public legal entities.

To qualify as a deductible expense, all of the following conditions must be satisfied.

1. The Expense Must Be Necessary for Carrying on the Business

The expenditure must be directly connected to the taxpayer's business activities and genuinely required for the operation of the business.

This requirement reinforces the principle that only legitimate business expenses—rather than optional or unrelated expenditures—should reduce taxable income.

2. The Deduction Must Be Approved by the Chairman of the Tax Authority

The Decision requires that the deduction be expressly authorised by the Chairman of the Tax Authority.

This introduces an additional regulatory safeguard and indicates that expenses falling within the scope of Article 18 bis are not automatically deductible merely because they were incurred.

Businesses should therefore maintain adequate documentation demonstrating the necessity and circumstances of the expenditure when seeking recognition of the deduction.

3. The Expense Must Not Arise from a Breach of Any Legal or Contractual Obligation

The Decision makes it clear that expenses resulting from a failure to comply with any obligation—regardless of whether the obligation arises under law, regulation, contract, or another legal source—will not qualify for deduction.

This provision reinforces the long-standing tax principle that taxpayers should not receive a tax benefit for costs arising from non-compliance or misconduct.

Repeal of Inconsistent Provisions

Decision No. 180/2026 also provides that any provisions inconsistent with the new amendment are repealed to the extent of the inconsistency, ensuring that Article 18 bis prevails over conflicting regulatory provisions.

Effective Date

The Decision was published in the Official Gazette and takes effect from the tax year beginning on 1 January 2027. Businesses should therefore assess their internal tax policies and accounting procedures in advance of the effective date.

Practical Implications for Businesses

The amendment serves as a reminder that taxpayers should:

• Maintain comprehensive records supporting the commercial necessity of expenses.
• Distinguish between compliance-related expenditures and costs arising from breaches of obligations.
• Evaluate whether expenses requiring recognition under Article 18 bis may necessitate approval from the Tax Authority.
• Review existing tax compliance procedures ahead of the 2027 tax year.

Conclusion

Although Decision No. 180/2026 introduces only a single new provision, it strengthens the regulatory framework governing deductible expenses and provides greater clarity on the treatment of costs incurred in complying with governmental directives.

Businesses should proactively review their tax governance frameworks to ensure that qualifying expenditures are appropriately documented and supported before claiming deductions under the amended Executive Regulation.

Company registration in Oman - International Companies/Investors; No upfront capital required for the incorporation of LLC in Oman.

1.1. LLC Incorporation;

a. LLC Company formation in Sultanate of Oman require an Omani Shareholder (Sponsor) with minimum 30% shareholding and 70% of the outstanding Shareholding with a foreign investor/shareholder.

b. The minimum share capital to register an LLC is Omr 150000(USD 390,000), as per the recent updates of Ministry of Commerce a foreign Company need not to deposit or provide evidence of Omr 150000 share capital investment. The share capital investment can be paid within a period of 2 years from the date of incorporation, which will reflect in the Audited Financial Statement of the Company.

c. Facts of LLC incorporation;
i. Each shareholder is liable only to the extent of his/her share capital. ii. Public subscription for raising of funds can be permitted if converted to Joint Stock Company (SAOC, SAOG) in the later stage. iii. A foreign manager can be assigned for the day to day management of the business. iv. The shareholder has the liberty to share profits and losses in a ratio different to the share capital ratio. v. The setting up of an Omani LLC requires only One General Manager and 2 shareholders of any nationality. vi. LLC can be 100% owned subject to the Foreign Investment Laws (applicable to GCC & US investors). vii. Tax levied at 15% flat from the net profit of the Company. viii. No personal income taxes. ix. Employees can only be recruited after establishing a tenancy agreement and registration with the Muscat Municipality and Ministry of Manpower. x. Omanisation targets; Each business must employ a minimum number of Omanis depending on the sector. xi. Registration period 10 to 25 days.

1.2. Free Zone Company Set-up;

1.2.1. Sohar Free Zone

a. Operating from a strategic location on the Arabian Peninsula, Sohar offers an ideal environment for business. The combination of wide market access, sound global logistics and attractive business incentives ensure that your company will enjoy the ultimate freedom to do business. With the existing road network, deep-sea port and airport companies in Sohar can target India, the Middle East, China and South-East Asia while enjoying direct access to Abu Dhabi, Dubai, Al Ain and Muscat, as well as the biggest consumer market in the region, Saudi Arabia. Sohar lies in the center of the Al Batinah region, in the North of Oman. This is a prime area for investment. With its geographical location, economic resources and high population density, the Batinah region has played an important part in Oman`s history. It has always been the country`s maritime and commercial outlet to the Gulf and the Indian Ocean and its mineral resources have provided the basis for several important heavy industries.

b. Company Registration in Sohar
The Company registration procedure in Sohar Free Zone is almost similar to that of incorporating an LLC with an added detail of taking lease of the land in the free zone and the Company shall deal in the manufacturing and industrial segment.

c. Advantages of Company Set-up in Sohar Free Zone
i. 100% Foreign Ownership. ii. Must have a minimum of 2 shareholders, both of which may be foreign entities. iii. Corporate Tax Holiday of up to 25 Years. iv. A guaranteed 10-year exemption of corporate tax (normally 15% in Oman). v. One-Stop Shop for all Relevant Clearance offering a single window through which all licenses, permits and approvals can be obtained. vi. 0% Import or Re-export Duties. vii. 0% Personal Income Tax. viii. No customs duties for individuals coming in and working in the Free zone. ix. Low Capital Requirements. x. Relaxed Level of Omanisation the minimum Omanisation level for Sohar Port and Free zone is 15%. xi. Free Trade Agreements with US and Singapore.

1.2.2. Duqm Free Zone

a. The Special Economic Zone Authority at Duqm (SEZAD) is a government agency that was established pursuant to Royal Decree No. 119 of 2011 and entrusted with the powers and responsibilities of developing and administering the Zone to become a regional maritime and transit-trade hub, an important complex for export-oriented industries, and an attractive tourism destination and the business gateway to Asia and Europe.

b. Advantages of setting up of Companies in DUQM
i. Easy and facilitated access to land based on long term leases and reduced rates. ii. Removal of any restrictions on foreign ownership and minimum investment capital; waiver/reduction of corporate tax and customs duties. iii. This is in addition to nationally applicable incentives such as the waiver of personal income tax, convertibility of currency, and the full repatriation of investment capital and profits. iv. Tax -exemption for 30 years from the date of starting business and for 30 years renewable. This exemption does not apply on banks, financial institutions; insurance and reinsurance companies, telecommunication services providers and land transport companies – unless they are registered with SEZAD and do their business continuously within the boundaries of the area. v. Up to 100% foreign ownership. vi. Exemption from minimum capital requirement stipulated in the commercial companies’ law and other laws. vii. No currency restrictions. viii. Exemption of Commercial Agency Law provisions. ix. Free repatriation of profits & capital. x. Usufruct agreements up to 50 years renewable for similar periods. xi. Freedom to import all kinds of goods (except the legally banned imports) without prior approval or permit unless classified as explosives or chemical products. To import such products, investors should abide by the laws and regulations in force. xii. The imported goods are not subject to any restrictions related to the retention period in the Zone, unless otherwise specified by SEZAD Board of Directors. Investors are also free to transport these goods within or within any other free zone inside the Sultanate. xiii. The finished or assembled products in the area are treated as locally produced products. xiv. The enterprises have the right to open representation office inside the custom jurisdiction subject that they are registered in accordance with the laws and regulations in-force in the Sultanate. xv. The one-stop station provides all necessary services for the enterprises. Through this window, investors can obtain all the required permits, licenses, approvals and visas as well as registration of enterprises and implementing all rules and regulations related to the area and decisions taken by the SEZAD. xvi. Speedy and efficient processing of expatriate manpower applications. The process shall not take more than five working days from the date of submitting the application. xvii. Visas for expatriates and their families' members will be issued by the Passport and Residence Department that is being set up in the area. xviii. The custom system is modernized to ensure speedy processing of goods and transactions. The Department, which uses transparent and clear valuation methodologies, processes the transactions and releases the goods in a very quick and speedy manner while maintaining control of the efficiency. The samples are also fully checked and reported at the same site.