Oman Payroll & Tax Compliance Essentials

A. Update

The Sultanate of Oman has enacted the Personal Income Tax Law through Royal Decree No. 56/2025, introducing a personal income tax regime effective from January 01, 2028. The law introduces a 5% income tax on natural persons whose annual gross income exceeds OMR 42,000 during a Tax year with gross income encompassing all receipts, whether in cash or in kind. Tax Year is a full calendar year that begins on January 01 and ends on December 31 of the same year.

Executive regulations are expected to be issued by June 30, 2026 i.e., within one year of the date of publishing the law in the “Official Gazette.” This development represents a significant step in the country’s broader economic diversification strategy and is aligned with Oman’s long-term fiscal sustainability goals.

The annual personal income tax will apply to:

1. The net income of residents, whether generated within or outside the Sultanate of Oman; and
2. The income of non-residents, to the extent it is generated within the Sultanate.

A “Resident” means any person whose period of presence in the Sultanate of Oman exceeds 183 consecutive or intermittent days during the tax year. A “Non-Resident” means any person who does not qualify as a tax resident.

The scope of the tax covers a comprehensive range of income sources, including (but not limited to) income derived from employment, self-employment, rental activities, pensions, and remuneration for board duties. Individuals receiving income from these categories will be subject to the tax provisions as stipulated by the law.

The law also includes exemptions and deductions that take into account the social situation in the Sultanate of Oman, such as education, healthcare, inheritance, zakat, donations, primary housing, etc.

Under the new system, employers will bear the responsibility of withholding income tax at source on payments made to employees. This includes salaries, pensions, end-of-service benefits, and board remuneration. The procedures governing withholding, remittance, and compliance will be detailed in the forthcoming executive regulations.

To ensure compliance, the law will also introduce financial penalties for late payment of tax. A penalty of up to 1% per month may be imposed on any unpaid amounts, calculated from the due date until full settlement is made.

The Sultanate of Oman Tax Authority (“Tax Authority”) is developing an integrated electronic system to support the effective implementation of the law. This system is interconnected with relevant institutions to ensure the accuracy of income calculations and to validate submitted tax returns. In preparation for implementation, human capital within the Tax Authority has been trained, and comprehensive guidance manuals for individuals and legal entities have been prepared. These materials will be made available according to a structured rollout schedule.

All individuals and entities subject to this tax regime are encouraged to begin preparing for its implementation and to assess the potential implications of this significant legal and economic reform.

A. Update

It has been confirmed by the Social Protection Fund (SPF) that implementation of Insurance for Sick and Other Leaves has been postponed until further notice. It was scheduled to be effective from July 2025 as per the Executive Regulations of the Social Protection Law published in the Official Gazette No. 1526, as announced on December 31, 2023.

A. Update

As per the newly introduced Social Protection Law, Insurance for Old Age, Disability, and Death applies mandatorily to all Omani Nationals working in other GCC Nations, and Insurance for Employment Security applies to Omani Nationals working in other GCC Nations optionally.

Accordingly, for Omani Nationals working in other GCC Nations, employer shall contribute at 11% and employee shall contribute at 7.5% towards Insurance for Old Age, Disability, and Death mandatorily.

It is also important to note that these contributions are to be calculated on daily basis, that is on the actual monthly wages earned as per the number of days worked.

A. Update

It is to clarify that the monthly contributions should be calculated on daily basis, that is on the actual monthly wages earned as per the number of days worked, towards the insurance for:

• Old Age, Disability, and Death
• Work Injuries and Occupational Diseases,
• Employment Security,
• Maternity Leaves (Effective from July 2024), and
• Sick and Other Leaves (Effective from July 2025)

A. Update

Executive Regulations of the Social Protection Law have been published in the Official Gazette No. 1526. As per the regulations, though the total contribution by employer and employee remain the same as at present but the distribution will change as under effective from January 2024:

Also, two new contributions will start as under:

A. Update

Royal Decree no 53/2023 (‘the Law’) promulgating the labor law has been published replacing the old laws.

The changes introduced from the previous law impacting employee payouts are as follows:

Annual Leave:

The worker is entitled to an annual leave with comprehensive pay of not less than 30 days. The worker who did not benefit from his annual leave is entitled to maintain the leave balance for no more than (30) thirty days, unless not benefiting from the leave is due to the interest of the work.

Sick Leave:

Employees can take sick leave of 182 days per year, based on the following percentage of comprehensive (Gross) pay:

• Till 21 days, 100% of pay.
• From 22 till 35 days,75% of pay.
• From 36 till 70 days, 50% of pay.
• From 71 till 182 days, 35% of pay.

Paternity Leave:

Employees can avail 7 days of paternity leave, provided that the child is born alive, and the age of child is not more than 98 days old.

Maternity Leave:

Employees can avail 98 days of maternity leave to cover pre- and post-delivery period.

Gratuity:

Employees who are not covered under Social Protection Scheme, employer will accumulate the gratuity of not less than a month’s basic wage each year till their service period and shall be paid to the employee upon the termination of work relationship.

Work Contract:

The contract must be written in Arabic and 2 copies should be made for each party. The contract can be either definite or indefinite. In the case of a definite contract the term should not exceed 5 years. In the event of renewal extension, the total service period shall include original contracted period along with the extension period.

Omanization:

Employers will have to submit the following data related to Omani’s during the month of January each year.

• Detailed statement of the number of Omani employees along with their Occupation, Wages and gender
• Number of Job Vacancies and their type
• Annual plan for Omanization and replacement in the establishment

The percentage of Omanization in the various economic sectors, activities and occupations covered by each sector shall be determined by a decision of the Minister according to what is required by the circumstances of each sector or activity and the availability of the necessary Omani manpower, and the prescribed percentage of Omanis in the professions for which there are Omani manpower available for work.

A. Update

On August 17, 2020, the Sultanate of Oman has issued Royal Decree 82/2020 (RD) on the new Job Security Fund which will come into effect on November 01, 2020. The disbursement of funds to jobless Omani nationals by the Government commences from November 01, 2020 while the contribution to this fund is from January 01, 2021.

The Job Security Fund aims to support and protect Omani nationals who have been made redundant or have lost their jobs. His Majesty Sultan Haitham bin Tarik contributed 10 million Omani Rial (OMR) to the Fund.

The system will work in two phases:

• 1. The first phase will involve disbursement of funds to Omanis whose services were terminated, and this will commence on November 01, 2020,
• 2. The second phase will start after three (3) years of the system’s establishment, during which a subsidy will be disbursed to job seekers.

From January 01, 2021 Omani citizens employed by both private and public sectors are required to contribute one percent (1%) of their monthly salary and contributions of equivalent value will also be due from the employer. Employers should deposit the contributions into a bank account, as instructed by the Public Authority for Social Insurance (‘PASI’). Additionally, five percent (5%) will be added to the fee for the license or renewal of license for non-Omani manpower.

Omani employees who have been terminated (with exception to those terminated for disciplinary reasons) and have completed their probation period with the employer are qualified to receive benefits from the Fund provided that they are not receiving retirement benefits, or are enrolled as a student in any educational institutions.

The benefit is paid for a maximum period of six (6) months at the rate of sixty percent (60%) of the average contribution wage during the twenty-four (24) months preceding the termination of service.

We are expecting the authorities to issue further details on how this new reform will be implemented and shall keep you posted on further developments.