• The Islamic Banking Regulatory Framework, issued by the Central Bank of Oman on 18 December 2012, first introduced Islamic banking in Oman.
  • The banks were allowed to undertake Islamic banking activities in Oman by way of setting up full- fledged Islamic banks or Islamic banking windows of conventional banks.
  • There were also other Islamic financial transactions in the market including, for example, the issue of sukuk, the setting up of Sharia-compliant fund and insurance products. Since the nature of the transactions between Islamic finance and that of the conventional products are inherently different, Islamic finances were subjected to numerous taxes, and fees in Oman.
  • The Capital Market Authority (CMA) of Oman passed an amendment to capital market regulations in 2014 by way of which sukuk issued through a special purpose vehicle will be exempted from corporate tax and the underlying asset transfers will not be subjected to fees or charges from other ministries.
  • This was very important in view of promoting Islamic finance in Oman, and also in the interest of the public who had been otherwise prejudiced due to additional taxes and fees.
  • In 2017, Oman Sultani Decree No. 9/2017 was brought into force, which addressed the inequality of taxation caused by applying the same law to different type of transactions. Oman Ministerial Decision No. 14/2019, the executive regulations to Oman Sultani Decree No. 28/2009 on Promulgating the Income Tax Law, was published in February 2019.


  • CMA : The Capital Market Authority
  • Diminishing Musharaka : A variant of Musharaka, where the equity of the lender in the joint venture decreases as the principal is being repaid.
  • IFT : Islamic Finance Transactions.
  • Istisna'a : A contract arrangement used in manufacturing whereby the buyer places an order and pays for the cost of manufacturing and the buyer can sell the produce and is eligible for the profit. In this, the buyer need not buy all the raw materials to the seller, and hence, money is paid to the seller based on invoices.
  • Ijarah : A contract whereby the owner of an asset (lessor/lender) other than consumables, transfer its rights to the lessee for an agreed period for an agreed consideration. Forward Ijarah, a variant of Ijarah is used in financing of construction activities.
  • Murabaha : A sale arrangement by which the seller discloses to the buyer the cost of the product and the profit margin on it. This type is used in loan facilities that is for the purchase of raw materials for manufacturing or goods for trading and the lender purchases at the request of the borrower.
  • Musawama : A sale arrangement by which the seller does not have to disclose to the buyer the cost of the product. This is used in a transaction where the price of the product is fluctuating and is not certain until purchased.
  • Mudaraba : A joint venture arrangement whereby the lender is the investment partner and the borrower is the service partner or who invests his efforts. The lender's liability is limited to the extent of the investment.
  • Musharaka : Whereby all the parties, the lender and the borrower make an investment in a joint venture or a project. The lender's representative can be part of the management. Partners and losses are shared by all parties. If the lender's investment is sizeable for initial years until the principal is recovered, the lenders can be assigned the share of profits of the borrower.
  • Salam : A forward contract by which the buyer pays the seller (the borrower) for a sale that will occur in future, the commodity is determined in order to avoid ambiguity.
  • Sukuk : The bonds issued in compliance with the principles laid down by the Banking Law of Oman, Oman Sultani Decree No. 114/2000.
  • Sharia law : A religious law forming part of the Islamic tradition. It is derived from the religious precepts of Islam, particularly the Quran and the Hadith.

Practical Guidance

  • Sharia-compliant financial products are always asset-proofed. The most popular Islamic financing structures in Oman include, Mudaraba, Musharaka, diminishing Musharaka, Murabaha, Musawama, Salam, Istisna, and Ijarah among others. The lender, unlike in conventional banking system, acts in the capacity of a landlord, lessor, or a seller depending on the financing model. Not only do they give rise to corporate taxes, but also to capital gains tax from the plain application of the general law to the Sharia-compliant structures as the financing models are asset-proofed.
  • Taxation of these “seemed” capital gains solely due to the nature of Sharia-compliant structures means being taxed “discriminately”. Unless there are provisions that avoid this discrimination caused by applying the same law to two different types of transactions, this will cause disadvantage due to economic double taxation.
  • In Oman, the profits, fee and charges linked to ownership and leasing of the underlying assets, solely in respect of IFT models, are exempt in order to achieve tax neutrality. Under Oman Sultani Decree No. 69/2012, which provided amendments to Oman Sultani Decree No. 114/200 Oman Central Bank Law, Islamic banks are exempted from charges imposed on transactions relating to the ownership, leasing and renting of real estate and movables where the transactions are performed for the purpose of providing Islamic banking services. This means, if Ijara contracts register the usufruct agreement between the bank and the borrower with the ministry of housing, there will be registration charges applicable just like any other usufruct agreement. However, if the bank transfers the ownership of the land or land rights to the borrower on repayment, fees will not be imposed.
  • Following Oman Sultani Decree No. 114/2000, CMA Royal Decree No. 80/98 Establishing the Capital Market Law was amended by Oman Ministerial Decision No. 59/2014, which established that an SPV incorporated for the issuance of sukuk will benefit from the exemption of tax and all kinds of fees that are connected to the registration and transfer of ownership of assets. The exemption is not automatic in practice, and requires the pre-approval of the CMA and the Ministry of Housing. The structure is discussed with the CMA, and they approve the draft prospectus and the articles of association governing the SPV.
  • Until 2017, there were no clear income tax provisions for IFTs, and so, donations (the excess arrived after the Sharia audit) were questioned for deduction. In Oman Sultani Decree No. 9/2017, it is clear that donations such as this are deductible and the credit losses created by the Islamic banks will be treated the same as the loan losses of its conventional counterpart. Also, for taxpayers, any amount spent in lieu of interest will be treated as a deductible expense.
  • While Oman Sultani Decree No. 28/2009 endeavours to achieve neutral tax treatment between IFTs and CFTs, it is clearly ruling out any type of tax avoidance using these provisions intended for a different purpose. It does not accord the neutral treatment to transactions that “explicitly or implicitly” involve financial principles other than IFTs.

Related Content


  • Oman Sultani Decree No. 28/2009 on Promulgating the Income Tax Law
  • Oman Sultani Decree No. 9/2017 issuing amendments to the Income Tax Law
  • Oman Ministerial Decision No. 30/2012 on the Issuance of the Implementing Regulations of the Income Tax Law
  • Oman Ministerial Decision No. 14/2019 issuing amendments to the Implementing Regulations of the Income Tax Law
  • CMA Royal Decree No. 80/98 establishing the Capital Market Law
  • CMA Decision No. 59/2014 amending the Capital Market Law relating to Sukuk
  • Oman Sultani Decree No. 114/2000 Oman Banking Law
  • Oman Sultani Decree No. 69/2012 amending the Oman Banking Law introduced Islamic Banks in Oman
  • Islamic Banking Regulatory Framework issued by the Central Bank of Oman dated 18 December 2012