As a taxable entity, there might be instances where you overlook specifying that the contract amount excludes VAT. While this omission may seem minor, it can raise questions about whether you are entitled to later request VAT payment from your clients on the agreed contract amounts. To better understand this scenario, let's examine it based on the provisions of the Omani VAT Law and its Executive Regulations.
Key Question
How is VAT calculated in contracts that do not explicitly state whether the contract value excludes VAT, and who is responsible for paying it?
According to the Omani VAT Law (Royal Decree No. 121/2020) and its Executive Regulations, particularly Article 211 of the Executive Regulations, the Omani legislator has provided clear guidelines on how VAT is treated in cases where the contract does not explicitly address this tax.
If a contract or agreement governing the supply of goods or services does not include a specific clause regarding VAT, the law assumes that the agreed amount between the parties includes VAT. In other words, the price mentioned in the contract is considered to be inclusive of VAT unless otherwise explicitly stated in the contract terms.
Here’s what you need to know:
- Implied Inclusion: If your contract lacks a specific clause regarding VAT, the law presumes that the total amount agreed upon between the parties includes VAT. This legal assumption simplifies understanding of tax obligations and ensures compliance with tax regulations without the need for additional review.
- Tax Responsibility: In the absence of an explicit clause in the contract excluding VAT from the total price, the taxable person is legally required to collect VAT from the agreed amount and remit it to the tax authority. The client receiving the goods or services will not be required to pay any additional amounts beyond the agreed contract price, as the law assumes that the agreed price is inclusive of VAT.
Conclusion
To avoid potential disputes in the future and ensure clarity in your financial agreements, it is always advisable to specify whether your contract prices are inclusive or exclusive of VAT. This helps prevent any misunderstandings between the contracting parties and ensures compliance with tax regulations.