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Doing Business in Oman
The Sultanate of Oman has adopted a policy of economic diversification and creation of a national economy based on private enterprise. This long term commitment is reflected in Oman’s 9th Five Year Plan, which identifies manufacturing, transportation and logistics, tourism, fisheries and mining as targeted economic growth sectors. In 2016 the Government of Oman initiated an ambitious National Program for Enhancing Economic Diversification, referred to as “Tanfeedh”, as a driver to accelerate the pace of economic diversification and to create a more competitive business environment.
This Doing Business guide provides an overview of some of the main legal and commercial considerations for investing in Oman. This guide is intended to provide a general understanding of the business environment in Oman, and should not be used as a substitute for advice from professional legal and financial consultants.
Constitutional and Legal Framework of Oman
The Sultanate of Oman is an Islamic country ruled by His Majesty Sayyid Sultan Qaboos bin Sa’id. According to the Basic Statute of the State (the Constitution), HM the Sultan is the Head of State, and has the power to promulgate the primary sources of law in Oman, known as Royal Decrees. The Constitution provides for Oman to be governed by civil law and a Shari’a system. Civil law predominantly governs commercial relations, whereas Shari’a features predominantly in personal civic matters, such as family and inheritance laws.
Investors will need to be aware of the following legal framework for doing business in Oman:
Foreign Capital Investment Law (FCIL) – sets out the general rules regulating foreign investment in Oman
Commercial Companies Law (CCL) – regulates the type of business structures that can be licensed to carry on business in Oman, and how those business structures may operate
Civil Transactions Law (Civil Code) – adopted in 2013, this is a fundamental law which governs all civil and commercial transactions in Oman
Labor Law – regulates the conditions for employment in Oman of both Omani and foreign personnel
Income Tax Law (ITL) – establishes the tax regime for businesses in Oman.
Depending on the industry, sector and activity, other Omani laws and regulations will apply.
Any investor wishing to carry on business in Oman must obtain a license from the Ministry of Commerce and Industry (MOCI) and well as by other authorities that regulate specific industries and business activities. A limited number of activities are only allowed to be carried out by Omani nationals, such as real estate brokerage and recruitment services.
There are a number of different investment vehicles available to conduct business in Oman.
Limited Liability Companies (LLC):
Both local and foreign investors most commonly opt to establish a limited liability company (LLC) to conduct their business activities in Oman. LLCs have a number of advantages: LLCs require only two participants; they provide limited liability to the participants; they are less regulated than joint stock companies; and they are subject to a lower minimum capital requirement (OMR 150,000 for LLCs with foreign investment and OMR 20,000 for LLCs with 100% Omani ownership).
Joint Stock Companies (JSC):
Investors may also consider incorporation of closed (SAOC) and public joint stock companies (SAOG). JSCs must have a minimum of three shareholders and have a higher minimum capital requirement (OMR 500,000 for SAOCs and OMR 2M for SAOGs). JSCs can have different classes of shares and the shares can be mortgaged. Establishment of JSCs may be required for certain industries, such as banks, investment funds and insurance companies. Ownership of SAOGs is through the Muscat Securities Market.
Under the FCIL, foreign investors can hold up to 70% of the shares in an LLC or JSC.
U.S.-Oman Free Trade Agreement (FTA)
The U.S.-Oman Free Trade Agreement became effective in 2009. The FTA provides reciprocal market access for U.S. companies and U.S. citizens investing in Oman. This means that U.S. companies and U.S. citizens may own 100% of the shares in LLCs and JSCs. They can take advantage of the lower minimum capital requirement of LLCs available to Omanis. The FTA also eliminates most tariff and nontariff barriers and provides other benefits aimed to encourage investment and trade in goods and services.
Other investment structures
Before investing in Oman, it is important to consider the range of investment options. For example, if the foreign investor enters into a direct contract with a government authority, such as a Ministry, it may be able to open a branch office. If the company wishes to distribute its products in Oman, it may be able to do so through a commercial agency agreement with a local company or person. Foreign investors may also open a local representative office for marketing and promotion of their services and products.
Free Zones, Industrial Estates and Technology Park
Oman has established a special economic zone and three free zones. Each free zone is established by a special law prescribing the permitted activities and special benefits. While there are some differences, the free zones generally allow 100% foreign ownership of companies, lower Omanization requirements, no minimum capital investment requirements, duty free imports and exports, tax free holidays, and no restrictions on repatriation of capital, profits or investments.
Special Economic Zone in Duqm (SEZD)
SEZD is positioned next to the Port of Duqm, and has one of the largest dry dock and ship building facilities in the Middle East. With access to the Asian and African markets, it is a regional hub for maritime transportation and logistics services. SEZD is open to foreign investment in industries such as petrochemicals, mineral resources, fisheries, warehousing, manufacturing, agribusiness, and medium and heavy industries. Notably, SEZD has recently become the site of a US $3.1 billion China-Omani Industrial Park.
Salalah Free Zone
The Salalal Free Zone is situated next to the Port of Salalah and was established to focus on export-oriented activities, including chemical and material processing, manufacturing and assembly, and logistics and distribution.
Sohar Port and Free Zone
The Sohar Port and Free Zone is a deep-sea port and free zone. It considers itself the ‘Gateway to the Gulf’, with an ideal location to also access the Indian subcontinent. It has three main clusters: logistics, petrochemicals, and metals. It will soon be adding Oman’s first terminal dedicated to agricultural bulk. Oman Oil Refineries and Petroleum Industries Company (ORPIC) is located in the Sohar Free Zone.
Al Mazunah Free Zone
Situated close to the border between Oman and Yemen, Al Mazunah Freezone was established to attract foreign investors in commodities trading, light industry and the services sector.
Knowledge Oasis Muscat (KOM)
Oman has one technology park located near Muscat, which caters to technology and information systems industries.
Oman’s seven industrial estates offer benefits such as subsidized leases, warehousing facilities and low utility charges.
Omanization and In-Country Value
The Omanization policy is actively enforced by the Ministry of Manpower. Employers should always seek to employ Omani nationals where possible. The ratio of Omanis/expatriate employees is sector specific. The ratio is determined by the Ministry of Manpower and is largely dependent on the availability of Omani nationals. Employers are required to submit to the Ministry of Manpower annual statements detailing employees and their employment particulars, working conditions and expected employee numbers and vacancies. Investors bidding for projects, particularly in the oil and gas sector, are required to provide Omanization and In-Country Value plans.
All foreign nationals must obtain an employment visa and residency card to work in Oman. Before obtaining an employment visa, the Ministry of Manpower must issue a labor clearance for the position. This process can be time consuming and approvals ate at the discretion of the Ministry of Manpower, which will take into consideration the employer’s compliance with its Omanization obligations and other factors.
Corporate income tax is imposed on all corporate entities deemed to be Permanent Establishments (PEs) in Oman, at a flat rate of 15%. The Secretariat General for Taxation requires all PEs to open a tax file with them, and submit annual filings, declaring all taxable income. Individuals are not subject to personal income tax.
As with all the other member states of the Arab Gulf Co-operation Council (AGCC), Oman is due to implement Value Added Tax (VAT) by 2019. Under the VAT Framework Treaty most goods and services will be subject to a 5% VAT. Certain sectors will be exempt or zero rates, such as education, health, real estate and local transport. Any business with annual sales in excess of US $100,000 is required to register for VAT. Regulations are expected to be promulgated by the Secretariat General for Taxation or the Ministry of Finance in the near future
The majority of civil and commercial disputes in Oman are resolved in Omani courts. The court system generally operates under the conventional hierarchy of courts of first instance, appellate courts and the Supreme Court, with the exception of specialized claims, such as labor disputes, which are required to exhaust certain additional dispute resolution methods before entering into the court system.
Foreign investors must be aware that all litigation proceedings are held in Arabic, which is the official language of the country. Contractual parties have the discretion to opt into arbitration agreements which expressly require that all proceedings are conducted in the English language.