DOING BUSINESS IN
OMAN
OVERVIEW
Oil and gas exports form the backbone of the Sultanate
of Oman’s economy. A key strand of current economic
policy is to gradually decrease the reliance on oil income
through downstream industry development, port and
logistics development, fisheries, and a modern and
expanded tourism industry. The country relies on oil for
most of its revenue, and defence accounts for one third
of its expenditure1.
LEGAL BACKGROUND
Oman is a monarchy and the source of law-making
power sits with His Majesty the Sultan as the Head of
State. His Majesty the Sultan promulgates law by issuing
Royal Decrees. Other laws which are subordinate to
Royal Decrees (in the form of decisions and regulations)
are issued from time to time by Ministers and other
Government officials as well as the administrative units of
the Government, whose law making powers are defined
by reference to the Royal Decrees that set them up.
It also has introduced two councils
1. The Shura Council
2.The Council of State
All Royal Decrees are published in the Official Gazette.
Ministerial Decisions and regulations are in the most part
also published in the Official Gazette although there are
certain such decisions and regulations which occasionally
remain unpublished. In addition to the laws of Oman as
published pursuant to the Official Gazette, Oman also
operates a system of Shari’a Law. However the role of
Shari’a is limited and in practice has little if almost no
influence in relation to commercial activities.
Oman has a Basic Law (Royal Decree 101/1996), which is
in effect the constitution of Oman. It contains many
provisions usually seen in a state constitution. Amongst
other things it deals with:
■■
the fundamental principles governing the policies of
the state with respect to security, the economy and
the rights of individuals;
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the duties of His Majesty the Sultan;
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the apparatus of the State such as the Council of
Ministers, its duties and powers;
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the Judiciary; and
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who has law making power and how that power can
be delegated.
1
Source: UKTI
02 | Doing Business in Oman
Oman also has a court system comprising of the
following levels:
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Supreme Court
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Appellate courts
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The courts of First Instance
■■
Courts of Summary Jurisdiction
GENERAL RULE ON FOREIGN INVESTMENT
nder Oman law, the general position is that every
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foreign company wishing to conduct any commercial or
business activity in Oman requires to be licensed and
registered as a company in Oman. This stems from the
Foreign Capital Investment Law (Royal Decree 102 of
1994) (“FCIL”)
he FCIL, read together with Oman’s commitments to
T
the World Trade Organization, results in the conclusion
that a foreign company cannot hold more than 70%
shareholding in an Omani company. The balance 30%
must be held by Omani nationals (individuals) or an
Omani company owned entirely by Omani nationals.
This is applicable to most sectors.
here are certain sectors where (pursuant to specific
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laws dealing with the sector in question) this threshold is
lower and some where this is higher such as the
electricity and related water sector where 100% foreign
ownership is allowed pursuant to specific provisions of
the Royal Decree governing the regulation and structure
of this sector.
here are also other ways in which a foreign
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shareholding of greater than 70% can be obtained. A brief
summary of those are listed below.
A.Obtaining the approval of the Oman cabinet
of ministers based on the recommendation
of His Excellency, the Minister of Commerce
& Industry in Oman. In such cases, the Ministry
of Commerce & Industry must recommend that the
proposed investment activity is very crucial and critical
to the economic development of and to the national
interests of Oman such that it warrants more than
70% foreign ownership. Once the Council of Ministers
approves this proposal, the company can be registered
with the higher threshold of foreign ownership. This
route is entirely discretionary and is not available as a
matter of course.
In addition, it should be noted, that the minimum
capital requirement for such a project company is
RO 500,000 as opposed to the usual capital
requirement of a foreign owned limited liability
company (“LLC”) of RO 150,000.
B.Foreign entity sets up a branch. A branch does
not have limited liability for its owner (the foreign
company) and can only be set up for the purposes of
servicing a direct contract with the government of
the Sultanate of Oman or a government body. The
term of the registration of the branch is co-terminus
with the contract. A branch may however, have
multiple government contracts.
C.US-FTA route. Pursuant to the free trade
agreement between Oman and the USA, US
companies (i.e. companies owned by US shareholders)
are treated as Omanis. Therefore, US companies with
100% US shareholding can register an LLC in Oman
without the requirement of having an Omani partner.
The key point is that the US companies’ shareholders
themselves must be owned by US shareholders.
FREE ZONES
There are three free zones in Oman. These are:
(1) Salalah Free Zone; (2) Sohar Free Zone; and
(3) Al Mazyounah Free Zone. These free zones are
strategically located across Oman with a list of permitted
activities associated with each in relation to various
sectors such as oil and gas, food and minerals.
Conducting business in a free zone is particularly
attractive to foreign investors because of the benefits
associated with them. Some of these include:
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100% foreign ownership
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Exemption from customs duties on imports and
exports
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No minimum capital requirement
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No taxes on profits or dividends for 30 years
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No tax on personal incomes
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No restrictions on repatriation of capital, profits and
investments
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Lower Omanization requirement levels
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Fast track customs handling and processing
There are other economic zones such as the Knowledge
Oasis Muscat (primarily for technology companies) and
Duqm, where 100% foreign ownership is also permitted.
LEGAL STRUCTURES
The Oman Commercial Companies Law ((Royal Decree
4/1974) (“OCCL”) provides for the following types of
companies in Oman:
■■
General partnerships;
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Limited partnerships;
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Joint ventures;
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Joint stock companies, (general – S.A.O.G) and
(limited – S.A.O.C);
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Limited Liability Companies (L.L.C.); and
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Holding companies.
All commercial companies, except joint ventures,
are considered juristic persons, and are subject to
registration or publication in the Commercial Register
under OCCL. The Commercial Registrar is under
the authority of the Ministry of Commerce and
Industry (“MCI”).
The typical vehicles considered by foreign investors are
LLCs or SAOCs (for larger projects).
An LLC must have at least two shareholders (national or
juristic persons). Their share capital may not be less than
OMR 20,000 if all partners are Omani (or US under the
US/Oman FTA) and OMR 150,000 if there is foreign
participation. The capital is divided into equal parts that
are not available for public subscription.
The shareholders’ liability is limited to their share of the
capital. An LLC may not engage in banking, financial
guarantees, or commercial aviation activities.
A joint stock company is a business association with fixed
capital divided into negotiable shares and must have at
least three shareholders. The liability of each shareholder
is confined to the nominal value of their shares in the
registered capital. According to Article 58 of the OCCL,
the capital of a joint stock company should not be less
than OMR500,000 for the companies that do not offer
public subscription (S.A.O.C.) and not less than OMR
2,000,000 for companies which make invitation for public
subscription (S.A.O.G.).
EMPLOYMENT IN OMAN
Aside from a few limited exceptions, companies
operating in Oman are subject to RD No. 35 of 2003
(the “Labour Law”). The Labour Law provides that a
non-Omani worker may not be employed without
approval of the Ministry of Manpower and without
obtaining a permit to work in Oman in accordance with
the rules specified by the Ministry of Manpower.
Every non-Omani wishing to reside in Oman is required
to obtain a residence permit from the Royal Oman
Police. Any non-Omani wishing to enter and reside in
Oman to work must have a sponsor, usually the
employer.
Oman has a very active Omanization programme and
there are penalties in respect of its violations.
The Ministry of Manpower specifies Omanization
percentages to be obtained for various sectors.
Investors should consider this aspect very carefully and
ensure it is accounted for in their business plans. It is an
issue that has gained particular importance in the last
12 months.
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TAX IN OMAN
The Income Tax Law RD No. 28 of 2009 (the
“Oman Tax Law”) imposes a single uniform 12% tax on
businesses with taxable incomes in excess of OMR
30,000 derived from activities undertaken in Oman.
Oman does not impose a personal income tax. In respect
of foreign entities, the trigger for whether they might
have a tax liability is the concept of whether they have a
“permanent establishment” in Oman. Various parameters
are set out in the Oman Tax law which determine
whether a foreign entity is deemed to have a permanent
establishment in Oman. There is also an obligation under
the Oman Tax Law to withhold 10% of certain types of
payment (withholding tax) made to persons outside
Oman who do not have a registered presence in Oman
or do not have a permanent establishment in Oman.
REAL PROPERTY IN OMAN
The principal legislation governing land ownership in
Oman is Royal Decree 5/1980 (“Land Law”).
This stipulates that all land in Oman is the property of
the State, unless otherwise specified.
The Land Law allows Omani nationals the flexibility of
being entitled to enjoy the benefits of land on both a
freehold (ownership) and leasehold (contractual) basis.
Oman law also permits non-Omani nationals or entities
to purchase freehold title to real estate in Oman (such as
in designated integrated tourist complexes). The regimes
for this differ between GCC entities and non-GCC
foreign entities. The terms of the laws allowing such
purchases are quite restricted however.
There are certain limited rights of ownership granted to
corporate entities as well (whether they be foreign
owned or Omani).
Typically companies occupy land on the basis of a
usufruct or a right to benefit which is essentially a lease
with an interest in the land or as a regular tenancy.
does it purport to address every legal issue or provide a
summary of the current rules, structures or regulatory
frameworks.
The regulatory system in Oman is dynamic and subject
to frequent changes in application and interpretation.
This guide is based on material available to DLA Piper as
at 1 September 2016 and will require amendment from
time to time as legislation is amended or new policies or
interpretations are adopted by government authorities,
courts and/or regulators. It is therefore necessary to
obtain legal advice and liaise with the relevant
government authorities on how the law applies to foreign
investors in respect of a particular investment or
business activity at the relevant time.
We hope that you find this guide to be a useful
overview of the high level legal matters in relation to
doing business in Oman. Please do not hesitate to
contact us if you have any queries in relation to the
material set out in this guide or if you require specific
legal advice in respect of an establishment.
FOR FURTHER INFORMATION,
PLEASE CONTACT
Ben Gillespie
Head of Corporate
Middle East
T +971 4 438 6305
[email protected]
Bruce Mullins
Office Managing Partner
Oman
T +968 2464 7708
[email protected]
GENERAL
This guide highlights certain material legal matters which
DLA Piper believes are relevant to a potential foreign
investor in Oman. It does not constitute legal advice nor
The information contained in this briefing does not constitute legal advice. Specific legal advice should be taken
before acting on any of the topics covered.
www.dlapiper.com
DLA Piper middle east llp is part of DLA Piper, a global law firm operating through various separate and distinct legal entities.
For further information please refer to www.dlapiper.com.
Copyright © 2016 DLA Piper. All rights reserved. | DEC16 | 3155656