Doing business in Oman 2016
In association with: Contents
Introduction ...... 3
– Country profile...... 4
Legal overview ...... 5
Conducting business in Oman...... 9
Tax system ...... 12
Labour ...... 15
Audit ...... 18
Trade ...... 19
Finance ...... 21
Infrastructure ...... 23
This Guide has been prepared jointly by HSBC Bank Oman S.A.O.G. and Grant Thornton for the purposes of providing a high-level general overview of the business environment in Oman for the information of businesses who may be interested in transacting or investing in Oman. Any transaction or investment in Oman, however, should only be undertaken based on professional advice specific to such transaction or investment. 2 Introduction This guide to doing business in Oman will provide foreign investors with an insight into the key aspects of undertaking business and investing in Oman.
Since the beginning of His Majesty In January 2016, the government • Strong government investments Sultan Qaboos Bin Said’s rule approved an austere budget with in infrastructure, healthcare and in 1970, Oman has undergone the aim of tackling the budget education wide-reaching economic and social deficit caused by low oil prices; the • No personal income taxes reforms. The government has Sultanate’s oil revenues declined • Full repatriation of capital, net actively pursued a development by more than 50 per cent in 2015. plan focused on the diversification, profit and royalties Among other measures, the cabinet industrialisation and privatisation • Strategic geographic location with approved government spending cuts, of the economy with a view to close proximity to Gulf, Asian and tax rises and fuel subsidy reforms. reducing the oil sector’s contribution African markets to GDP to nine per cent by 2020. • Free trade and open market policy Furthermore, it has more recently The Omani government actively • Low corporate income tax rate pursued a strategy of ‘Omanisation’ encourages foreign direct to help create more jobs for the investment and this will continue and double taxation treaties rising numbers of Omanis entering to be vital for sustainable economic available with many countries the workforce. growth in the country. Accordingly, the government offers a number While this guide makes reference to Oman’s economy was traditionally of investment incentives and Free some of the most common issues based on fisheries and agriculture Zones that contribute towards investors might face, it must be noted that certain industries, such before the discovery of its oil an accommodating investment as the financial services sector, reserves. While the country’s environment. oil revenues have contributed are subject to special regulation and therefore companies wishing towards its rapid economic growth, Alongside a number of government to invest in this area should seek production has been declining and incentives, Oman offers the the government has, as mentioned, legal advice. following competitive advantages pursued an active diversification for investors: policy. Nevertheless, Oman’s The information in this publication is GDP is still currently dominated by current at December 2015. • Political stability industry which comprises 64.4 per cent, while services and agriculture • Indigenous population growing at comprise 34.6 per cent and one per 3.5 per cent per annum, with over cent, respectively. half under the age of 25
3 Country profile
Capital City Muscat
Area 309,501 sq. km
Population 3.5 million (approx.)
Language Arabic (English widely used for business purposes)
Currency Omani rial (OMR)
International dialling code 1+968
National Holidays 2016 1 January – New Year’s Day 5 May – Lailat Al Miraj 6 July – Eid Al Fitr 23 July – Renaissance Day 12 September – Eid Al Adha 2 October – Al Hijra 18 November – (Oman National Day) 12 December – Mawlid al Nabawi
Business and Banking hours Private Sector: 08:00 to 19:00 Public Sector: 07:30 to 14:30 Banks: 08:00 to 14:00pm (Sunday – Thursday)
Stock exchanges The Muscat Securities Market
Political structure Monarchy
Doing Business rank 2016 70
Ease of Doing Business
Topics 2016 rank 2015 rank Change in rank
Starting a business 149 121 -28
Licenses and Permits 46 40 -6
Getting Electricity 60 124 64
Registering property 33 32 -1
Financing 126 118 -8
Protecting Investors 134 133 -1
Paying Taxes 10 10 No change
Trading Across Borders 69 76 7
Enforcing Contracts 70 70 No change
Resolving Insolvency 105 108 3
Source: World Bank Group (Doing Business)
4 Legal overview Political and legal system The political system of Oman is a monarchy whereby His Majesty Sultan Qaboos Bin Said Al Said holds the role of Head of State, Prime Minister and Commander In Chief of the armed forces. The Sultan appoints a Cabinet of Ministers which serves the Government and holds executive authority; nevertheless, the Sultan is responsible for authorising all laws and decrees.
Oman has a bicameral legislature comprising two chambers, the Council of State and the Consultative Council. The Council of State comprises 84 members who are appointed by the Sultan for a four year term. They are responsible for assisting the Government to implement the overall development strategy and shall contribute to deepening the roots of the Omani society, maintaining the country’s achievements and ascertaining the principles of the basic law of the state. The Consultative Council comprises 84 publicly elected members who are responsible for reviewing drafts of economic and social legislation.
Oman’s legal system follows the Basic Law of the State which was promulgated in 1996 and operates as a constitution for the country. However, the general law of the land is Sharia Law and Oman has also developed and enacted a comprehensive framework of laws and regulations regarding its economic affairs. The Sultan sector specific laws such as the Banking Law, circulars of issues legislation by way of Royal Decree and Ministerial the Central Bank of Oman and the Insurance Regulations Decisions are issued to clarify implementation details. as issued by the Capital Market Authority.
Under the Basic Law, the judiciary is deemed independent The Electronic Transactions Law provides certain and its primary role is to uphold the rule of law and safeguards and sanctions against the illegal use of private guarantee the rights and freedoms of Omani citizens data. The Cyber Crimes Law covers violations of safety, in accordance with the relevant regulations. The court confidentiality of data and systems. Some of the penalties system is in three tiers: Courts of First Instance, Appellate applicable for hacking crimes are increased if they involve Courts and the Supreme Court. Within the tiers, there are any misuse of personal data. separate circuits for Sharia cases, criminal cases, civil and commercial cases. There is also a Court of Administrative There are also a number of restrictions on people that wish Jurisdiction. to transfer data offshore from Oman. Those undertaking a transferral must ensure the data is subject to the minimum Data protection data protection requirements as set out in Oman. Oman does not have a comprehensive data protection Furthermore, the following must be considered: the nature law. Instead, the provisions for data protection can be of the data, the origin of the data, the purpose and period found across a number of different pieces of legislation: for which the data will be transferred, the countries to which the data will be transferred and its relevant laws and • The Basic Law international obligations and any securities measures that are implemented to protect the data in that country. • The Electronic Transactions Law • The Cyber Crimes Law While there is no specific oversight for the protection of personal or sensitive data, the regulatory authority for data Data protection provisions relating to the confidentiality and information technology is the Information Technology and protection of personal data may also be found in Authority.
5 Exchange controls presence in the countries in which There are severe penalties for There are currently no exchange they are registered and that are non-compliance with money controls on inward/outward subject to regulation in these laundering regulations. Anyone investment, repatriation of capital or countries found guilty of committing money transfer of dividends. • Exert due diligence to identify, laundering may be subject to a term verify and update the identity of of imprisonment between three Money laundering regulations actual clients and beneficiaries in and 10 years and a fine of no less Oman’s primary anti-money accordance with the conditions than OMR5,000. There are also a laundering legislation is the 2010 and controls specified in the number of conditions under which Anti-Money Laundering and regulation the penalties may be doubled. The Terrorism Financing Law which • Avoid opening anonymous Omani authorities may also impose was enacted to unify all previous accounts or accounts in a number of business-related legislation on money laundering. pseudonyms, fake names or sanctions to companies involved in secret numbers or codes money laundering; these include a Under the legislation, money revocation of a company’s license, laundering is defined as when a • Monitor clients’ transactions prohibiting of the company’s person knowingly handles funds on an on-going basis and verify securities in the Omani financial that have been derived, directly of the sources of their funds to markets and ultimately, enforcing or indirectly, from the proceeds ensure they match the information the closure of the company. of a crime or from participation in available on their identity, nature criminal activity. Proceeds of crime of their activities and the degree Intellectual Property Rights include currencies, commercial of risk Oman recognises the importance paper, securities or any tangible • Classify their clients and services of protecting Intellectual Property or intangible assets that possess according to the degree of risk of Rights (IPR), which include financial value. Terrorist financing money laundering and terrorism patents, trade marks, trade names is defined as when a person financing; special care must be and copyright. As a member of raises or provides funds, directly taken in dealing with persons that the World Intellectual Property or indirectly, knowing that such are exposed to higher degrees Organisation (WIPO), Oman has funds will be used in some part to of risk enacted a legal framework to finance terrorist activity or a terrorist • Retain records, documents, organisation. protect IPR. IPR are regulated information and data relating to under the Law on Trade Marks, the identity of actual clients and Law on Patents, Law on Industrial The primary regulator for AML beneficiaries and their activities Designs and Law on Geographical controls for banking and other and transaction log in a way which Indications. Furthermore under its financial institutions is the facilitates any request from judicial WIPO membership, Oman has Central Bank of Oman. The authorities for a period of 10 years Financial Intelligence Unit (FIU), entered into a number of treaties, • Verify the compliance of their under the supervision of the including: Patent Cooperation Treaty, branches abroad with the Assistant Inspector General of Berne Convention for the Protection procedures of combating money Police and Customs, is charged of Literary and Artistic Works and laundering and terrorism financing with collating and reviewing the Paris Convention for the Protection reports and information from the • Provide the FIU directly with of Industrial Property. relevant financial institutions and the information, data and non-financial businesses regarding documents it may require to The Intellectual Property transactions suspected to involve conduct its functions Department at the Ministry of the proceeds of any crime. • Develop sufficient systems Commerce and Industry is the that include internal policies, authority responsible for the Financial institutions, non-financial procedures, control systems, registration of intellectual property. businesses and professions compliance, training and the The Department of Trademarks and non-profit associations and appointment of compliance is responsible for trademark bodies are subject to a number of officers protection. obligations. They must: There are also further obligations • Verify they are dealing with other on financial institutions engaged in counterparts that have a physical wire transfers.
6 COPYRIGHT
Copyright can protect: literary work, dramatic works, musical works, artistic works, layouts and typographical arrangements, recordings and broadcasts. Copyright works receive statutory protection automatically once they are placed in the public domain.
Protection Copyright is granted to eligible work automatically, irrespective of registration. However, registration granted of this copyright is recommended. The author or owner of a copyright may submit an application for the registration of a copyright to the Intellectual Properties Department at the Ministry of Commerce and Industry. The owner is granted moral and economics rights over his work.
Infringement In the case of infringements, whereby a person reproduces, distributes, displays or performs the protected work, the infringer may be punishable by imprisonment for up to two years or a fine.
Duration The duration of the author’s life plus 50 years.
PATENTS
Patents protect inventions which can be applied in an industrial environment. For a patent to be granted, the invention must be new, have an inventive step which is not obvious to someone with experience in the subject and capable of being used in some kind of industry. It cannot be inconsistent with public discipline, undermine national security or be incompatible with the Islamic Sharia law.
Protection A patent gives its owner the ability to take legal action to stop others from: granted • The making of a product or the use of a process which is the subject-matter of the patent • Selling anything incorporating the subject-matter of the patent • Inducing third parties into any of the above, without the inventor’s permission Patents must be registered with the Department of Agencies and Intellectual Property. The rights are then protected by registration. Oman operates a first-to-file principle.
Infringement Infringing a patent means manufacturing, using, selling or importing patented products or processes without the owner’s permission. In the case of an infringement, the owner of a patent can request that the person terminates any infringement or request the state authority to apply civil or criminal sanctions.
Duration 20 years from the filing date.
7 TRADE MARKS
A trade mark must be a sign capable of distinguishing goods and services of one undertaking from those of another undertaking. Those signs can be: words, personal names, designs, letters, numeral slogans, sounds, smells, signs and distinctive colours. It cannot be of a purely religious nature, incorporate false information or be too similar to an already established trade mark.
Protection The owner can obtain protection in Oman by registering the trade mark in the Register of Trade granted Marks and Trade Names at the Ministry of Commerce and Industry. Registration provides the owner with exclusive use over the trade mark. Limited protection is provided for unregistered trade marks.
Infringement Some examples of infringement of a trade mark are: • Using an identical or similar trade mark for identical or similar goods and services to a registered trade mark creating a likelihood of confusion on the part of the public • Where a mark has a reputation, infringement may arise from the use of the same or a similar mark which damages or takes unfair advantage of the registered mark In the case of infringement, the penalties range from the seizure or destruction of anything associated with the infringement, to fines and terms of imprisonment.
Duration 10 years (registration can be renewed for further periods of 10 years).
DESIGNS
An industrial design, the external appearance of a product embodied in three dimensional configurations, lines, colours or a combination of the aforementioned elements, can be protected if it is new, of a creative nature and can be applied in industry.
Protection Registering a design gives the owner a property right over the design. Holding design rights granted provides the owner the right to stop others from manufacturing, or importing goods that include or portray a design that is copied that the registered design. The filing must be made with the Department of Agencies and Intellectual Property.
Infringement Design rights are infringed by an unauthorised person making an article exactly or substantially similar to the protected design or by making a design document for the purpose of making unauthorised copies.
Duration Once obtained, design rights are protected for a period of five years from the date of filing of the application. It can then be renewed twice for periods of five years.
8 Conducting business in Oman Business entities The legal framework for undertaking business in Oman comprises the Commercial Companies Law, the Commercial Law and the Commercial Registration Law. All businesses must obtain commercial registration from the Ministry of Commerce and Industry, registration with the Chamber of Commerce and obtain a license from the Muscat Municipality before they are able to commence business in Oman. Furthermore, at present, Omani nationals must hold at least 30 per cent of the capital of an Omani company. Nevertheless, 100 per cent foreign ownership is permitted if the company has a minimum capital of OMR500,000 and Joint stock company must be submitted to the Ministry contributes to the development of Organisations wishing to set up of Commerce and Industry (MCI) for the Omani economy. This is subject business in Oman are permitted to review; the MCI may wish to alter to the approval of the Ministry use the joint stock company form. certain details. Once the company of Commerce and Industries. Two forms of the company exist: documents are submitted to the Furthermore, US companies and the closed joint stock company MCI, the Company gets to choose a individuals can own 100 per cent (SAOC) and the general joint stock name. This name cannot be similar of the capital of a company or company (SAOG). The primary to that of an existing company. establishment under the current US difference between the two is – Oman free trade agreement. that the SAOG can offer shares for Once the constitutional documents public subscription whereas the have been approved, an application A new foreign investment law SAOC cannot. must be made for administrative is being drafted which will allow decision from the Director General 100 per cent foreign ownership. Any company that undertakes of Commerce (and Capital However, this is not yet approved insurance, banking, investment Market Authority for an SAOG). or finalised. management or commercial air This includes submitting the transportation business must be constitutional documents, foreign Foreign investors can use the incorporated in the form of a joint shareholder documents and Omani following forms when commencing stock company. shareholder documents. business in Oman: Formation Following the administrative • Joint stock company (SAOC or An SAOC can be formed by three decision, the company must hold SAOG) or more individuals or entities; their a constitutive general meeting and • Limited liability company (LLC) liability is limited to the nominal board meeting. Once completed, • General partnership value of their shares. Similarly, the company can apply for • Limited partnership an SAOG requires three or more commercial registration from the individuals or entities as founders; MCI. Upon approval, the company • Foreign branch/ the founders must subscribe their can commence business. Representative office part of the capital. • Sole proprietorship (limited to Capital requirement Omani Citizens, Gulf Cooperation Foreign investors wishing to form The minimum capital requirement Council (GCC) nationals and US an SAOC or SAOG must draft the for an SAOC is OMR500,000. The individuals under the FTA) constitutional documents and have minimum capital requirement for an • Joint venture these translated into Arabic. These SAOG is OMR2 million.
9 Constitutional documents An SAOG must have a board of minimum of two and maximum of 40 The rights, powers, duties and directors comprising a minimum of partners are required to form an LLC. obligations conferred on the five members and a maximum of company, the board of directors 12. The board must include at least The partners must prepare and and its shareholders are indicated two independent, competent and submit a number of documents in constitutional documents, experienced directors. A director under an application to the MCI. This namely the memorandum and is independent if neither they nor includes: foreign shareholder and articles of association. This must be their immediate relatives have held Omani shareholder documents, a produced to obtain approval from a senior position in the company for constitutive contract and authorised the Ministry of Commerce and the last two years. The percentage signatory form and a bank certificate Industry to start business. of independent directors to the total to demonstrate compliance with number of board members shall not the relevant capital requirements. The constitutional documents be less than one third. Once the company documents should include the following: are submitted to the MCI, the There are no restrictions on the company gets to choose a name. • The company name, head-office, nationalities of directors of either an This name cannot be similar to branches and representative SAOC or SAOG but the directors that of an existing company. The offices must be at least 25 years old. registration process is finalised once • The list of business activities Directors are jointly and severally the company has registered with the the firm undertakes liable to the company, shareholders Oman Chamber of Commerce and and third parties for any damages Industry. Nevertheless, the LLC may • The charter capital and any caused by their acts in relation to the require further approvals if trading in methods of raising or reducing company. Directors are appointed certain sectors. the charter capital at the annual general meeting for • Name, address, nationality and terms of three years, which can then The LLC must undertake a number other basic identification of be renewed. of mandatory post registration company owner activities: • Rights and obligations of Filing requirements the owner All joint stock companies must • Obtain a municipality license • Management structure produce and file financial statements • Register with the tax office within three months of the year • Register with the Royal Oman • Legal representative of end and at least 21 days prior to the Police the company annual shareholder meeting. These • Formality for the adoption statements must be audited. • Register with the Ministry of of decisions Manpower • Dispute resolution methods Limited liability company • Obtain the relevant import/export licenses • Method for calculating salary, (LLC) The LLC is the most popular allowance and bonuses of corporate structure in Oman. The Capital requirement chairman, director or general LLC is a private company and The capital of an LLC is a fixed director cannot be used for banking, financial amount divided into equal shares. • Principles for the distribution of guarantees or commercial aviation The minimum capital required is profit and settlement of losses activities. Foreign shareholders OMR20,000, where there is no • Procedures for dissolution or are permitted to own up to 70 per foreign participation. However, if any liquidation cent of the shares in an LLC, unless shareholder is non-resident (or not they are GCC or US shareholders, party to a free trade agreement) the Providing the constitution does not who are permitted to own 100 per capital requirement is OMR150,000. contravene legal obligations, the cent of the shareholding under the The partners’ liability is limited to document will be binding between applicable free trade agreements. their capital contribution. the company and owners. The share capital is restricted in that case to a minimum of OMR150,000. Company charter Management structure The rights, powers, duties and An SAOC must have a minimum of Formation obligations conferred on the three shareholders and a minimum The formation of an LLC is similar company, the board of directors of three directors on its board. to that of an SAOG or SAOC. A and its shareholders are indicated
10 in the LLC’s constitutive contract stipulated, the partners share profits Representative office which is a similar form to that and losses in proportion to their Foreign investors whose business of the memorandum/articles capital contributions. The minimum relates to commerce, industry or of association. capital requirement is OMR3,000. tourism can set up representative The name of the partnership offices in Oman. Representative The MCI provides a standard short must include the phrase ‘General offices cannot engage in any form form constitutive contract which Partnership’. The partnership must of trading and are only permitted comprises: the agreed corporate register with the MCI before it can to represent the head office for the name, location of the business, operate in Oman; this will comprise purpose of introducing a product capital provision, an overview of the submission of the partnership or establishing local contacts. the partners and their participating agreement and an authorised Representative offices can only interest and the objects of the signatory form. be set up by companies that company. Further provisions may have a head office and at least be implied by the Commercial Limited partnership three branches in other countries. Companies Law. A limited partnership is formed The representative office must by two categories of partner: at undergo commercial registration Partners may wish to submit least one or more general partners and OCCI registration before it can supplementary provisions, including: that incur unlimited liability and begin operations. requirements for a minimum one or more limited partners attendance for partner meetings whose liability is limited to their Commercial agent or decision approvals, dissolution capital contributions. This must be Foreign investors can appoint procedures and processes regarding commercial agents if they wish explicitly stated in the partnership’s management control. to export goods and services to memorandum of association. The Oman. The agent must be either an minimum capital requirement is Management structure Omani national or a business with a OMR3,000. The procedure for An LLC must have a minimum of two majority Omani participation. Agents formation is the same as stated with and maximum of 40 legal partners. must be registered with the OCCI the general partnership. and the agency agreement should There is no requirement for LLCs be registered in the Register of Branch and representative to have a board of directors; the Agents and Commercial Agencies. office management of the company is A foreign investor can appoint more Foreign investors are permitted to carried out by a manager, or group than one agent in Oman, if it wishes. set up a branch or representative of managers. These must be natural office in Oman. persons, be at least 18 years old and Joint venture may or may not be shareholders. Joints ventures are commercial Branch The manager/s is appointed by companies formed by two or more A branch can only be established the shareholders as set out in the persons. Joint ventures in Oman constitutive contract. The managers through special contracts or are not considered juristic persons must be registered at the MCI. agreements with the government and full liability therefore falls on the and quasi government organisations. partners to the agreements. A joint Filing requirements A branch can be established venture is a private arrangement An LLC must produce and file without Omani participation but and does not require registration. financial statements within six may be sponsored by Omani Nevertheless, an Omani partner months of the year end. It is optional agents in specific circumstances. A must hold at least 51 per cent of the for an LLC to get its financial branch must undergo commercial joint venture. statements audited. registration and Oman Chamber of Commerce and Industry (OCCI) Sole proprietorship Partnerships registration before it can begin Sole proprietorships can only be General partnership operations. Branches can only be set up by Omani nationals or GCC A general partnership can be set up if the head office has been nationals or US citizens under an established by two or more persons. in operation for a period of at least FTA in certain sectors. The partners are jointly and severally 10 years; liability lies with the head liable to the full extent of their office and it must therefore provide property for all debts and obligations a guarantee for the operations of of the business. Unless otherwise the branch.
11 Tax system There are a limited number of been approved by the Shura Council. taxes levied in Oman. Income tax These changes are expected to be is the only form of direct tax in implemented in the near future once the Sultanate and indirect taxes the Royal decree is issued. are limited to customs duty and some miscellaneous taxes. There Certain industries are liable to a is no personal income tax, fringe higher tax rate. This includes a 55 benefit tax, gift and inheritance tax, per cent tax rate for oil exploration wealth tax, sales tax or any form of and production companies. Foreign estate tax. The Omani government, shipping and aviation companies alongside other GCC countries, are exempt from tax in Oman if is working to develop a common they receive the same reciprocal framework for the implementation treatment in their home country. of a VAT regime. Taxable income Oman has an extensive number of Corporate Income Tax (CIT) income tax treaties available for the comprises Scope avoidance of Double Taxation. Income tax in the Sultanate of Oman income of is governed by the Law of Income Taxable income Tax on Companies which was Taxable income comprises income enacted on 1 January 2010. any kind, of any kind, irrespective of whether it is received in cash or in kind. Organisations conducting business irrespective of It is computed as gross income and earning taxable income in for the tax year following the Oman are subject to CIT on their whether it is deduction of allowed expenses and worldwide income. These include: exemptions. Final accounts must be received in cash prepared using the accrual basis of • Omani proprietorships accounting. • Omani partnerships or in kind. • Omani companies Taxpayers are allowed to deduct • Permanent establishments from their taxable income such reasonable and deductible business A permanent establishment is expenses as provided under law. defined as a fixed place of business In general, a business expense will where a trade is carried out in be deductible if it is related to the Oman by a foreign person either business of the enterprise. directly or through a dependent agent. This also includes any foreign Some examples of non-deductible national providing services for expenses include: periods of 90 days or more in any 12 month period. • Expenses incurred in the generation of tax-exempt income Currently, the CIT rate is 12 per cent • Foreign taxes for all taxable entities. All entities • Capital expenditure are provided with an initial tax-free exemption of OMR30,000. • Anything deemed inappropriate or unreasonable by the Secretariat A proposed increase of the General of Taxation corporate income tax rate from 12 per cent to 15 per cent, as well as There are also limits to the amount the removal of the tax exemption that can be deducted for a number for the first OMR30,000 of a of specified expenses under the taxpayer’s taxable earnings, has new tax law.
12 12 Administration returns are accepted as filed. Any The Secretariat General of Taxation outstanding assessed tax must Capital gains at the Ministry of Finance is the be paid within 30 days from the authority responsible for the issuance of the assessment. The derived from administration of CIT. Secretariat General can revise and reissue any assessments deemed to the sale of Businesses must register with the have an obvious error or omission, Ministry of Finance within three within five years from the date of investments months following incorporation. the first assessment. Taxpayers are All companies must nominate a able to make objections to the result and securities principal officer that is responsible of an assessment. for the company’s tax obligations. listed on This will typically be the owner, The tax year is the calendar year and partner, chairman or manager of businesses are generally required the Muscat the business. to use this as their accounting year for their financial statements. Securities All taxpayers must submit annual While consolidated returns are not provisional and final tax returns. allowed for groups of companies, a Market are Nevertheless, companies are foreign investor that has a number of exempted if their income is less different permanent establishments exempt from tax. than OMR100,000, they employ in Oman must file a tax return that less than eight people and their covers all of these. registered capital is less than OMR20,000. All three provisions Taxpayers will be liable to a penalty must be fulfilled for the relevant tax of an additional one per cent per year and two preceding years to month for late tax payments. qualify for exemption. Capital gains Provisional tax returns, and the tax Oman does not operate a separate payable for the associated period, ‘capital gains tax’ regime. Capital are due within three months of gains will therefore form a part of the year end. Final tax returns a firm’s taxable income and will must be filed within six months be taxed at the standard corporate from the end of the accounting income tax rate. Nevertheless, period, alongside audited financial capital gains derived from the sale statements if required. of investments and securities listed on the Muscat Securities Market are All tax returns submitted are exempt from tax. subject to a tax assessment within five years from the end of the tax Groups year in which the final return was There are no provisions within submitted. If no tax assessment corporate tax law addressing the is issued in this time frame, the concept of group consolidation.
13 Thin capitalisation rules The entity in Oman initiating the Tax incentives Any interest paid by Omani payment is required to withhold the Companies engaged in preferred companies, excluding banks and tax from the gross amount paid and areas of investment are eligible insurance companies, can be remit it to the Secretariat General for an income tax holiday for the deducted if total loans do not within 14 days from the end of the first five years of business. These exceed a debt-to-equity ratio of two month in which the payment arose. exemptions can be renewed for to one. another five years subject to certain Transfer pricing conditions. Furthermore, losses Losses Oman’s transfer pricing regulations incurred during a tax holiday period Businesses that incur losses after are contained within the Income Tax can be carried forward indefinitely. tax finalisation are entitled to carry Law. Related party transactions are forward those losses to be offset examined by the Tax Department, Personal Income Tax (PIT) against the assessable income of which has the power to adjust the Oman does not levy any personal future years. Tax losses are available amount between related parties to income taxes. Nevertheless, as to carry forward consecutively for reflect an arm’s length basis. The above, the income derived by a maximum of five years before tax authorities can disregard any sole proprietors, partnerships they expire. Losses incurred during transactions if their sole purpose is and any individuals carrying on a a tax holiday period can be carried to avoid or reduce the tax obligations professional business are taxed at forward indefinitely. of the company. the corporate income tax rate of 12 per cent on any income in excess The carry-back of losses is not There is no threshold for transfer of OMR30,000. permitted. pricing rules to apply and there is no requirement for companies Other taxes Dividend income to submit any documentation Value Added Tax (VAT) Dividends received by an Omani regarding related party transactions. The Omani government, alongside company from other Omani Any assessments of related party other GCC countries, is working to companies are exempt from tax. transactions will take place in the develop a common framework for However, dividends received from a regular tax assessment. the implementation of a VAT regime. foreign company are subject to tax. There are no specific transfer Stamp Duty Withholding tax pricing related penalties stipulated Stamp Duty is levied on the Withholding tax is charged on by law nor are there any specific acquisition of real estate at a rate of payments arising in Oman to foreign opportunities to conclude advance three per cent of the sales value. companies which do not operate a pricing agreements. permanent establishment in Oman. Additional tax Withholding tax is levied at Controlled foreign companies • Municipal tax of five per cent is 10 per cent on the following types (CFC) levied on hotel and restaurant bills There is no anti-controlled foreign of income: • Tourism tax of four per cent is also company legislation. levied on hotel and restaurant bills • Royalties Anti-avoidance measures • Municipal tax of three per cent is • Management fees The tax authorities are able to levied on property rental payable • Consideration for research and discredit any transactions that by the landlord development are made purely for the purpose • Labour tax of OMR100 per • Consideration for the use of or of avoiding or reducing any expatriate employee per annum is right to use computer software tax liabilities. payable by the employer
14 Labour Oman’s labour relations are worker’s wage rates, the employer’s governed by the Oman Labour obligations towards the employee, Law which contains provisions on the duration of the contract, employment contracts, working notice periods for dismissal and a time and leave, pay, industrial safety, commitment to respect the culture industrial relations and training. and traditions of Oman.
Labour regulation is administered Minimum wage by the Ministry of Manpower Minimum wages are set by the whose main aim is to regulate the Ministry of Manpower in accordance labour market by providing stable with the skill level of employees. work environments to a productive national workforce. Since July 2013, the minimum monthly wage for Omani employees All private The most recent update to the in the private sector has been Labour Law, Royal Decree 113/2011, OMR325, consisting of a basic sector made some amendments with the wage of OMR225 and OMR100 primary aims of improving working as an allowance. Furthermore, all employees conditions in the Sultanate and private sector employees who have enhancing the legal protections been employed for a period of at who have been afforded to workers. least six months for their employer are entitled to an annual salary employed for Key to the government’s approach increase of at least three per cent, to labour is ‘Omanisation’, whereby unless the employee has been a period of it is encouraging businesses underperforming. to gradually replace posts at least six previously held by expatriates with There is no minimum wage for Omani nationals. expatriate employees. months for
Employment contract Working time and leave their employer In Oman, employment relationships Under Omani Labour Law, working are governed by the contractual hours should not exceed 45 hours are entitled agreement entered into between per week or nine hours per day. This employer and employee. Contracts is reduced to 30 hours a week or six to an annual may take one of the following forms: hours a day for Muslim employees during Ramadan. Women are salary increase • An employment contract for a prohibited from working between specified duration the hours of 9pm and 6am. of at least three • An employment contract for an unspecified period There may be occasions where the per cent employee has to work overtime Generally, only one fixed term and this is permitted, providing the contract can be supplied per worker. total working hours do not exceed Subsequent contracts, even if stated 12 hours per day. Any employee as fixed term, will be treated as working overtime is entitled to contracts with an unlimited duration. overtime payment of 1.25 to two times their salary or granted The contract must be produced in permission for absence in lieu of the writing, in Arabic, and two copies extra hours worked. made; one for the employer and one for the employee. This contract Employers are obliged to provide must include, at minimum: personal employees with two days off per details of the employee, the type week and annual leave of thirty days of work being undertaken, the fully paid (once the employee has
15 completed six months of service). under the Social Security Law employee is only paid for the days An employee must take at least one against old age, disability, death and that they have worked. two week period of leave in two occupational injuries and diseases. years. There are also nine public Dismissal holidays a year on which employees Private sector employers are obliged Employment contracts can be are entitled to their full salary. If to make monthly contributions terminated on a number of grounds. a public holiday falls on a weekly to the Public Authority for Social Employers are permitted to dismiss paid rest day, employees should Insurance, at a rate of 9.5 per cent an employee, without notice or be compensated with another rest of the Omani employee’s monthly severance pay, for reasons such as: day. Furthermore, if the employee is salary. The employees must also fraud, failure to comply with safety required to work on a public holiday, contribute at a rate of 6.5 per cent of conditions, criminal conviction, they are entitled to an additional day their monthly salary. working under the influence of rest or double the basic salary on of alcohol, failure to carry out that day. The employers must make duties etc. additional contributions of one per Employees are entitled to sick leave cent of each Omani employee’s Employees can terminate the of no more than 10 weeks in a year. monthly salary to insure against employment contract for the This is subject to the production of a occupational injuries and diseases; following: fraud on the part of the medical certificate. This is provided the government correspondingly employer, employer’s failure to as follows: contributes two per cent. fulfil major contractual obligations, employer attacks or threats at • First two weeks: full salary The Public Authority for Social the workplace. • Following two weeks: three Insurance is responsible for quarters of full alary investing the funds received and If the contract is for an indefinite • Following two weeks: half of paying out in the cases of injuries, period, both parties can terminate full salary diseases and on the retirement it by providing 30 days notice, if the of employees. employee receives his/her salaries • Following four weeks: quarter of monthly, or 15 days for all other fully salary Healthcare and benefits employees. Longer notice periods Employees not covered by the social may be agreed in the employment For employees working in the security scheme (expatriates), as private sector, emergency leave can contract. discussed above, are entitled to end be granted in the situation where of service benefits. This is calculated an emergency has occurred beyond If either party does not observe on the employee’s final salary and the employee’s control. Six days of this notice period, the party who paid as follows: emergency leave are provided at terminates the contract will be full pay, per year. Emergency leave obliged to pay compensation • 15 days salary per year during the cannot exceed two days at a time. equal to the gross salary of the initial three years of service notice period. The Oman Labour Law also • For each subsequent year, one provides for ‘special leave’ in month’s salary If an employee believes he/she situations such as marriage, death or has been unfairly dismissed, a examinations. Probation court may award compensation for Under the Omani Labour Law, unfair dismissal. Working women are entitled to 50 probation periods cannot be longer days of fully paid maternity leave, than three months for workers paid Employment of resident and covering the time before and after on a monthly basis and no longer non-resident employees birth. They may also be granted than one month for employees paid The Omani government has further days if there is a valid on any basis other than monthly. been pursuing an active policy of medical reason. ‘Omanisation’, setting mandatory The employer has the right to ratios of Omani to expatriate Social security terminate an employee during the employees permitted in certain Private sector employees, between probation period providing they give sectors. These ratios are issued the ages of 15 and 59 are protected seven days’ notice. In this case, the by the Ministry of Manpower
16
and changed from time to time. Trade unions Furthermore, certain categories Under Omani labour law, trade If the union of employment are reserved unions can be formed by any exclusively for Omani nationals. private sector organisation and employer providing it has the support of at Expatriates are therefore viewed conclude a least 25 employees. Trade unions as complementary resources and only employed where there is a can be formed by employees for collective labour lack of local expertise. Employers the purpose of protecting their wishing to employ expatriates interests, defending their rights, agreement, must first obtain clearance and No improving their financial and social Objection Certificates from the status, and representing them in all this becomes Ministry of Manpower. issues related to their affairs. Once registered, a trade union has an binding on the Before taking up employment independent legal identity. in Oman, expatriates must employer and all obtain medical certification from Any employer that prevents its government approved clinics in their home country, visas and a employees from undertaking trade employees. resident card. union activities or prevents the formation of a trade union is liable Visas can be obtained through for a term of imprisonment up to an Omani sponsor from the one month and a fine of no more Immigration Department of the than OMR500. Royal Oman Police. Amongst others, the following entry visas to If the union and employer the Sultanate are issued: conclude a collective labour agreement, this becomes binding • Residence visa on the employer and all employees. • Visit visa Furthermore, the employer has • Tourist visa a responsibility to display the • Transit visa collective labour agreement • Work visa prominently at the work place.
17 Audit While financial accounting and audit requirements are not codified, the Accounting and Auditing Profession Law sets out a regulatory framework. Furthermore, the Oman Commercial Law sets out what books must be kept by companies.
Accounting standards Omani law stipulates that companies must follow the International Financial Reporting Standards. Other than this, the principles and practices of accounting are not codified.
Accounting records Under provisions in the Oman Commercial Law, all business enterprises must keep the following books of account: shareholders 14 days before the Audit requirements annual general meeting (AGM). The Statutory audit is mandatory for • A day book: this must maintain AGM must be held within three companies as follows: a daily record of all activities months of the year-end. related to the business and in the • Joint stock and limited liability case of sole proprietorships and Limited liability companies must companies that have over 10 partnerships, a monthly record of prepare audited accounts and shareholders or capital exceeding personal withdrawals provide these to shareholders within OMR50,000 • A stock book: this must list six months of year-end. • If it is stipulated in a company’s inventory by quantity and value articles of association or held at year-end Banks must file their audited requested by shareholders who financial statements with the Central hold more than 20 per cent of the These accounts must be compiled Bank of Oman within one month company capital using an accrual method of after their year-end. Insurance • Companies with capital exceeding accounting, using the International companies must file their audited OMR20,000 must file audited Financial Reporting Standards. financial statements with the Capital financial statements with their Furthermore, the records must Market Authority within two months annual tax returns be kept in Omani rials, unless the taxpayer has alternative permission after their year-end. • Banks/brokerage companies must from the Ministry of Finance. These file audited accounts records must be kept for a minimum Listed companies must publish Audits must be performed by of 10 years. financial information each authorised auditors as regulated quarter and are also required to by the Law Regulation the Filing and submission of further comply with disclosure Accountancy and Auditing statutory financial statements requirements as set by the Capital Profession. A list of authorised Filing requirements vary according Market Authority. auditors is published by the Ministry to different company forms. of Commerce and Industry. Auditors Any companies indebted to the must be independent of the Joint stock companies must compile Omani banking system in excess of company being audited. Auditors their audited financial statements prescribed limits must file audited appointed by joint stock companies within two months of the year-end; financial statements with their banks should be accredited by the Capital they must provide these to their within four months of the year-end. Market Authority.
18 Trade Foreign Direct Investment non-Omani citizens own 70 per Oman’s Foreign Capital Investment cent or less of capital has been significantly liberalised in recent years as part of the Oman Tax exemptions Government’s drive to create an Income from the following activities investor friendly climate. Up to 70 (other than management and per cent foreign participation in project contract) in accordance with companies is now permitted in most the specific laws relating to each sectors, and 100 per cent foreign activity will be exempted from tax participation is permitted in projects for a period of five years from the of national importance. production date or commencement of commercial activities. The Oman joined the WTO in 2000, exemption for these activities can which demonstrated a commitment be extended for another five years to the process of opening the on application: Oman economy that began in 1970 at the start of the reign of • Industry Sultan Qaboos. Since 1970, the • Mining expansion of trade and reduction • Fishing, fish processing, farming of trade barriers have been a key and breeding; debt write-offs component of Oman’s economic • Promotion of tourism including reform and rapid development. The the operation of hotels and government has committed to a tourist villages long-term development strategy to The attract capital, advanced technology • Farming and processing of farm and management skills in order to products including animal and government increase savings and improve the agriculture products population’s living standards. Oman • Export of locally manufactured has committed is also a founding member of the products or processed products Gulf Cooperation Council. • University, college or higher to a long-term institutes, private school, Government incentives nurseries or training colleges development Foreign investors are facilitated by • Medical care by establishing a a number of government incentives private hospitals strategy to and provisions of financial support, including: The indefinite exemption for attract capital, educational institutions and • A strong and stable currency hospitals has now been lifted and advanced • Free transfer of capital and profits the ERs (Executive Regulations) • Duty-free import of machinery provide guidelines on their future technology and and other capital for industrial exemption rules. purposes management Free Zones • Tax exemption for navigation Salalah Free Zone companies skills in order to Oman occupies an ideal location for • Soft loans granted at a three per international maritime trade, with increase savings cent interest rate for amounts of easy access to major ports in Red less than OMR250,000 Sea, Gulf, Straits of Hormuz, Yemen, and improve • Tax exemptions for the first and Horn of Africa as well as Karachi OMR30,000 of income of certain and Mumbai. The Salalah Port is a the population’s Omani companies, joint stock world class container port, operated companies or companies where by the Salalah Port Services living standards.
19 Company, which is a Joint Venture, small to medium sized enterprises 70 per cent owned by Omani to move to the area. Goods imported nationals and 30 per cent owned by Maesrk Sea Land. Companies registered in Free Zones into Oman are tax exempted in Oman. The Salalah free zone, established must be around the port, offers integration Imports with the world class infrastructure Any company that intends to accompanied of the Salalah Port, as well as a import goods into Oman must renewable 50 year tax lease, relaxed be registered in the Commercial by a certificate foreign ownership regulations (up Register with the Oman Chamber to 100 per cent foreign ownership), of Commerce and Industry. It must of origin and zero customs duty and faster also specifically include import customs processing. activity as part of its registered licensed by business activities. Knowledge Oasis Muscat the Ministry of This is a dedicated technology Goods imported into Oman must park located in Rusayl, designed to be accompanied by a certificate of Commerce and create an environment to support origin and licensed by the Ministry technology-based businesses of Commerce and Industry. Industry. by provision of state of the art infrastructure. Tax incentives, The Directorate General of import duty concessions and duty Customs and the Royal Oman free access to GCC states are also Police are responsible for customs available to encourage business. and levy customs duties on most goods entering Oman. The Al Mazunah Free Zone standard customs duty, levied This is a free trade zone designed on the CIF value, is five per cent. to facilitate trade opportunities with Essential goods are exempt and Yemen. Tax incentives, import duty higher rates are levied on items concessions and duty free access that compete with goods produced to GCC states are also available to in Oman, as well as agricultural encourage business. products, alcoholic beverages and tobacco products. Sohar Free Zone The Sohar Free Zone is a 45 square Import restrictions km Greenfield site that provides a Some categories of goods are hugely advantageous trade location strictly prohibited (eg certain drugs, due to its integration with transport animals and plants and some links including the Port of Sohar, classes of goods require special Sohar Airport and a planned rail licenses (eg alcohol, firearms, port. The free zone is designed to pharmaceuticals and explosives). encourage local and small foreign
20 Finance Capital markets keeping of ownership documents Securities and Capital Markets are for users of the MSM. regulated by the Capital Market Authority (CMA) and subject to the Banking system Capital Market Authority Law. The Central Bank of Oman (CBO) was established in 1974 and is The Muscat Securities Market the official government bank and (MSM) is the stock exchange of supervisor of the banking sector. Oman. It was set up in 1989, and is The Central Bank of Oman controls the primary channel for the flow of the country’s monetary policy and funds into securities in Oman. It is regulates all commercial banks and an established public organisation branches of foreign banks which are and has independent legal status. It required to be registered as foreign aims to encourage savings, improve banks with a minimum capital of Islamic banking the investment environment and OMR20 million. It also provides the protect investment. Membership is in Oman compulsory for all of the following regulatory framework that covers organisations: areas such as capital adequacy, asset quality, management of has become • Omani licensed banks investment accounts, corporate governance and liquidity increasingly • Public joint stock companies management. The CBO is the • Specialised loans institutions issuer of currency in Oman, and the significant since Government’s “Bank of last resort”. The MSM has three markets in 2011 when the operation – the Regular Market, the Oman has a diversified banking Parallel market and the Third Market: sector, which has grown and Central Bank of modernised with the liberalisation • The Regular Market is for of Oman’s economy. The Sultanate Oman (CBO) securities of public companies that meet certain entry criteria maintains a strong focus on announced based on capital, shareholding the growth, modernisation and and profitability liberalisation of the financial sector its decision and capital markets. • The Parallel Market is for securities of new companies to license Total commercial banking assets that do not meet one or more grew by 14.7 per cent to OMR24.3 of the requirements of the Islamic banking Regular Market billion in August 2015. Concentration is relatively high in the banking • The Third Market is for special services with sector, with the top five banks transactions such as the trading of accounting for approximately 80 per shares in closed companies the objective cent of the market. The Principal index is the MSM 30, of diversifying Islamic banking which comprises 10 companies from the three main sectors on the Islamic banking in Oman has and widening MSM; banking and investment, become increasingly significant industry and services, and since 2011 when the Central Bank of banking insurance. Oman (CBO) announced its decision to license Islamic banking services services. Muscat Clearing and Depository with the objective of diversifying SAOC is the sole provider of and widening banking services. A registration services, transfer of Royal Decree amending the banking ownership of securities and safe law and the legal authorisation
21 for Islamic banking was issued in Meethaq Islamic Banking (Bank speculation; risk is pooled among December 2012. Muscat), Sohar Islamic (Bank Sohar), policy holders rather than borne Muzn Islamic Banking (National entirely by the company. Oman will be following and adapting Bank of Oman), Al Hilal Islamic general principles and structures Banking (Ahli Bank), Alizz Islamic Takaful is designed to provide applicable to Islamic banking around Bank and Maisarah Islamic Banking the same benefits to subscribers the globe. Each Islamic bank or Services (Bank Dhofar). as conventional insurance: window (division that provides coverage against unexpected or Islamic banking services for a Insurance industry catastrophic losses while adhering conventional bank) will have its own The Insurance industry is regulated to the principles of Sharia (Islamic unique Sharia (Islamic religious law) by the Capital Market Authority, religious law). In particular, Takaful supervisory board that will guide which has provided a significant is structured to comply with the that bank or window in designing contribution towards the growth core Sharia beliefs prohibiting and implementing its products and of the sector, as part of its overall interest, discouraging ambiguity in conducting its banking activities. vision for economic growth and contractual terms, and minimising financial liberalisation. the speculative nature of The Islamic banking activities transactions. witnessed a significant growth The Oman Insurance Association Takaful insurance, which was during 2014 and 2015 in terms of (OIA) is the trade body established introduced in 2014 with two national deposits, revenues and finance in 2010 by the Ministry of Social Takaful companies, achieved a six amidst a remarkable turnout Development. It consists of per cent share of the gross direct for Islamic banking products by Insurance Companies, Insurance premiums in 2014 and four per cent individuals and corporates. Brokers, Loss Adjusters and others licensed by the Capital of total paid claims. The total assets of Islamic banks and Markets Authority to perform insurance activities. Investment management windows rose to OMR16.6 million industry by the end of June 2014, compared The Omani insurance industry is the The Omani investment to OMR6.7 million at the end of fourth largest insurance industry in management industry is regulated June 2013, a 147 per cent growth. the GCC region. Total premiums in by the Capital Market Authority, Oman’s insurance sector increased under the Capital Market Law The total assets of Islamic banks ten per cent to OMR396.5 million and the Executive Regulations of and windows rose to OMR1.9 billion in 2014, compared with OMR359.9 the Capital Market Law. Among at the end of August 2015 which million in the previous year. other things, this legislation constituted about 6.4 per cent of the prescribes the general organisational banking system assets. Deposits There are 31 insurance companies and operational requirements for also grew to OMR1.2 billion in operating in Oman, the largest of fund managers. August 2015 compared to OMR0.4 which is Dhofar Insurance Company. billion in August 2014. The Omani government has many Islamic insurance methods of investing in the country, Islamic windows Oman’s Islamic insurance law, through government organisation, There are six Islamic banking known as Takaful insurance, follows government funds, private funds, as windows operating in Oman: Al religious principles such as bans well as private companies. Yusr (operated by Oman Arab Bank), on interest and pure monetary
22 Infrastructure The overall quality and reliability of infrastructure is a critical factor for businesses across all sectors.
Oman ranks 57th in the world in the World Bank LPI index for infrastructure.
Oman has enjoyed a long “renaissance” period of low infrastructure growth, but recent years have seen a comprehensive shift towards infrastructure investment, with the Oman Sultanate committing to several large infrastructure projects. The “Oman 2020 Vision” measures include plans to diversify the economy and invest approximately USD50 billion in major conduction and infrastructure projects.
Key sectors targeted for expansion include:
• Construction • Hotel and Tourism Projects • Power and Water Technologies • Transportation and Logistics • Green Buildings • Renewable Energy and Environment The ITA has implemented a • Infrastructure Projects (Roads, number of ICT projects which have The ITA was Airports, Railways, Ports) included IT education and training • Heavy Equipment and Technology programs, implementing e-service created to • Industry and Manufacturing delivery platforms and formulating • Tools and Equipment frameworks and standards for IT implement • Fire & Security related contexts. the nation’s IT Oman’s information communication The ITA has also worked on a technology (ICT) infrastructure number of initiatives to improve strategy ‘The is managed by the Information the overall ICT infrastructure in Technology Authority (ITA). The Oman. These initiatives include a Digital Oman ITA was created to implement the nation-wide telecommunication nation’s IT strategy ‘The Digital infrastructure interconnecting Strategy’. Oman Strategy’. This strategy government agencies, and aims to transform the Sultanate government data centres. An of Oman into a knowledge-based e-Payment gateway has also been economy for the achievement of set up to enable citizens to make social and economic benefits to the their payments online through Omani society. multiple payment instruments.
23 This document is issued by by HSBC Bank Oman S.A.O.G. (the Bank). This guide is a joint project with Grant Thornton. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining specific professional advice. Whilst every care has been taken in preparing this document, the Bank and Grant Thornton makes no guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or Grant Thornton be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and are subject to change without notice. The materials contained in this document were assembled in January 2016 and were based on the law enforceable and information available at that time.
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