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Doing Business in Oman
Audit / Tax / Advisory / Risk / Forensic Welcome to ‘Doing Business in Oman’
Welcome to Crowe Oman‘s “Doing Business in Oman” 2020 guide. This guide forms part of the “Doing Business in Oman” series and provides a quick reference for those interested to invest in Oman. While it is not exhaustive, this guide aims to answer some of the key questions that may arise. When specifi c issues arise in practice, it will often be necessary to consider the relevant rules and regulations, and to obtain appropriate professional advice.
This guide covers the following areas: • General Information • Population • Government and the Economy • Tax Structure • Foreign Investment Foreword Message from Davis Kallukaran
Dear Friends, The Sultanate of Oman is politically the most stable country in the Arabian Peninsula. Omani culture always welcome co-operation from other countries. As a resident in Oman for the last three decades I felt that this is one of the best business friendly countries in the Middle East. The diversifi ed geography makes Oman a prominent tourist location. The state of the art infrastructure and steady industrial and economic growth have attracted many foreign businesses to this oil rich country. A member fi rm of Crowe Global, the eighth largest global accounting network, Crowe Oman serves a wide spectrum of clients in the Sultanate. The fi rm was established in Oman in 1995 and is the one stop shop for the business community in Oman. We support various public and private sector organizations, to continuously face the risks and challenges to remain market leaders. As part of our commitment to society, we are involved in training and educating young Omani talents. We are one among the ten fi rms accredited by the capital market authority of Oman (CMA) to undertake Audit and Assurance services of CMA regulated entities. This book will give you a quick view of the economic and business environment of Oman, which will help you in decision making regarding investing in Oman. Let us join together to build a promising future for the Sultanate of Oman With Best wishes,
Davis Kallukaran Managing Partner Muscat, Sultanate of Oman 1st January 2020 Table of contents 5 10 18 Introduction Economic Environment Business Environment History, Geography and climate, Economic trends, GDP Growth Business and investment Local time, Population and and Economic development governing laws, US Oman FTA, language, Constitution, Government plans, Foreign direct investment, Major Government departments and administration, Council of Economic sectors, Privatisation of facilitating businesses, Types Oman, Legal system, International Government owned Establishments. of business entities, Oman relations, Infrastructure and social economic zones, Financial services. reporting and auditing requirements.
33 35 36 Finance, Banking and Labour Environment Taxation Insurance Environment Overview, Labour Laws, Overview, Taxable business entities, Employment of nationals, Tax rates, Permanent Establishment Currency and exchange control, Employment of expatriates, (“PE”), Withholding tax, Withholding Finance and banking, Non-banking Working days and hours, Social tax remittance, Taxable income, fi nancial intermediaries in Oman, Security Law, Terminal benefi ts to Deductible / Non-deductible Insurance. expatriate employees, Employment expenses, Tax exempt income, Tax taxes, Trade unions. exempt activities, Double taxation treaties, Double taxation avoidance, Related party transactions, Tax compliance and administration, Indirect taxation Value Addes Tax (VAT).
www.crowe.om 4 Introduction History the East and Europe to the West. Due to its key position on lucrative trade routes, Sumerian tablets refer to a country called the Portuguese conquered Oman in 1507. Magan and Akkadian, a name which links Oman was reconquered in 1650 by Sultan Oman’s ancient copper resources. Over Bin Saif Al Yarubi, who established colonial centuries, tribes from the west settled in possessions in East Africa. Oman, making a living by fi shing, farming, herding or stock breeding, and many The present Al Busaidi dynasty was founded present day Omani families trace their by Imam Ahmed Bin Said in 1744. In the ancestral roots to other parts of Arabia. late 18th century, a series of friendship treaties between Britain and Oman formed Archaeological evidence suggests that the basis of special relationship between trading, farming and fi shing existed in Oman the two countries. In the fi rst half of the as far back as the 4th millennium BC. In the 19th century, under Sayyid Said Bin Sultan’s middle ages, Oman was a thriving centre of rule, its maritime trade grew and diplomatic commercial activity with a fl ourishing trade relations were established with several in copper and frankincense. countries. Oman was the fi rst Arab country Oman was exposed to Islam in 630, to send a diplomatic envoy to the USA in the during the lifetime of prophet Muhammad; nineteenth century. consolidation took place in the Ridda Wars After the death of Sayyid Said Bin Sultan, in 632. the settlement of a dispute between his two sons resulted in the division of the Omani In 751 Ibadi Muslims, a moderate branch empire and its isolation from its East African of the Kharijites, established an imamate territories, its decline as a trading nation in Oman. Oman is currently the only and eventually the loss of its other overseas country with a majority Ibadi population. possessions. The country came to rely on Ibadhism has a reputation for its “moderate date farming and fi shing until economic conservatism”. quantities of oil were fi rst discovered in early Between the 7th and the 15th centuries, 60’s and the fi rst exports of crude oil took Oman’s maritime trade fl ourished and place in 1967. its dominance on sea trade routes was Since 1970, when His Majesty Sultan extended to Africa and as far as China to Qaboos Bin Said assumed power, the www.crowe.om 5 country has undergone rapid and far Gulf of Oman forming Musandam’s coastal reaching economic and social development boundaries. while maintaining its rich cultural heritage Oman with its capital at Muscat, and natural environment. is administratively divided into 11 Since his accession, Sultan Qaboos Bin Governorates - Ad Dakhiliyah, Al Buraymi, Said has balanced tribal, regional, and Al Wusta, Ad Dahirah, Al Batinah South, ethnic interests in composing the national Ash Sharqiyah South, Muscat, Musandam, administration. The Council of Ministers, Al Batinah North, Ash Sharqiyah North, and which functions as a cabinet, consists of 28 Dhofar. ministers, all directly appointed. The Majlis Like the rest of the Persian Gulf, Oman Al-Shura (Consultative Council) has the generally has one of the hottest climates mandate of reviewing legislation pertaining in the world, and receives little rainfall. to economic development and social The climate generally is very hot, with services prior to its becoming law. temperatures reaching 50 degree Celsius Oman’s extensive modernization program (122 degree Farenheit) in the hot season, has opened the country to the outside world from May to September. Annual rainfall in and has preserved a long-standing political Muscat averages 100 mm (3.9 in) falling and military relationship with the United mostly in January. Dhofar region is subject Kingdom, the United States, and others. to the southwest monsoon, and rainfall up Oman’s moderate, independent foreign to 640 mm (25.2 in) has been recorded in policy has sought to maintain good relations the rainy season from late June to October. with all Middle Eastern countries. Local time Geography and climate The local time is four hours ahead of The Sultanate of Oman (referred to as Greenwich Mean Time (GMT). “Oman”) is one of the most fascinating countries in the Middle East, known for Population and language its spectacular geographical beauty and cultural diversity. Oman’s magnifi cent Oman’s population has almost doubled over coastline, towering mountains, expansive the past decade and has now fi nally passed deserts, traditional heritage, friendly people the four million mark. As of August 2019, and social environment makes it one of the total population of Oman had crossed the most popular tourist and business 4.9 million. Citizens constitute around 56 destinations in the world. The country is per cent of the population, while expatriates well developed and boasts of world-class make up the other 44 per cent. The growth civic amenities and infrastructure. in the Omani population ranges from 2.5% to 4.2%. Holding a strategically important position at the mouth of the Persian Gulf, the country The vast majority of Oman’s population shares land borders with the United Arab follows the Islamic faith and they are proud Emirates to the northwest, Saudi Arabia of their history and traditions. Omanis to the west, Yemen to the southwest, are tolerant people and other religions are and shares marine borders with Iran and freely practiced by the sizeable expatriate Pakistan. The coast is formed by the population of Oman. Arabian Sea on the southeast and the Gulf The offi cial language of the country is Arabic, of Oman on the northeast. The Madha and though English is an accepted business Musandam exclaves are surrounded by the language. Applications to Government UAE on their land borders, with the Strait and other offi cial correspondence need to of Hormuz (which it shares with Iran) and be in Arabic. Royal Decrees, Ministerial www.crowe.om 6 Decisions and Government publications are • The Tender Board, which is responsible issued only in Arabic, although unoffi cial for the award of all major civilian translations are available. Government tenders, and for following up developments in the implementation Constitution of projects from their inception until their completion. The constitution of the Sultanate is enshrined in the Basic Law of the State which Council of Oman came into effect on its promulgation on 6 November 1996. The Basic Law affi rms that The Basic Law provides for a Council of the Sultanate of Oman is an independent, Oman (Majlis Oman) composed of two fully sovereign, Arab and Islamic State. chambers viz., Council of state (Majlis The system of governance is a Sultani Addawla) and Consultative council (Majlis (Monarchical) one, and its principles are the Ash’shura). The Majlis Oman advises the rule of law, justice, consultation and equality. Sultan on legislative matters. The members of Majlis Addawla are appointed by Royal The Basic Law sets out public rights and Decree. The Majlis Ash’shura consisting duties and the principles governing the of elected members are appointed after a State’s policies in the political, economic, process of local nomination and their term social, cultural and security areas. It is four years. provided for equality, before the Law, of all citizens irrespective of gender, origin, colour, Legal system language, religion, creed or social status. The general law of the land is the Shariaa or Government and administration Islamic law as embodied in the Holy Quran and Islamic tradition. The Basic Law which His Majesty the Sultan is the Head of was promulgated in 1996 affi rms that the State and the Supreme Commander of the Shariaa is the basis of all legislation in the Armed Forces. The Basic Law confers wide Sultanate. However, like most other Arab executive and legislative powers on the and Islamic countries, Oman has developed Sultan to enable him to carry out his duties. a substantial body of written law to regulate The Sultan is assisted by the Council of the economic aspects of the country’s life. Ministers and specialist Councils in framing and implementing the general policies of The Basic Law confi rms the independence the state. The Council of Ministers is the of the judiciary and the role of judges in principal institution that is charged with upholding the rule of law and guaranteeing the task of implementing those policies rights and freedoms. Judges are not subject in respect of which the ministers are to any authority other than the law and it is a collectively responsible before the Sultan criminal offence for anyone to interfere in or and individually responsible for their infl uence the judicial process. respective units. The specialist councils are: His Majesty the Sultan alone is empowered • The Financial Affairs and Energy to promulgate laws through Royal Decrees, Resources Council, which formulates which are published in the Offi cial Gazette, fi nancial and energy policies, draws and sign or ratify international treaties. up the national budget and studies The legislative process usually includes resources and fi nancial allocations to a period of intensive consultation among economic development projects; and between the various institutions of the State. • The Defence Council which is allocated a special role by the Basic Law in Generally speaking, Royal Decrees are confi rming the successor to the Sultan drafted in a very short and concise manner in certain circumstances. and empower the Minister/s to issue www.crowe.om 7 Ministerial Decisions, regulations and • Real estate may be owned in other GCC directives to amplify the laws and provide the countries necessary details for their implementation. However, Ministerial Decisions, which are Infrastructure and social also published in the Offi cial Gazette, may services not confl ict with the laws and decrees in force. Oman has developed an excellent infrastructure to meet the international Commercial disputes are handled by the and external requirements for economic Commercial Court, a specialist independent development. Infrastructure development, body with primary and appellate divisions. which started in 1970, has developed rapidly Tax disputes are also resolved by the with public services, roads, hospitals, Commercial Court whose decisions are educational institutions, telephones, water, binding on both the tax authorities and the electricity and other facilities being available tax payers. widely across the country. Disputes relating to employment in the private sector are fi rst handled by regional Air labour departments of the Ministry of Oman has fi ve international airports: Muscat Social Affairs and Labour. If the Ministry of International Airport, Khasab Airport, Duqm Manpower is unable to achieve an amicable International Airport, Salalah Airport and settlement between the employer and the Sohar Airport. Major expansion works are employee, the dispute must be referred to undergoing. Oman Air is the national airline the Commercial Court. of Oman and it won the Gold award for the “Airline of the Year” at France’s Laurier d’Or International relations du Voyage d’Affaires. Oman is a member of the Arab League, the Roads United Nations, the International Monetary Fund, the Islamic Development Bank, Oman has developed a network of World Trade Organisation, Indian Ocean highways linking almost all parts of the Rim Association and other international country. Muscat, the capital, is connected organizations. to all the interior regions, and also via dual carriageway to the UAE. Due to the Oman is one of the founding members of increasing population across the country, the Gulf Cooperation Council (GCC) which land transport is vital to the development of was established in 1981. As a member of Oman and there is an ongoing program of the GCC, Oman extends certain privileged road construction and improvements. rights to citizens and companies from other member countries and these are; Ports • General exemption from customs duty Oman has 5 Sea Ports viz., Port Sultan on imports of GCC origin Qaboos, Port of Sohar, Salalah Port, Duqm • Preference in government tenders for Port and Khasab Port. Port Sultan Qaboos products of GCC origin is considered the main maritime gateway to • GCC nationals may move freely between the Sultanate of Oman. Because of its prime member countries without visas and location, it is one of the major ports in the may engage in their professions in the region and receives cruise ships. other member countries without work Sohar industrial port is located just before permits the Strait of Hormuz, within easy reach of • Cross border ownership of shares is the places like Abu Dhabi, Dubai, Al Ain and unrestricted Muscat. The port of Sohar has developed www.crowe.om 8 into a world-class port, capable of receiving expatriates typically seek medical care ships with a draught of up to 18 metres. in private sector clinics and hospitals. The Port of Sohar will be linked by the Generally, the standard of care in the public railway to the internal container depot being sector is high for a middle-income country. developed at Barka. The country now has very low rate of disease. The hospitals in Oman generally Salalah Port of is one of the most provide a high quality of health care. Most distinguished ports regionally and of the largest and most advanced hospitals internationally. Its strategic location on and health centres are located in Muscat, the Arabian Sea plays an important role in such as the Royal Hospital of Oman and the attaining this distinguished status. Sultan Qaboos University Hospital. Duqm Port enjoys a superior and open location. It is a multi-purpose port and its Education and training importance has increased after building a The education of the nationals has been dry dock for ship repair to be added to the given a high priority in the development many facilities already present in the port. of the Sultanate. Two Ministries, the Khasab port lies in the District of Khasab Ministry of Education and the Ministry of in Musandam Governorate and is used for Higher Education are responsible for the traditional tourist ships. educational system. The progress in the area of education has been remarkable Health offering primary, secondary, university and During the last four decades, the Oman vocational education available to the entire health care system has demonstrated and population. reported great achievements in health Oman’s fi rst university, Sultan Qaboos care services and preventive and curative University, opened in 1986. The University medicine. In 2019, the global wellness of Nizwa is one of the fastest growing index ranked Oman as second amongst ISI universities in Oman. Some 200 scholarships Countries in the index. are awarded each year for study abroad. Omani nationals have free access to Vocational training is provided to Omanis by the country’s public health care, though the Ministry of Manpower.
www.crowe.om 9 Economic Environment
Economic trends The Omani economy is projected to achieve continued growth supported by Over last few decades, Oman has embarked economic diversifi cation efforts on the part upon an economic development path of the Government, a revitalized investment that has transformed it into a prosperous environment, rationalization of subsidies, country. Prudent utilization of oil revenues focus on privatization and the progress to develop social and physical infrastructure made in the implementation of the Tanfeedh with substantial investment undertaken program for diversifi cation. Given the high in infrastructure, transportation, electric degree of interconnectedness between power, water supply, communications government spending and the domestic and health sector has contributed to a private sector, a prolonged lower oil price rapid transformation of Oman’s economic may have an impact on the fi nancial foundation and structure. Today Oman performance of the local banks. boasts an impressive physical infrastructure, much improved socio-economic conditions The country’s clear strengths lie in its security and high standard of living. Oman has also and logistical environments. Oman is one experienced persistent growth in non-oil of the most politically stable GCC states, GDP, fi nancial stability and stable currency with fewer concerns regarding domestic despite of severe external trade shocks that unrest or terrorist attacks. Additionally, with resulted from global economic recession the various Omani road, port and airport and lower oil prices. Oman’s Government projects which are being constructed or has taken various steps to increase planned and low levels of trade bureaucracy participation of other business sectors for exporters and importers, the country’s for their contribution towards economic plans to become a logistics hub are starting development. to take shape. An increase in the crude prices during the The government is using enhanced oil year helped the Sultanate to reduce its recovery techniques to boost production budget defi cit. A decline in prices in the last as oil reserves dwindle and is focusing on quarter of 2018 impacted future realizations, economic diversifi cation to reduce reliance however the agreement between OPEC on hydrocarbons. and some non-OPEC oil countries to curb Tourism, shipping, mining, manufacturing, their output will help to provide stability on and gas-based industries are key prices. During the year 2018, both Fitch and components of the government’s S&P rated Oman’s credit as sub investment diversifi cation strategy. grade at BB+ and BB respectively, however Moody’s continue to retain an investment There is no individual income tax or value- grade rating (Baa3) for Oman. added taxes (VAT) till date. The overall www.crowe.om 10 tax burden equals 8.5 percent of total The economy is seen accelerating in domestic income. Over the past three years, 2019 compared to last year, largely due to government spending has amounted to higher government consumption and fi xed 47.4 percent of the country’s output (GDP), investment. Growth should be particularly and budget defi cits have averaged 16.2 strong in 2020, thanks to government percent of GDP. Public debt is equivalent to plans to signifi cantly raise investment in the 44.2 percent of GDP. Khazzan - Makarem gas fi eld. Although the government maintains Alike year 2018, Oman this year again came electricity subsidies, cuts in subsidies for up with an expansionary budget despite petroleum products have led to fuel price various challenges. With non-oil revenue increases and rising infl ation. budgeted to decline, government is relying heavily on oil and gas prices which have Rule of law been very volatile in the last year and are Property rights are well protected, although expected to remain so on the back of geo the judiciary remains subordinate to political tensions, trade and tariffs related the Sultan and the Ministry of Justice. news, technological advancements in shale Anticorruption laws are enforced effectively. oil production, governments around the world push towards renewable energy and GDP Growth and Economic many other factors. development plans Apart from that government is relying on borrowing to cover the defi cit which will Despite tough economic times, not be as easy as earlier because of hike Oman is building for the future. in interest rates and the recent rating Developments in construction, hospitality, downgrade of Oman by one of the rating telecommunications and tourism mean the agency. Sultanate stands on the brink of a new era. For the fi rst time in many years, non-oil Growth is projected to slow to 1.2% in 2019 revenue is budgeted to go down in 2019 as Oman’s commitment to the December compared to increasing trend earlier. 2018 OPEC+ output cut constrains oil Despite higher gas production from the production. There will be a once-off spike newly inaugurated gas fi eld, government in growth to 6% in 2020 as the government this year has allocated OMR 380mn for gas plans to signifi cantly increase investment in purchase which was not there in previous the Khazzan gas fi eld. years, as per budget statement. The potential boost from the diversifi cation Government expects capital revenue to investment spending would continue grow up to OMR 165mn compared to supporting growth in 2021 and the medium budgeted OMR 20mn each during 2015 to term. Infl ation is expected to pick up to 2018. Development expenditure within the 1.5% in 2019 refl ecting higher consumer investment expenditure which was in the spending, and to further accelerate to an range of OMR 1.34-1.36bn during 2016 - average of about 3% in the period 2020- 2018, has been reduced to OMR 1.2bn in 2021 refl ecting the possible introduction of 2019. indirect taxes beyond 2019. Subsidy for the petroleum products The budget defi cit is projected to rise to 12% has been doubled from OMR 20mn to of GDP in 2019 due to high public spending OMR 40mn. Meaning government would amid lower oil prices. The 2019 budget incentivize the petroleum industry in the assumes a 3% increase in total expenditure coming year. compared to 2018. The introduction of VAT has been delayed to 2020 or beyond. www.crowe.om 11 Oil revenue the GCC, including Oman, the Sultanate edged out all of its GCC neighbours in the Budgeted oil revenue for 2019 is development of its construction sector in OMR5.46bn, higher by 12.2% compared 2018 – a feat that the nation will extend into to the budgeted amount of OMR4.87bn 2019 as well. in 2018. The budgeted amount is higher despite Oman continuing with the output Possibly the most ambitious project in cut (agreed between OPEC and Non-OPEC Oman after the newly-opened Muscat members). International Airport; Madinat Al Irfan is a billion-Riyal development and houses Expenditure everything from the Oman Convention and Exhibition Centre (OCEC) to fi ve-star hotels Oman government has budgeted spending and a smart, planned city. The latter will set of OMR12.9bn in 2019 which is 3.2% higher the investors – Majid al Futtaim and Oman than the budgeted spending of last year. Tourism Development Company (OMRAN) – The expenditure is divided into current back RO5billion. The project is expected to expenditure (84%), investment expenditure start early in year 2019 but should take up to (10%), participation, and other expenses fi ve years to complete. The housing project, (6%). which is nicknamed ‘City of the Future’, Investment expenditure has been budgeted will span over 250,000 square metres and at OMR 32bn in 2019 compared to OMR will include everything from service plots, 33.36bn in 2018, lower by 3% on account commercial, residential, educational, of lower expenditure on account of drop in healthcare, leisure and hospitality facilities. developmental expenditure as well as drop in investment expenditure in the gas sector. Foreign Direct Investment Overall the amount of subsidy has been According to a report by the Public Authority raised to OMR 775mn in 2019 compared for Investment Promotion and Export to OMR 765mn in 2018. Subsidy on the Development (Ithraa), the foreign direct electricity sector form the major chunk of investment in Oman crossed OMR 9 billion the subsidy segment at 65%. in the second quarter of 2018. According to Ithraa’s report, Oman exported non-oil Expansion projects products worth OMR 3.7 billion by the end While recent times mean a tough slump of 2018, up from 2017’s non-oil exports in the economy for all countries across totalling OMR 3.2 billion. www.crowe.om 12 The sector wise and the country wise investment data:
Investments in Million Rial Omani Source: NCSI 8000 7,040.100 7000
6000
5000
4000
2000 1,485.700 1,269.100 1,054.100 671.500 1000
0 Oil and Gas Financial Manufacturing Real Other exploration intermediaries sector estate sectors
United Kingdom
UAE 1,950.10 Kuwait 307 378.2 Qatar
271.1 Bahrain 261.60 India 376.5 6,046.90 Netherlands 389.50 US 453.70 1,084.90 Switzerland
Others Source: NCSI
Oman’s external sector during the past is able to improve productivity and product couple of years has remained comfortable diversifi cation so as to penetrate into new though the current account surplus was markets as the demand for exports grows lower than previous years in the recent with the global recovery. The increase in period. As the global economy improves imports in the recent period refl ects the and as the domestic economy becomes increasing domestic demand. more diversifi ed, it is expected that the With increasing Omanisation and focus performance of Omani exports will be on services sector, it is expected that enhanced. It is important that the economy the outfl ows under services could be www.crowe.om 13 checked, while at the same time workers deteriorate, oil and gas companies have to remittances abroad will stabilize. The size scale back their spending commitments. of capital fl ows is expected to increase as Oil production has substantial consequences the fundamentals of the Omani economy on a country’s macro-economy. Resource continues to remain strong, while at the rich countries in general and oil-rich same time the Government is focussing on countries in particular reap substantial attracting larger foreign direct investment. economic rents that are often much larger Thus, the balance of payments situation will than the production costs. In Oman, income continue to remain comfortable in the near generated from oil and gas resources vastly future. exceeds the total costs of extraction and Oman’s FDI stock has been largely restored production. since the 2010 crisis and remain solid, at Oil has been the driving force of the Omani USD 22.2 billion (31.2% of GDP). Investment economy since Oman began commercial has been accelerating, in particular thanks production in 1967. Oman’s national oil to the development of the Duqm Special company Petroleum Development Oman Economic Zone, which involves the (“PDO”) is the primary oil producer which is construction of a port, an airport, a refi nery 60% owned by the Government and balance and tourist facilities. According to data from 40% being held by foreign partners. Apart the Special Economic Zone, the Duqm from PDO, certain other companies like area alone has attracted USD 11 billion of Occidental, Japex etc., extract signifi cant investments. quantities of oil in Oman. According to fi gures by the National Centre for Statistics and Information (NCSI), the Natural gas main investing countries were the UK, Gas in Oman was discovered in 1978 in followed by the United Arab Emirates, Yibal/ Natih fi eld. In order to meet the Gas Kuwait, Qatar, and Bahrain. The bulk of FDI demand emanating from power generation were directed towards the oil & gas sector, and water desalination, gas fi elds were with lower shares going to the fi nancial put on production. Oman government services, manufacturing and real estate understood the importance of Gas as sectors. The Sultanate of Oman seeks to a greener source of energy and aims to attract investors by offering tax incentives develop local industries for sustained and customs duty exemptions. Oman balanced economic growth. has a stable political and macroeconomic situation. However, access to a limited Oman also has natural gas reserves that may number of sectors and government pressure play a leading role in fuelling the Sultanate’s on foreign companies to recruit domestic industrial growth in the coming years. In workers are major obstacles to foreign 2017, BP announced the production of the investments. Oman ranks 78st in the 2019 fi rst gas from its concession at Khazzan. Doing Business report published by the In April 2018, BP and Oman Oil Company World Bank, losing seven places compared Exploration & Production approved the to the previous year. second phase of the onshore Khazzan gas project, which will start output in 2021. The Key Economic Sectors Oman’s primary processor of natural gas is LNG LLC (OLNG) which is 51% owned Oil by the Government and the balance 49% being held by foreign partners. The The Oil & Gas industry has evolved almost liquefi ed natural gas project is set becoming beyond recognition in recent years. The the country’s major non-oil earner and the outlook for the global economy remains government has schemes for gas industries. deeply uncertain and if economic conditions www.crowe.om 14 Minerals transportation, communication, etc. and established Rusayl Industrial Estate in Mining is one of the five sectors identifi ed 1983 as the fi rst Industrial Estate in Oman for driving growth in the long-term and through The Public Establishment for helping the government in its economic Industrial Estates (PEIE), established with diversifi cation strategy. Mining and an aim of planning, operating, managing, quarrying have been age-old practices in and developing the industrial estates across Oman. the Sultanate. Although numerous quarrying and mining The manufacturing sector of Oman has operations are underway in Oman, the a crucial role to play in the structural Sultanate’s mineral resources are still transformation of the oil-dependent relatively untapped, with large deposits economy towards a sustainable economy of metals and industrial minerals waiting that is competitive in productive activities. to be unearthed. Oman’s mountains host Forward-looking government policy intact and exposed ophiolites, which could envisages that the non-oil industrial sector contain metal deposits such as chromite, will be one of the main pillars for continued cobalt, copper, gold, lead, magnesium, prosperity. manganese and nickel. Oman’s traditional industries were silver Oman is a geological wonder as it is working, ship building and weaving. New endowed with varieties of mineral resources manufacturing industries have been growing - metallic minerals such as copper, gold, like manufacture of building materials, zinc, chromites, cobalt and iron ores and chemicals, plastics, base-metal products, non-metallic minerals includes, dolomite, furniture and other wood products, paper limestone, gypsum, clay, silica, ornamental products, garments, leather, food and stones and building materials. Its vibrant beverages. The manufacturing industries mining sector is being tapped to spur have been encouraged by Government by growth and add up billions of rials to the offering soft loans, subsidized land and country’s economy as well as generate electricity, import duty exemptions etc. jobs. Oman is home to scores of mining companies, where the total operating Agriculture and fi shing licenses until the end of 2017 is about 479 mining licenses distributed across Agricultural sector has potential for the various governates of the Sultanate development due to the variations in the of Oman. The Public Authority for Mining country’s geography and climate. The variety (PAM) issued a total of 291 licenses for of crop cultivation mainly includes dates and conducting mineral exploration operations limes, tropical crops are coconuts, papayas, in 2018. PAM is currently formulating a bananas, and other fruits and vegetables. new mining exploration and development The Government has established research strategy, underpinned by a Single Window and development centres across the country System for the issuance of new licenses, to to promote agricultural mechanisation and help unleash the potential of the country’s the introduction of new farming methods prodigious mineral resources. and crops. 3,165 km of coastline renders Oman a Manufacturing lucrative proposition for massive fi shing The industrial sector started off in small fl eets. The fi sheries sector is one of the measures focusing on consumer products major contributors to non- oil/gas generated only. In order to attract private sector income and it is perceived as having an investments into the non-hydrocarbon even greater potential with Omani fi shing sectors, Government aimed to provide waters being regarded among the richest in infrastructure facilities such as electricity, the world. www.crowe.om 15 Fisheries has been one of the main natural investment - heavy enhanced oil resources. The fi shing industry is growing recovery schemes. and the export market has increased Popular Industrial Tenders and Projects in substantially through various initiatives of Oman at present include: the government by providing fi sh farms, marine subsidiaries and cold stores etc., • Khazzan & Makarem Gas Fields Development Construction and projects • Oman National Railway Project Over past few years, the Sultanate of Oman • Liwa Plastics Plant has emerged as one of the most interesting • Sohar Refi nery Improvement project projects markets in the region, offering good • Sur Steel Plant Project business opportunities for contractors, consultants and investors across a range of • Muscat – Sohar product pipeline industries. • Madinat Sandan With about $177bn worth of projects • Madinat Al Irfan – City of the future planned or underway, the Sultanate has • Al Mahalab Towers and BBH Offi ce a substantial pipeline of projects needed Towers to support Oman’s aims at diversifi cation • Fibre Optic Cable in capital area and all into logistics, tourism and manufacturing, over the country as well as improving public services and • Wuhan Xiao Long Automotive infrastructure. Technologies Co. Ltd – Oman made Oman’s diversifi cation drive was boosted Chinese car in 2017 by the award of contracts worth • Jumeirah Muscat Bay Oman $5.7bn on the giant Duqm refi nery project. • JW Marriot Hotel These underpinned a 31 per cent year-on- year jump in the value of projects awarded • Madina Sultan Qaboos Waterfront in Oman, and saw the country emerge as • Dhofar Wind farm the region’s third biggest project market. • Mall of Oman – Bausher The construction and projects market in • Duqm Oil Refi nery - Duqm Refi nery and Oman is in good health. The scale of the Petrochemical Complex - Phase 1 construction and infrastructure development • Royal Oman Police Hospital Complex - projects that have already been committed Airport Heights or under construction are impressive. Tourism The public sector is by far the largest procurer of construction services in the Tourism is already a major industry in Oman, Sultanate of Oman. The chief benefi ciaries as outlined by a recent report by Tanfeedh’s of the investment programme will be the ISFU, with plans to increase its contribution following sectors: to the nation’s GDP to OMR1.5 billion by 2020. The contribution of travel and tourism • Transportation: particularly airports, to GDP in 2017 was OMR849.5 million, or ports, highways and in the longer term, 3.2 per cent of total GDP, according to the railways World Travel and Tourism Council’s annual • Tourism: resort and hotel projects are report in 2018. planned or under construction across Oman A single-entry visa is issued at the point of entry and is valid for one month. There is • Oil & gas: number of world class also an express visa, a multiple entry visa exploration and production projects and a common visa with Dubai and Qatar, under development, including and GCC resident visa. www.crowe.om 16 The tourist attractions are forts, museums, fi scal balance. The government’s 2020 beaches, water sports and diving, turtle, vision included selling off most of the public dolphin and bird watching, desert safari, controlled agencies. caving, markets (souqs), trecking and rock climbing. With the purse of the state’s coffers showing signs of splitting from the hems, Privatization of Government the government is giving a closer look at its privatization initiative to give the private Owned Establishments (GOE) sector a bigger role. The government is Oman has around 70 GOEs spread over aware of the importance of sustaining a different sectors, some of which, over the positive economic growth, which requires years, have witnessed reduced profi ts, continued spending on developmental according to the Implementation Support projects, which is why it is continuing with & Follow-Up Unit (ISFU) tasked with its policy of expansion in spending while at overseeing timely execution of economic the same time encouraging both the local initiatives. and foreign investments.
According to ISFU, the Ministry of Finance Oman was the fi rst country in the region had to develop a new privatisation plan to allow foreign companies to generate through GOEs holding companies. As part electricity and own desalination plants. In of the plan, all holding companies had to 1994, Al Manah Power Project had the submit their fi ve-year privatisation plan to privilege of becoming the fi rst electricity the ministry for reviews. “The plan outlaid an generating company in any Gulf state to be aspirational target of OMR700 million for the wholly owned by the private sector. Since value of GOEs transferred to private sector then, a series of power plants, including owners between 2017 and 2021. those at Barka, Sohar and Salalah, started The growing fi nancial demands of various generating electricity under the ownership public services would critically derail the of foreign investors.
www.crowe.om 17 Business Environment
Business and investment Although the changes are unlikely to have governing laws a seismic impact, the New CCL attempts to create a stronger and more transparent The corporate framework and underlying corporate governance regime in Oman. laws and regulations are not so complex It also takes some more measured and the basic legal framework for business modernising steps, which aim to make doing activity and investment in Oman is provided business in Oman easier. In this briefi ng, we by the following laws: provide an overview of the key changes in the New CCL, and highlight some actions Commercial Companies Law that will need to be taken by companies in Oman to comply with its terms. Many The incorporation of a commercial company of the new provisions have also not yet in Oman is governed by the Commercial been applied in practice and will likely be Companies Law, Foreign Capital Investment given more meaning and substance by an Law & the Commercial Register Law. Executive Regulation which we expect to be Depending on the capital of the business, published within the coming months. objectives of the parties involved and the type of business, the most common forms Following the issuance of Oman’s new of commercial companies in Oman are: Commercial Companies Law (CCL) enacted limited liability company (LLC), joint stock by Royal Decree No 18/2019, the Capital company (closed) (SAOC), joint stock Market Authority (CMA) announced that company (public) (SAOG), joint venture and all the matters related to listed companies general partnership. [other than registrations] will come under the CMA’s jurisdiction as per the new law. The Commercial Companies Law include The new CCL comes at a time when the regulations covering all businesses in Oman sultanate is preparing for 2040 Vision, which under various business structures such as focuses on enabling the private sector to general partnership, limited partnership, take the lead in production processes and limited liability company, joint stock effectively contributing to the growth of the company, holding company, joint ventures economy. and sole proprietorship. On 18 April 2019, a new Commercial Highlights of The New Commercial Companies Law (New CCL) entered into Companies Law force in the Sultanate of Oman, and the The New CCL will create a more robust and previous Commercial Companies Law that transparent corporate governance regime in had been in force since 1974 (Repealed Oman. The new provisions would be applied CCL) was repealed. in practice when an Executive Regulation www.crowe.om 18 will be published in the coming months. may be extended to additional one year by the relevant authority. As per the new law, a On 18 April 2019, a New Law of Commercial holding company will take the form of a joint Companies (New CCL) entered into force in stock company unlike the previous situation the Sultanate of Oman. The New CCL has where the holding company had the options 312 articles split into 5 parts: to be a limited liability company or a joint 1. General Provisions (Article 1 to 20) stock company. 2. General Partnerships, Limited Joint Liability Partnerships and Joint Venture Companies (Article 21 to 87) The Board of directors and the auditors 3. Joint Stock Company (Article 88 to 233) of a Joint Stock Company will be jointly liable for damages caused by their failure 4. Limited Liability Company (Article 234 to take necessary measures to safeguard to 297) the company’s capital. In case the company 5. Inspection, Penalties and Final loses 25% of its capital, the Board of Provisions. (Article 298 to 312) Directors need to take necessary measures to remove the reasons causing such loss and restore the company’s profi tability. If the company loses 50% of its capital, an extraordinary general meeting must be convened to take the necessary decision in this regard. The meeting must be convened within a maximum of 30 days from the date on which the Board has verifi ed the loss in capital.
Board of Directors Directors and management of Joint Stock Companies must now notify the company in writing of any interest they have in the company within a maximum of 5 days from the date of his/her acquisition of membership or appointment. A director may not participate in the management Establishment of a Public Joint Stock of another company engaged in identical Company business. The members of the Board of The founders of a public joint stock Directors shall not be less than: company may subscribe to no less than • fi ve for general joint stock companies 30% of the shares of the company and no and three for closed joint stock more than 60% of the shares. However, if companies. a company is converted into a public joint stock company, the maximum is 75%. In closed and open Joint Stock Companies, Some cases the authority may permit a the number of Board of Directors cannot higher percentage. Companies fully owned exceed 11 members. In the repealed law by the government and holding companies the maximum members were 12. In the shall also be exempt from the prescribed new CCL the Board should be an uneven percentage. The founders may not dispose number. A director is deemed to have their shares before the company has legally resigned if he or she fails to attend published fi nancials for two consecutive 3 consecutive meetings, unless there is an years from its registration date. The period acceptable excuse provided to the Board. www.crowe.om 19 Annual General Meeting The Board shall send to the attendees at least 15 days before the AGM the following documents: • Invitation for attending the meeting • Board Reports • Audited Financial Statements In the repealed law the notice period was 2 weeks.
Minority Shareholders A general meeting shall be convened whenever required or if requested by holders representing at least 10% of the capital (in shall be prepared by the secretary appointed the repealed CCL it was 25%). by the general meeting. The minutes shall The meeting should be held within a specify the number, percentage of shares maximum of 30 days from the date of capital represented, the deliberations of necessity or request. If the Board fails to the meeting, the resolutions adopted, the convene the meeting within that period, the number of votes supporting such resolutions auditor shall convene it within 30 days from and anything which the shareholders want the expiry of the aforementioned period. to be endorsed in the minutes. The minutes shall be signed by the secretary, the auditor A shareholder representing 5% of the and the legal advisor of the company and capital can include an item on the meeting approved by the Chairman of the meeting. agenda (in the repealed CCL it was 10%). Additionally, if a shareholder representing Timeline 5% of the capital is of the opinion that Companies have less than a year to comply management’s handling of the company with the provisions of the new CCL. It is affair’s are detrimental to their interest, vital for companies to review their existing they have a right to submit a request to the governing policies and systems to ascertain Concerned Body and take legal proceedings whether they comply with the New CCL. The before the competent court. These revisions Memorandum of Association may require in the new CCL, will better protect the rights to be amended to incorporate the new of minority shareholders. governance processes, meeting timelines Quorum for Meetings and Minutes of the and related party reporting procedures. meetings The coverage of list of offences have been substantially increased and non-adherence Quorum of shareholder meetings: to the New CCL would result to greater • Annual General Meeting – 50% share penalties and sanctions. capital represented • Extraordinary General Meeting – 75% Capital Market Authority Law share capital represented Capital Market Authority (CMA) regulates The Minutes of the shareholders meeting regulations required to develop the capital now have to be fi led within 7 days with market and insurance sectors. Capital competent authority. In the repealed law it Market Authority supervises and monitors was 15 days. The minutes of the meetings institutions regulated by Capital Market www.crowe.om 20 Authority to upgrade the effi ciency and the level of capital market and insurance sectors in general, and to protect investors and policyholders in particular. Capital Market Authority is keen to upgrade the effi ciency of investors and policyholders and to achieve this, Capital Market Authority spreads awareness in matters related to investment and rights of investors. Moreover, Capital Market Authority enhances awareness of directors and management, establishes saving concept and investment, enhances awareness of the public on the importance of capital markets and dealing therein and enhances be members of Muscat Securities Market awareness on insurance for all the segments (MSM) and have their shares and bonds of the community through conferences, listed with MSM. workshops, and issuing booklets and awareness brochures. Code of Corporate Governance The Capital Market Law regulates listing Code of Corporate Governance contains and share issuance procedures for joint specifi c requirements of the Capital stock companies that are listed with Muscat Market Authority governing the corporate Securities Market. As per this law, every governance requirements of companies joint stock company that wishes to issue listed with Muscat Securities Market. Each securities must obtain the approval of year, these listed companies are required to the Capital Market Authority. Joint stock have their activities audited by appointed companies are required to fulfi l various external auditors to report on their corporate requirements of Capital Market Authority procedures for compliance with the code of Law in order to maintain their listings. corporate governance.
Muscat Securities Market (MSM) Foreign Capital Investment Law The Muscat Securities Market (MSM) Under this law, non-Omanis are required was established in 1988 and has been to obtain a license from the Ministry restructured in 1998. MSM is an exchange of Commerce and Industry in order to where all listed securities are traded. It participate in commercial activities or to seeks to encourage saving, disseminating own share in an Omani company. Further, investment awareness and protect investors foreign participation in capital of an Omani and also endeavours to create the climate company is permitted up to 70% without conducive for the mutual interest of specifi c approval and can exceed 70% in investors and the national economy. certain circumstances with the approval from Council of Ministers. This law also Muscat Securities Market is the stock governs activities relating to operations exchange of Oman. It overseas the fl ow of branches of foreign companies. of funds into securities and develops the Under this law, foreign nationals may local fi nancial market. Membership in the not operate businesses in Oman without exchange is mandatory for Omani licensed Omani participation. Sole proprietorships banks, public joint stock companies, can be established by Omani nationals and specialised loan institutions whose only. However, foreign nationals of GCC shares are listed in the securities market. countries may also do business in Oman as All joint stock companies are required to sole proprietorships. www.crowe.om 21 The Sultanate’s government is planning approvals and clearances: The relevant to bring a new Foreign Capital Investment authorities may not cancel the approval, Law, which may allow foreign companies authorization or clearance issued to an or individuals to increase their ownership in investment project except by a decision local companies up to 100 per cent. assigning reasons after serving a written notice upon the foreign investor Royal Decree no. 50/2019, issued on 1 July concerning the violation attributed 2019, promulgating the Foreign Capital to him and hearing his viewpoint and Investment Law includes several clauses giving him a grace period not exceeding that guarantees or protects the interest thirty days from the date of notice for the of foreign investors. The Law will be elimination of the causes of violation. implemented from 2 January 2020. • Freedom for fund remittance: Without It shall be unlawful for an expatriate, whether prejudice to the prevailing laws in the a natural or juristic person, to conduct an Sultanate, a foreign investor shall have investment business inside the Sultanate the liberty to carry out all transfers except in accordance with the provisions of related to the investment project from this Law. Foreign investment shall be carried and to the Sultanate at any time. out through an establishment or company in The remittances shall include the following: any of the permitted businesses through the ownership of foreign capital invested in full - Foreign investment returns or through partnership. - Proceeds of sale or liquidation of the Chapter III of the Law covers the various investment project, fully or partly articles that guarantees the rights of a - Proceeds of the settlement of the foreign investor: investment project dispute • Protection from confi scation: An - Compensation received as a result of investment project may neither be expropriation of investment project in confi scated, except by a judicial order, public interest nor may its funds be detained, frozen, - Value of premiums on loans or fi nancing withheld or taken into custody except obtained by the investment project from by a judicial order. However, this shall abroad not include tax debts payable to the - Any remittances for import and export state. linked to the business of investment • Protection from expropriation: An projects. investment project may be expropriated - Any external entitlements for renting (seizure of private property by a machinery or contracts for provision public agency) only in public interest of services within the framework of the in accordance with the Law of project’s business. Expropriation of Property in Public • Right to transfer the ownership: A Interest and against a fair compensation foreign investor may, in accordance assessed at the time of expropriation of with the prevailing laws in the Sultanate, the property. Further the compensation transfer the ownership of the investment payable shall be paid without delay. project, fully or partly, to another foreign • Protection from termination of or Omani investor or waive it to its contracts: lease contracts may not be partner in case of partnership or merge terminated in case of allocation of land or acquire or change the legal shape. and real estate, except in accordance By affi rming above rights and protective with the cases prescribed by Law or by clauses the new investment Law provides judicial order. much needed comfort to foreign investors. • Protection from cancelation of It also shows that the compliance www.crowe.om 22 environment is moving further toward an matters. Most of the provisions introduced investment friendly economy. by the amendments are effective from the following day from the date of issuance in Labour Law Offi cial Gazette (i.e. from 11 February 2019), while some of them are effective for tax Labour Law is prescribed by the Ministry years starting on or after 1 January 2018. of Manpower. A comprehensive Omani Labour Law was issued by Royal Decree Tender Law 35/2003 and amendments made by Royal Decree 113/2011. This applies to both the Since 1984 Oman has had a law requiring workforce management of local and foreign certain entities to go out to tender in respect staff working in companies in Oman. of signifi cant procurement projects. The objective of the law is to ensure that the State Income Tax Law gets value for money in its procurement and the process is undertaken on a fair and open There is no personal income tax in basis. The current law, which was drafted by Oman. Only corporate taxes are levied SASLO lawyers, is Royal Decree 36/2008, on specifi c entities with taxable profi ts. as amended by Royal Decree 120/2011 and All tax legislations are enacted through RD 60/2013. The implementing regulations Royal Decrees. The Law of Income Tax contemplated by that law have been issued on companies was fi rst published in 1981 by Decision 29/2010. followed by Law of Profi t Tax on Commercial and Industrial Establishments in 1981. The Given these legislative changes, and the legislations governing levy of Income tax interest of overseas companies in tendering were replaced with the new Income Tax for projects in Oman. Law 2009 (Royal decree 28/2009) which was effective from tax year 2010. This was Anti-money laundering law further amended by RD 9/2017. Until the tax Anti-money laundering law was enacted year 2016, no tax was payable up to taxable through Royal decree 34/02 promulgating income of RO 30,000 and income above RO the law on money laundering. The executive 30,000 was taxed at a fl at rate of 12%. The regulations relating to money laundering is threshold limit of RO 30,000 on which tax prescribed in Royal decree 72/04. was not payable, has been removed and the tax rate has been increased to 15%, w.e.f. Land Law 1st Jan 2017 by RD 9/2017. (Any tax year that starts from 1st Jan 2017 or thereafter). According to Land Law (Royal decree 5/80), only Omani nationals are permitted to own The much-awaited amendments to the land freely. Other GCC nationals are also Executive Regulations of the Income entitled to own land, subject to certain Tax Law (MD 30/2012) have been issued restrictions. Further, except in certain and published in the Offi cial Gazette on circumstances and in certain designated 10 February 2019. The amendments are area, foreign companies and individuals are in line with earlier amendments to the generally not permitted to own land in Oman Income Tax Law issued on 27 February as per the Land Law. 2017 (via RD 9/2017). Consistent with expectations, the amendments to the Intellectual property rights Copyright Executive Regulations provided more clarity on a number of tax law provisions related Copyright in Oman is regulated by the to withholding tax (“WHT”), deductibility Law for the Protection of Copyright and of director remuneration, tax card system, Neighbouring Rights issued by Royal Decree electronic submissions and notifi cations, No 65/2008 which was later amended by donations, tax on enterprises, and other Royal Decree No 132/2008. www.crowe.om 23 This sets out the types of works that may be not be inconsistent with public discipline or protected by copyright, which authors can etiquette, undermine national security or be be protected, what rights are given to these incompatible with the Islamic Sharia’h. authors and penalties for non-compliance. The law applies to authors of original literary, scientifi c, technical and cultural works, irrespective of their monetary value. Also protected are translators and people who summarize or adapt works, or put them into a new form. No omission, change or addition to a work may be made without US-Oman FTA the author’s approval. There is no time limit The US-Oman FTA came into force on on these rights. January 1, 2009. Under the agreement, US investors and their investments in non- Trade marks restricted sectors are granted “national The Law of Trade Marks was updated in treatment”, as well as “most-favoured- 2000 by Royal Decree 38/2000, which sets nation treatment” (MFNT), in Oman. out specifi c rules as to which trademarks National treatment means that, in similar may be registered and provides a list of circumstances, US investors and their permitted trademarks. In order to qualify investments are afforded no less favourable for registration, a trademark must conform treatment than that afforded to Omani to Oman’s high standards of decency and nationals. MFNT means that, in similar must not be of a purely religious nature, circumstances, US investors and their incorporate false information, or bear a investments are afforded no less favourable resemblance to an already established mark treatment than that afforded to nationals or trade name. of any other country in Oman. In the case of companies incorporated in Oman, the Industrial drawings and patterns application of national treatment under the Royal Decree 39/2000 now regulates FTA increases the allowed US shareholding industrial drawings and patterns. In order to 100% and reduces the minimum capital to be protected, a drawing or pattern requirement to OR 20,000 ($51,790). must be registered in the Trade Drawings and Patterns Register at the Ministry of Major Government departments Commerce and Industry. The person who created the drawing or pattern is then facilitating businesses deemed to be the owner, unless another Ministry of Commerce and Industry party can prove this not to be the case. The design must be original and, again, must (MOCI) conform to Oman’s standards of decency, Ministry of Commerce and Industry is the in order to enjoy protection. governmental body in the Sultanate of Oman responsible for regulating commerce Patents and industries. Patents are governed by Royal Decree 82/2000 and the Arab Gulf Co-operation Oman Chamber of Commerce and Council States Patents Regulations (AGCC Industry (OCCI) Regulations’). An invention is patentable if it Oman Chamber of Commerce and is new, contains a novel idea, and is worthy Industry facilitates trading activities by of industrial application. However, it must providing advice and guidance for setting
www.crowe.om 24 up businesses to potential investors and sole provider of the services of registration provides legal and consultative services to and transfer of ownership of securities and investors. Companies that are successfully safe keeping of ownership documents (in its formed are required to pay annual depository). The main functions of MDSRC membership fees to OCCI. are to:
Export Credit Guarantee Agency • Provide custody for the records of shareholders; Export Credit Guarantee Agency (ECGA) is a • Depose, register and provide custody government entity which provides services for shares; such as export insurance, fi nancing to exports at low rates, post-shipment fi nancing • Provide concerned authorities with etc. ECGA charges its customers at a very information on shareholders or bearers nominal rate whilst providing adequate level of securities; of coverage to exports from Oman. • Restrict and place the securities under pledge and release them; Muscat Depository and Securities • Distribute securities returns; Registration Company • Provide data protection according to Muscat Depository and Securities confi dentiality laws; and Registration Company SAOC (MDSRC) was • Provide risk management information established in 1998. MDSRC is established related to trading in capital markets. as a closed joint stock company which is a
Types of business entities Business may be carried out in Oman in various forms. All types of business entities with the exception of joint ventures and individuals engaged in agriculture and small-scale services must obtain commercial registration and must become members of the Oman Chamber of Commerce and Industry. The Commercial Companies Law of Oman recognizes and regulates different types of business entities. Common business structures in Oman are listed below:
Type of Entity Description
Sole • Permitted to Omani nationals only. Proprietorships • GCC nationals can carry on proprietorship business in certain (Establishment) permissible activities only.
• 2 or more natural persons. General • Jointly and severally liable to the full extent of their property. Partnership • No partner can transfer the interest without the approval of other partners.
The limited partnership company is a commercial company that comprises two categories of partners: Limited • One or more general partners jointly and severally liable to the full Partnership extent of their property. • One or more limited partners’ liability limited to the amount of their contribution to the partnership’s capital.
www.crowe.om 25 Type of Entity Description • Capital of the company shall be divided into shares of equal value. • Minimum 2 and up to 50 natural/juristic persons. • Liability is limited to the nominal value of their shares in the capital of the company. Limited Liability Company • Minimum capital is RO 20,000 without foreign participation and RO 150,000 with up to 70% foreign participation. • It must retain 10% of their annual profi ts in a statutory reserve until the reserve reaches one third of the company’s capital. The statutory reserve is not available for distribution. • Capital is divided into equal negotiable shares. • The liability of the shareholders shall be confi ned to the extent of his contribution in the capital. • 3 or more natural/juristic persons. • Minimum Capital for Limited Omani joint stock company (SAOC), where no shares offered to public, should be RO 500,000. Joint Stock • Minimum Capital for General Omani Joint stock Company (SAOG) Company should be RO 2,000,000 of which a minimum of 40% and up to 70% must be offered to the public for subscription. • Management of the joint stock company shall be entrusted to a Board of Directors. • It must retain 10% of their annual profi ts in a statutory reserve until the reserve reaches one third of the company’s capital. The statutory reserve is not available for distribution. • A Holding company is a joint stock company which fi nancially and administratively controls one or more joint stock or limited liability Holding companies, which become subsidiary to such company by means of Company its holding at least 51% of the shares of each such company. • Minimum capital of RO 2,000,000. • Formed by two or more juristic or natural persons. • Legal relationship between its members without affecting third parties. Joint Venture(s) • Joint Venture will have no name, not a separate entity and no registration required. • A one person company is a limited liability company the capital of which is owned fully by one natural or juristic person. One person • A juristic person may not establish more than one of such company. Company • One person company may not establish another one person company. • Owner of the company shall be accountable for its liabilities only to the extent of the capital. Branches of foreign companies may engage in certain activities such as: Branches of foreign • carry out government contracts. companies • conduct businesses declared by the Council of Ministers to be necessary to Oman. www.crowe.om 26 Type of Entity Description Commercial Foreign companies are permitted to have legal presence in Oman for the representative purposes of conducting market research, general advertising, marketing offi ce and promotional activities and liaison with commercial entities in Oman.
Commercial agents are appointed by foreign businesses to export goods Commercial and services to Oman. All agencies must be registered with the Ministry agent of Commerce & Industry
Oman economic zones position with its commercial harbors of Sohar and Salalah to boost trade, bringing The Sultanate of Oman is the second largest new technologies and creating jobs in higher country in the Gulf Cooperation Council value-added fi elds. The goal is to create (GCC). It is one of the most liberalized an economically favorable environment markets in the region and has invested to attract and concentrate companies in heavily on economic diversifi cation. The a business focused environment. Another development of Free Trade Zones (FTZ) goal of establishing free zones is to across Oman has been a centerpiece of stimulate the private sector to contribute in the Sultanate’s plan to diversify the national the economical and social development. economy beyond the oil sector by developing the growth of value-added, export-focused With each free zone project that was industries such as manufacturing, shipping announced, the authorities overseeing and logistics. FTZ serve as catalysts for and controlling the FTZ have ensured that this growth by providing infrastructure (e.g. companies brought in investments into roads, ports), regulatory framework and various industries, apart from just oil and fi nancial incentives (e.g. income tax and gas. Oman’s economy has long been reliant customs duty waivers) that encourage high- on declining oil resources, necessitating the end foreign and domestic companies to set recent diversifi cation drive across numerous up operations. sectors. In addition, FTZ aim to build an industrial There are four free trade zones in Oman and trade base in the Sultanate in order with unique features and facilities offering to promote sustainable economic growth, incentives such as no paid up capital using the countries strategically important requirement, 100% ownership by foreign investors, exemption from customs duties www.crowe.om 27 on raw materials and fi nished products, Benefi ts fl exible customs procedures, no income • 100% foreign ownership tax, no restrictions on the transfer and repatriation of income. • 30 years tax holiday on profi ts and dividends Oman free zones are suitable for foreign • No restrictions on the repatriation of companies intending to use Oman as a capital or profi ts regional manufacturing and distribution base. Free zones are mainly for import and • No customs or excise duties export oriented companies who only require • No minimum capital requirements an offi ce in Oman. • Competitive labour and utilities cost Oman also has nine industrial estates Industries providing facilities for manufacturing, warehousing, distribution and offi ce spaces • General Trading licence: import, export, to companies. distribution and storage • Trade licence: import, export, distribution and storage of specifi c items • Industrial licence: manufacturing, import of raw materials and export of fi nished products • Service licence: completion of specifi ed services
Current investors • Octal Petrochemicals, US based Company Salalah Free Trade Zone: • Salalah Methanol Company, Operated by Oman oil Managed/operated by • Sapphire Marine • Salalah Free Zone Company SAOC • Oswal Caustic soda • Dunes Oman, owned by Brakes India, Location • PGC Textile Corporation, India • Adjacent to Salalah port and close to Yemen Sohar Free Trade Zone: • Location is well placed to serve markets in Africa, Asia, the US & Europe Managed/operated by • Provide International ships with fuel • Managed by Sohar Industrial Port • Exit and entry point for much of the free Company SAOC zone related cargo • Operated by its subsidiary, Sohar Free Zone Company LLC Facilities Location • Offi ce space for rental • Business ‘incubators’ in headquarters, • Near Sohar Industrial Port • Access to deep sea port, international • 220 Kilometres northwest of Muscat airport • 180 kilometers away from Dubai www.crowe.om 28 • Larsen & Toubro • Oman Methanol Company LLC • Oman PolyPropylene LLC • Jindal Shadeed Iron & Steel LLC • Sohar Aluminium SA • Sohar International Urea & Chemical Facilities Industries S.A.O.C • Sohar Power Company S.A.O.G • Easy access to East African Coast and Indian sub-continent • Port of Rotterdam in the Netherlands • Offers plentiful land on which to build • VALE International SA units • Majan Electricity Company S.A.O.C • First 500 hectare phase of the Zone has • Omani Qatari Telecommunication already been developed with further Company (Ooredo) S.A.O.C 4,500 hectares planned • Oman Oil Marketing Company S.A.O.C • Equipped with deep-water jetties • Shell Oman Marketing S.A.O.G capable of handling the world’s largest • Al-Batina Power Company S.A.O.G vessels, the Valemax class of dry bulk carriers
Benefi ts • 100% foreign ownership (minimum two shareholders) • 10 years exemption from corporate tax extendable to maximum of 25 years • No customs duties • No restrictions on sales within the GCC, a standard 5% GCC customs duty applies • Minimum Omanisation levels of 15% Duqm Special Economic Zone: • Single window licensing procedure
Industries Managed/Operated by • Metals and steel • Special Economic Zone Authority Duqm (SEZAD) • Logistics and trade • Light manufacturing and assembly Location • Food (cold storage and warehouse • Located in Central Eastern Oman – facilities available) 400 Km from Salalah and 450 Km from • Petrochemicals Muscat • Minerals and aggregates • Near the Al Duqm International Airport • Education and services Facilities Current investors • Has land area of 1,777Sq. kms and 80 km of coastline • Oman Petrochemical Industries Company LLC (ORPIC) www.crowe.om 29 • Comprise of sea port, airport, industrial Facilities area, town, fi shing harbour, tourist zone, • Offers trade and storage of vehicles, logistics centre and education and automotive spares, fruits and training zone. vegetables, livestock, fresh and frozen Benefi ts meat, machinery and equipment and other merchandise. • No personal income tax • Plots range from 2,000 – 16,000 sq. m • Long-term leases and reduced rates across 100 sectioned areas • No restrictions on foreign ownership • PEIE operates an industrial estate within • No minimum investment capital this zone • Waivers and reduction of corporate tax Benefi ts and customs duties • 100% repatriation of capital and profi ts • Omanisation rates of 10% • Customs duty exemption Industries • Exemption from commercial agency law • Industrial estates • 30 year income tax holiday • Warehousing and logistics villages • 100% capital ownership • Tourist villages and resorts • Yemeni employees can work without • Commercial, offi ce and residential visas complexes • No minimum investment required • Imported goods can be sold into the larger Omani market
Industries • Industrial: factories, food, plastics, textiles and maintenance • Commercial: trading and storage of goods, cars and spare parts, livestock, food, machinery and equipment • Supporting services: transport and logistics, distribution and clearing, handling and commercial Al Mazunah Free Trade Zone: correspondence
Managed/operated by Industrial Estates: • Management assigned to Public Managed/Operated by Establishment for Industrial Estates • Public Establishment for Industrial • Golden Hala Company also operates Estates (PEIE) the lease of the Al Mazunah Free Trade Zone Locations • Russayl Location • Sohar • 4 km from the border with Yeman and • Raysut 14 Km from the Yemeni city Shahn. • Sur
www.crowe.om 30 Location • Near Muscat International Airport • Near Russayl Industrial Estate and Sultan Qaboos University
Facilities • 20,000 square meter technology park • One stop shop facility for handling all administrative services and commercial registration requirement with relevant • Nizwa government entities • Buraimi Benefi ts • Al Mazunah • 100% foreign ownership • Sumail • Highly competitive telecommunication • Knowledge Oasis Muscat and Internet broadband rates Facilities • Minimum capital investment • Offering land and buildings for industrial • Eligible tenants can be registered development on Oman’s tender board and bid for • Nearby Hotel accomodation for guests government tenders • Telecommunications infrastructure, • No personal Income tax and no foreign banking facilites exchange controls • Duty-free access of products from Benefi ts Oman to GCC • 100% foreign share capital • 5 years tax holiday for manufacturing/ Industrial activity • No personal income taxes • Exemption from customs duties • Special loan terms for joint government projects
Industrial Estate Costs • Electricity: From RO 0.12/kWh • Water: From RO 0.003/gallon • Gas from RO 0.0205/cubic metre • Rent for land plots: From RO 0.15/sq m a year to RO 0.25/sq m a year • Rent for building: RO 2-4/sq.m Knowledge Oasis Muscat: (KOM)
Managed/operated by Industries • Managed and operated by Public • Digital and mobile media Establishment for Industrial Estates • Environmental science (PEIE). www.crowe.om 31 • Telecommunications • Eurofunk LLC • Hi-tech engineering and software • GAVS Technologies development • Gemalto Middle East - Oman branch • Internet services and Call centres • Oracle Systems Ltd – Muscat branch Current tenants • Timwe LLC • Information Technology Authority • Nortal LLC • Microsoft • Huawei • Crimson Logic BTE LTD (Oman) Financial reporting and auditing • Cryoto Oman LLC requirements • Hewlett Packard Arabia All business entities are required to maintain • Qatar Airways accounting books under accrual method • Oman Air following International Financial Reporting • Info line Standards (IFRS). • Indus Novateur LLC All business entities shall, at the end of each • ITON Software LLC fi nancial year, prepare fi nancial statements refl ecting the true fi nancial position and the • Microsoft Corporation LLC fi nancial performance. Preparation and submission of fi nancial statements
Type of Entity Requirements • Must prepare and get fi nancial statements audited within 2 months subsequent to the year-end. • Provide audited fi nancial statements to shareholders 15 days prior to Joint stock the AGM. companies • AGM must be held within 3 months subsequent to the year-end. • SAOG companies are required to publish condensed fi nancial statements on a quarterly basis and the same has to be fi led with CMA. Must prepare, get fi nancial statements audited and submitted to tax Limited liability authorities along with annual tax return within 6 months after the year- companies end. File audited fi nancial statements to CBO within 1 month after the year- Banks end. Insurance File audited fi nancial statements to CMA within 2 months after the year- companies end.
File audited fi nancial statements along with the fi nal return of income with All taxpayers the Secretariat General for Taxation within 6 months from the end of the accounting period.
Auditors As per the statutory requirements, auditors should be legally licensed to exercise the accounting and audit profession in Oman and should be independent of the company being audited. www.crowe.om 32 Finance, Banking and Insurance Environment Currency and exchange control several insurance fi rms, public and private sector pension funds, primary capital The currency of Oman, the Omani Rial markets, brokerage fi rms and a stock (RO), divided into 1000 Baiza (bz) is pegged exchange i.e. the Muscat Securities Market. to the US Dollar at US$ 1 = RO 0.3854. Denominations of 50, 20, 10, 5, 1 Rials and Offi cial data reveals that the top three 500 and 100 Baiza are available in notes commercial banks contribute around 62% and 100, 50, 25, 10, 5 Baiza in coins. of total sector assets, while leading player Bank Muscat accounts for 37.26% of total Oman does not impose any exchange sector assets. The three specialized banks controls. There are no restrictions on Alliance Housing Bank, Oman Development sending remittances abroad of equity Bank, Oman Housing Bank have been set capital, debt capital, interest, dividends, up to support national development efforts branch profi ts, royalties, management in specifi c fi elds such as housing, industry, fees, technical fees and personal savings. agriculture, fi sheries, tourism, education by However, prior approval of the Central Bank providing fi nancial and technical assistance of Oman is required for the declaration of for small, medium and large projects in dividends of foreign banks to their head order to promote economic activity. The offi ces of any surpluses from their previous 2 Islamic banks are full-fl edged sharia- year’s profi ts. compliant banks and there are also six Islamic windows. Finance and banking The Central Bank of Oman (CBO) is Non-banking fi nancial responsible for maintaining the stability of intermediaries in Oman the national currency the Omani Rial and ensuring monetary and fi nancial stability in Finance and leasing companies are engaged a deregulated and open fi nancial system in leasing, hire purchase, debt factoring and by way of monitoring and regulating similar assets-based fi nancing facilities. banking activities in Oman. The institutional There are 21 money exchangers operating framework of the fi nancial sector falling under the license of money exchange and directly under the jurisdiction of the CBO remittance business. embodied mainly conventional commercial banks, Islamic banks and Islamic Windows, Insurance specialized banks, non-bank fi nance and The Insurance Companies Law issued leasing companies and money exchange by Royal Decree No. 12/79 governs the and draft issuing establishments. Besides legislations regulating to the insurance sector the above, the fi nancial sector also included in Oman and these are closely monitored www.crowe.om 33 by the Capital Market Authority. Subject business listed in paragraph 1 (c) – 1 (i) to the provisions of article 51 of this law, in known as “General Insurance Group”. respect of Foreign companies, no company As per Article 51 of the Law, an external shall have the right to conduct the insurance insurance company may operate in the business in the Sultanate of Oman unless it Sultanate through authorised agents, its fulfi ls the following requirements: 1) It shall branch offi ce or through other service units be a public joint stock company established pursuant to the terms and conditions and in accordance with Commercial Companies requirements set out in the Regulation. Law to carry out insurance business, 2) It is licensed by the Capital Market Authority Brokerages may not be carried out in in charge of insurance business to carry out insurance operation except with a company all classes of insurance business or any of registered in the register of insurance the classes specifi ed in Article 1, 3) It is a companies in Oman. Requirements for joint stock company possessing minimum broker business is to submit an application capital of not less than RO 10,000,000 (Ten for the license and registration in the million Rial Omani) as required by this law, insurance brokers register to the Authority and has lodged the required guarantee along with conditions: a) that he is having an and maintains margin of solvency during experience in the fi eld of insurance brokers its activity. Insurance company also means for ten years atleast or having a certifi cate the branch offi ce or agency or any other of completion of primary school plus fi ve set-up belonging to the insurance company years’ experience in the fi eld of insurance. B) set-up in Oman or abroad and carrying that he has paid the registration or renewal out insurance activities in the Sultanate of fees amounting to sixty fi ve Omani Rials Oman. to the Authority by enclosing supporting receipts (RO 65); c) to submit to the CMA The Insurance Companies Law Article a bank guarantee amounting to RO 50,000 1 applies to companies which carry on, for one year subject to renewal and to be within the Sultanate of Oman, insurance valid all through the period of currency of business of all or any of the following the license. classes: a) Ordinary life business; b) Industrial assurance; c) Liability assurance; Any person desirous of carrying out d) Marine, aviation and transport insurance; insurance agency business shall be a e) Motor vehicle insurance; f) Pecuniary loss juristic person and shall apply for license insurance; g) Personal accident insurance; on the form prepared by CMA together h) Property insurance and i) Other types of with following requirements: 1) Proposed insurance not included in any of the above name of the insurance agent, legal form categories. Classes of insurance business and address; 2) name of founders who shall in paragraph (1) (a) to (b) are known as “Life be Omani Nationals; 3) payment receipt of Insurance Group” and classes of insurance application consideration fees; 4) Evidence that founders and senior management have not been declared, in the fi ve years preceding the application as bankruptcy or convicted in a felony or dishonorable crime or an offense provided for in the Commercial Companies Law, Commercial Law, Capital Market Law or Insurance Companies Law unless rehabilitated; and 5) copy of registration certifi cate in the Commercial Register, signatories form and copy of the membership in the Oman Chamber of Commerce and Industry. www.crowe.om 34 Labour Environment Overview The minimum monthly salary for the national is RO 325 and minimum monthly salary for People of Oman are friendly and welcome the national who is a graduate of any degree foreign people to work in the country is RO 600. to make their contribution towards development of the country. Oman labour Employment of expatriates laws allow expatriate staff to be hired by local companies, provided certain criteria The employers are required to recruit is met. the Omani workers to the maximum possible extent but expatriates may also Labour Laws be employed where there is skill shortage. Prior to recruitment of expatriate, employers The Ministry of Manpower is responsible are required to obtain necessary labour for proposing and implementing manpower clearance from the Ministry of Manpower. general policies in line with the Governments economic and social objectives. Working days and hours Omani labour laws provide rules regarding The working days for public and private employment of citizens, expatriates and sector are from Sunday to Thursday with women, contract of work, wages, leaves Fridays and Saturdays being weekly and working hours etc. holidays. The total maximum working hours per week is 45 hours, but not to exceed Employment of nationals 9 hours per day. During Ramadan, the Special privilege is given for the employment hours of work will be reduced for Muslim of the Omani nationals, to provide citizens employees to 6 hours a day/30 hours per with opportunities to participate in the week. economy and nation building process. Social Security Law Ministry of Manpower issues guidelines which require private companies operating The Social Security Law is applicable to in various sectors to employ Omani Omani employees in the private sector. nationals as certain percentage of their The Public Authority for Social Insurance work force. The Omanisation percentage (PASI) is responsible for implementation of in various sectors keep changing based this law. The employer shall undertake to on the directives issued by the Ministry collect the employees’ share against their of Manpower. Further, certain specifi ed monthly salary and shall be responsible for categories of employment are reserved for making payment of the full social insurance Omani nationals only. contributions to PASI on behalf of all its www.crowe.om 35 Omani employees. The benefi ts of the of service and 30 days basic salary for every social insurance include pensions, end of subsequent year of service. service benefi ts, work injury benefi ts and additional grants. Leave Salary
Employers are required to register all Omani Employees are entitled to 30 days leave employees with PASI within 15 days from with full salary for every year of service. the date of their joining. Monthly social Employees have also the right for 6 days contribution is 7 % of the gross salary from emergency leave annually, with full salary in the employee and 11.5% of the gross salary case of emergencies. from the employer. PASI sends monthly billing to the employer which is payable on or before the 15th day of the following Employment taxes month. Income from employment is tax free and can be freely remitted abroad. Terminal benefi ts to expatriate employees Trade unions Employers must pay terminal benefi ts The workers may form labor unions to (Gratuity) to the expatriate employees, safeguard their interests, defend their rights provided he is in continuous service for one and improve their materialist and social year, at the rate of 15 days basic salary for status and to represent them in all matters every year of service for the fi rst three years relating to their affairs.
Taxation Direct Taxation Therefore, taxation system is moderate. Oman levies no personal income tax, estate Overview tax or gift tax. The main tax levied in Oman is the tax on business income. All business Taxation regime in Oman is very favourable entities, both foreign and locally owned, are for businesses in the present global context taxable in Oman. and provides various incentives for new businesses and foreign investment. Oman’s Government deserves praise for carrying out reforms of the Oman’s tax www.crowe.om 36 structure. The revised tax system provides • a building site, place of construction balanced and identical tax practices for the or an assembly project if it lasts for a foreign and local fi rms operating in Oman. period exceeding 90 days. The revised tax system has been effective • any foreign person that provides since January 2010, which has been further consultancy service or other services in amended in February 2017. Oman for not less than 90 days, whether Apart from business income tax, Oman has provided directly or indirectly. levied only customs duty on imports and Arrangements mentioned below shall not certain tourism and municipality tax. be regarded as PE when the foreign person uses a fi xed place of business solely for the Taxable business entities following purposes: The Government of Oman levies income tax 1) Storage, display or delivery of goods or on the following business entities: merchandise belonging to that person; 2) The maintenance of a stock of goods • Establishment (sole proprietorship belonging to that person for the business); purpose of storage, display or delivery • Enterprise (small omani proprietorships or processing by another person; and small omani companies fulfi lling 3) Purchase of goods, merchandise, certain conditions) or collection of information for the • Company established under Omani business; legislation including partnership, limited 4) Carrying on any other activity of a partnership, limited liability company, preparatory or auxiliary character for the joint venture and joint stock companies; purposes of the business; and • Branches and Permanent establishment 5) The combination of any of the activities of foreign companies. mentioned provided that the overall Tax rates activity of the fi xed place of business resulting from that combination is of a All the business entities shall pay income preparatory or auxiliary character. tax at a fl at rate of 15% on the entire taxable income without any basic exemptions. Withholding tax Companies deriving their income from sale Withholding tax is a tax charged on the of petroleum are taxed on their taxable gross amounts of the following specifi ed income at the rate of 55%. payments which accrue or arise in Oman to foreign companies which do not have a Permanent establishment (“PE”) PE, or which do not constitute a part of the gross income of a PE. PE means a fi xed place of business through which a business is wholly or partly carried • Royalties out in Oman by a foreign person either • Management fees or performing directly or indirectly through a dependant services agent or otherwise. PE especially includes: • Consideration for the use of or right to 1) a place of sale, place of management, use computer software branch, offi ce, factory or workshop; 2) a • Consideration for research and mine, quarry or other place of extraction of development natural resources; • Interests PE also includes • Dividends on shares
www.crowe.om 37 Exclusions from withholding tax Global basis Clarifi cation has been issued in respect of The tax law confirms the global concept of performing services wherein the following tax system, by taxing all income, wherever categories of payments are excluded for earned, accruing or arising to a company in withholding tax purposes: Oman.
• conferences, seminars or exhibitions Income • training Income means income of any kind – whether • transport and shipping of goods and in cash or in kind and includes in particular: insurance thereupon • airline tickets and cost of staying abroad • Profi ts from any business • board meetings • Consideration for carrying on researches and development • payments for re-insurance • Consideration for the use or right to use • services rendered in relation to any of computer software activity or property located outside Oman. • Consideration for lease or usufruct of real estate, machinery or other There is also an approval from the Oman moveable or immovable property government for temporary suspension of withholding tax on dividends and interest • Profi ts resulting from granting any for 3 years with effect from 06 May, 2019. person a usufruct of or the right to use a real estate, machinery or any other moveable or immovable property. Withholding tax remittance • Dividends, interests or discount Any taxpayer who pays or credits any of received the amounts specifi ed above to a foreign • Royalties management fees or person, shall be liable to deduct 10% as performing services. withholding taxes from the gross amount paid or credited, and shall remit the same Deductible/Non-deductible to the Secretariat General for Taxation, not later than 14 days from the end of the expenses month in which that amount has been paid or credited, whichever is earlier. Deductible expenses The remittance of this tax shall be made In determining taxable income for any tax to the Secretariat General for Taxation year, all the expenses actually incurred for accompanied by a statement in the form the purpose of generating the gross income prescribed for this purpose. A copy of that for the tax payer is allowed as deduction. form shall be sent to the recipient of the payment. Deductible expenses subject to limits
Donations Taxable income Donations in cash or kind may be deducted, Taxable income for business entities is their up to 5% of gross income, only if made to gross income for the tax year after deducting organizations approved by the Council for the expenses or allowing any deductions or Financial Affairs and Energy Resources, set off or any exemption under the Income and on fulfi lment of the provisions in the Tax Law or any other law in Oman. Executive regulations.
www.crowe.om 38 Bad debts or bank for the specifi c benefi t of the Oman branch and the loan is used by the branch Bad debts may be deducted only to the for fi nancing its working capital. extent that the tax authorities consider them bad and irrecoverable. Deduction Remuneration to directors, members of bad debts below RO 1,500 is subject and partners to taking recovery procedure and relevant supporting. Deduction of bad debts in The remuneration paid to proprietor of an excess of RO 1,500 will be allowed only if Omani establishment or partner/members taxpayers provide documentary proof that of an Omani Company is deductible for tax he has taken legal steps to recover the purposes, as per the following amounts, debt including judgement by a court of law, provided they are full time engaged in debts redemption order or liquidation or management of the business and do not bankruptcy proceedings. claim this deduction in any other entity.
Interest costs • actual or RO 1,500 per month per person, or 25% of the taxable income of Interest expense must be actually incurred the entity, whichever is less (In general) to generate the business revenue and not • actual or RO 3,500 per month per for capitalization of the business. Omani person, or 35% of the taxable income establishments and companies claiming of the entity, whichever is less (In case deduction of interest costs on loan from of professionals) related parties are now required to comply with minimum capital requirements referred In the case of joint stock companies, the to as “thin capitalization rules”. Omani remuneration paid to members of the board establishments and companies which of directors of joint stock companies shall exceed debt to equity ratio of 2:1 is subject be considered as a deductible cost as per to proportionate disallowance of deduction the limits specifi ed in Articles 101 of the for interest expenses on loans taken from Commercial Companies Law. related parties. Rental costs Interest costs incurred by foreign branch companies are deductible only if the Rental costs are deductible only if the interest bearing loan is actually borrowed rental agreements are registered with the by the head offi ce from a third party lender municipalities.
www.crowe.om 39 Depreciation While computing taxable income of an entity, depreciation is deductible at the rates prescribed by the Income tax law, as follows: 100% Assets & 100 Depreciation method
80 Heavy Furniture equipment and fixtures (Written 60 (Written down Tools Aircraft down Drilling value) and and value) rigs equipment Prefabricated ships Rate (Written (Written buildings 40 (Straight down down (Straight line) 33% 33% 33% 33% line) value) value)
20 15% 15% 15% 15% 10% 10% 4%*
0
Permanent Quays, jetties, Hospital Motor Computer Office buildings pipelines, buildings and vehicles and equipment (Straight line) roads and educational (Written softwares (Written railways establishments down value) (Written down value) (Straight line) (Straight line) down value) *In case of buildings used for industrial purposes (excluding buildings for housing of employees, offi ce and storage), the stated rates of depreciation shall be doubled i.e. 8 %.) Amortisation of intangible assets is also off of tax losses from earlier years. The allowed at a rate approved by the Secretary sponsorship fees must have been incurred General for Taxation. for services received and not relate to commission or consideration for other Loan losses service arrangements. The loan loss provisions are allowed as deductible expenses to all banking Head offi ce expenses companies and leasing companies as In respect of foreign company branches or defi ned in the banking law to the extent foreign companies operating in Oman with specifi ed by Central Bank regulations. PE status, the head offi ce expenses are allowed either actually incurred or 3% of Insurance agency fees the total income whichever is less. This 3% Any insurance commission paid to an allowance may be increased to 10%, in case authorised agent in Oman by a foreign of major industrial companies using modern company is restricted to 25% of the net and sophisticated means of productivity. premium underwritten. For branches of foreign banks and insurance companies, the allowance of expenses Sponsorship fees is either actual or 5% of the revenue, Sponsorship fees paid by a foreign whichever is less. company to carry on its business in Oman is restricted to 5% of the net taxable income Loss carryovers before charging such fees and after set Losses may be carried forward for fi ve years www.crowe.om 40 but may not be carried back. Net losses Oman shall be exempt from tax, provided incurred by business entities benefi ting similar treatment is accorded on reciprocal from tax holidays under the tax law may be basis in the foreign country in which the carried forward without any time limit under foreign company is incorporated or where certain circumstances. its effective management and controls are exercised. Non-deductible expenses Investment funds The following expenses are not allowed as a deductible expense in computation of Income accruing to investment funds set taxable income. up in Oman under the Capital Market Law, • Income tax paid in Oman or in other or investment fund which is set up outside countries Oman to deal in Omani securities listed in Muscat Securities Market (MSM), shall be • Income tax consultancy fees exempt from tax. • Capital expenditure • Provisions for stock, receivables Priority sector activities • Expenses which may be recovered by Income accruing to Omani companies/ virtue of any insurance contract or claim establishments from manufacturing and for compensation Industrial activity only would be exempt • Loss on disposal of securities listed in from tax for a period of 5 years with effect MSM from 27th February, 2017. However, tax exemption granted earlier would continue till • Expenses incurred to generate tax the end of the period up to which exemption exempt income was granted. • Any expenditure which the Secretariat General for Taxation deems The tax exemptions may be granted by a inappropriate decision issued by the Minister supervising the Ministry of Finance. The exemption Tax exempt income provided shall be for a period of fi ve years beginning from the commencement of the The following types of income is fully business or registration of the company, as exempt from tax applicable. • Dividends received from shares of any Omani company when paid to an Omani Double taxation treaties (DTT) National, Omani Company or a PE in Oman has signed comprehensive double Oman taxation avoidance treaties with many • Profi ts or gains from the disposal of countries: Algeria, Bangladesh, Belarus, securities listed in the Muscat Securities Belgium, Brunei, Canada, China, Croatia, Market. Egypt, France, Germany, India, Iran, Italy, Japan, Korea, Lebanon, Mauritius, Moldova, Tax exempt activities Morocco, Netherlands, Pakistan, Russia, Seychelles, Singapore, South Africa, Spain, Shipping activities Sudan, Switzerland, Syria, Thailand, Tunisia, As per the Income Tax Law, income accruing Turkey, United Kingdom, Uzbekistan, to an Omani company/establishment Vietnam, Yemen. Some of these treaties from carrying on its activity in the fi eld of have not been ratifi ed or are not yet come shipping shall be exempt from tax. Further, into force. the income from the shipping/air transport In application of the provisions of any activities accruing to a foreign company in international agreement for the avoidance www.crowe.om 41 of double taxation, the foreign tax paid in of importance to business groups and is respect of the income which was charged also a focus area for the tax authorities, not to tax in the country with which Oman has only in Oman but also globally. The Income avoidance of double taxation treaty, shall tax law or its executive regulations does be deducted from the tax payable on its not specify any method or rules for transfer taxable income in Oman of the tax year of pricing, but still, the tax department is keen which the income charged to the tax in that on evaluating the reasonableness of pricing other country. of goods and services exchanged between the related parties on a case to case basis. Double taxation avoidance Therefore, having suitable documentation to support a position on pricing for transactions The foreign tax paid in respect of the income between related parties is a must. which was charged to tax in the country with which Oman has concluded that agreement shall be deducted from the tax payable on Tax compliance and its taxable income in Oman of the tax year of administration which the income charged to the tax in that country forms a part. Tax Authorities The amount allowed to be deducted for the The Secretariat General of Taxation (SGT) foreign tax, for any tax year, shall not exceed at the Ministry of Finance is the authority the difference between the amount of tax responsible for the administration, which would be chargeable on the taxable assessment and collection of income tax. income for that year before the deduction for the foreign tax, and the amount of tax Registration which would be chargeable on that income Business entities must register with the SGT after deducting the income for which the within two months from the incorporation deduction is to be allowed. or commencement of business and must update within one month from the date of In all cases, the total amount allowed to be modifi cation to this information, if any, as deducted for any tax year for the foreign tax per the Law amended by RD 9/2017. shall not exceed the tax payable for that year. This relief would be available even in respect Tax card of taxes paid in countries with whom Oman Every tax payer must make an application does not have DTT. and obtain a Tax Card as soon as a tax payer initiates procedures for registering Related party transactions his commercial activity. Tax card obtained must be renewed after the validity expires. The Income Tax Law requires two related Ministries, Government Departments, parties or persons shall do business or Government Bodies and companies with at transact with each other on an arm’s least 40% ownership by Government, must length basis. Where related persons enter obtain a copy of the card before dealing with into transactions that result in a lower a tax payer. Non-compliance would invite taxable income or higher losses than would a penalty up to RO 5,000. The date from have been the case if it was between which provisions relating to Tax card would independent persons, the actual terms be implemented is yet to be announced. of such transactions shall be ignored in computing the taxable income. Principal offi cer Pricing between related parties: Business entities have to designate a principal offi cer who would be the The pricing of related party transactions is focal person in respect of Income Tax www.crowe.om 42 Law. Otherwise, Secretary General may be furnished within six months from the designate any person connected with the end of the accounting period relevant business as the principal offi cer. to that tax year, along with audited fi nancial statements of the business Financial statements entity and the balance tax payable, if any, and the relevant appendices and Business entity’s financial statements are to details. be prepared in accordance with International Financial Reporting Standards and on • If a foreign person carries on business accrual basis and in the local currency i.e. in Oman through more than one PE, Rial Omani. The adoption of any other basis a consolidated return must be fi led, of accounting and preparation of fi nancial including the taxable income of all the statements in a foreign currency requires PE’s. the approval from the SGT. SGT has introduced facilities to fi le the Income Tax returns and the tax documents Preserve the books through its electronic portal and is operational now. The Income Tax Law requires the business entities to preserve all their books of Relief for Enterprise (lower tax rate) accounts and supporting documentation for at least ten years from the end of the Tax shall be charged @ 3% for Omani accounting period. Establishments and Omani Companies which fulfils the following conditions: Accounting period • Capital is RO 60,000 or less, the income The first accounting period for business is RO 150,000 or less and number of entities shall begin on the date it commences staff is 25 or less. business or the date of their commercial • Not carrying out activities like banking, registration whichever is earlier. insurance, mining, public utility projects, First accounting period may be of less than air/sea transport and other activities to twelve months or may extend to a maximum be included. period of eighteen months. Tax shall be charged at Zero %, if the above referred entities are fully owned Business entities may with the prior consent and managed by Omanis or Omani of the Tax Authorities, change the date on establishments and they employ at least which the accounting period ends. two Omani citizens. Filing of returns and audited accounts Such small Omani establishments and Omani companies taking advantage of this The Income Tax Law requires every tax payer provision must submit their Income tax to furnish a provisional and a fi nal return of returns within 3 months from the end of the income for each tax year to the SGT in the accounting period, and they are permitted forms prescribed for this purpose within the to follow ‘Cash basis’ of accounting. period mentioned below and pay the taxes due as per the returns. Eligible tax payers shall submit a request to the tax authorities along with the tax • The provisional return of income (PRI) return. After granting a lower tax rate, any should be fi led within three months conditions specifi ed under the law subject from the end of the accounting period to which relief/benefi t was granted are not relevant to that tax year and pay the met, then the benefi t/relief of the lower tax advance income tax on the estimated rate will be withdrawn and will be brought taxable income, if any, for that year. under the general tax bracket. • The fi nal return of income (FRI) should www.crowe.om 43 Tax assessment may review the objected assessment and Income Tax assessments may be made issue a decision confi rming, cancelling or within three years from the end of the modifying the original assessment. A Tax year in which the tax return is fi led or payer may fi le an appeal/ contestation to on an application made by a Tax payer. the Tax Committee, if aggrieved with the The basis for assessment is the income decision on objection. tax returns fi led, audited nancialfi The Income Tax Law permits the tax payer statements, details furnished, documentary to fi le tax suit before the Primary Court evidences, supporting, tax hearings against the decision issued by the Tax and representations. Self-assessment Committee within 45 days from the date of procedure has been introduced in 2017, serving the notifi cation of the committee’s with provision for investigation on sample decision. Either the Secretary General basis. Tax assessments would be done on for Taxation or the taxpayer may contest sampling basis for any tax year on any tax against a judgment issued by the Primary payer that is liable to fi le a return. A specifi c Court through appeal before the Court of provision has been included in the tax law to Appeal and then before the Supreme Court. allow inspection of documents and records The provisions of the Civil and Commercial at the tax payer’s premises. Procedures Law shall apply for matters In cases where income tax returns are not not covered in the Income Tax Law, when submitted, the assessment shall be made hearing and making fi nal judgement over within 5 years from the end of the tax year the tax suit. for which the return of income is required to be submitted. The SGT may rectify/ Payment and collection of the tax revise/make additional assessments within payable a period of 3 to 5 years from the original assessments, if there is any mistake or an The Income Tax Law requires the tax payers under assessment. to pay the tax due and payable, either as per the Provisional or Final Return or as per The SGT serves the notice of assessment the tax assessment on the date specifi ed by on a tax payer, normally by post to its last the Law, thereto. Non-payment of tax shall address known to the Secretariat General. result in: The delivery of a notice/decision through portal to the taxpayer are considered valid. • Imposing an additional tax at 1% per The assessment is made in writing and month of the unpaid amount of tax due includes, in particular, the amount of taxable and payable. This tax is calculated for income or loss, along with the date of the period extending from the date on assessment, the amount of the tax payable which the tax is due to the date of the and the due date of payment. payment. • Collecting the tax by adopting Tax disputes the procedures specifi ed for the The taxpayer has the right to object to an administrative enforcement under assessment, if there is any dispute in the System for Collection of Taxes, Fees and assessment completed by the Secretariat other amounts payable to the Units of the General. The objection shall be fi led in Administrative Apparatus of the State. writing to the Secretary General and shall include the claims of the taxpayer, within a Administrative penalties and criminal period of 45 days from the date of serving prosecution of the assessment order or the decision. As per the Royal Decree 9/2017 issued The tax payer may submit an application in 2017, non-compliance with tax law requesting for postponement of payment requirements would attract stiffer penalties of objected tax. The Secretariat General and criminal prosecution. www.crowe.om 44 Failure to fi le Provisional Return and Final Framework Agreement. The legislations of Return of Income - a fi ne of RO 100 to RO the remaining three nations (including Oman) 2,000 may be imposed. is unknown at this time but the legislation of KSA, UAE and Bahrain can be used as an Failure to declare correct taxable income indicator of the content of the legislation in – fi ne of minimum 1% and maximum not Oman as it is likely that provisions will be exceeding 25% of the difference between similar. GCC VAT framework agreement the assessed tax and tax as per fi nal return proposes VAT on tax-registered businesses may be imposed. at a rate of 5 per cent on a taxable supply of Failure to submit any statements, goods or services at each step of the supply information, fi nancial statements, chain. documents required to be submitted, non- The VAT law of Oman is yet to be published submission of reply to queries related to however, the administrative machinery assessment - Minimum fi ne of RO 200 and system is all set in place to implement once maximum fi ne not exceeding RO 5,000 may the law is issued. As per the latest news, be imposed. VAT Law is expected in the beginning of Intentional non-submission of return, 2021. documents, information, accounts, records, In general, there are 3 categories of actions statements, not preserving the books of to be taken when readying for VAT. accounts for a period of 10 years, failure by the owner of the establishment/PE VAT charge categories and mechanics to designate a principal offi cer - shall be punishable by an imprisonment for one • Analyse all sales and purchase month to six months for non-submission transactions to determine whether and of returns and six months to 3 years for how VAT will apply. intentional non submission of documents VAT Accounting & Records etc., and a fi ne of an amount between RO 500 to RO 30,000 and fi ne amount of RO • Calculate VAT correctly 5,000 to RO 50,000, respectively. • Capture all VAT collected and VAT paid • Make the data easily accessible for the Indirect taxation Value Added preparation of the VAT return Tax (VAT) VAT Management VAT is a new tax for GCC region which had • Develop a strategy for VAT always been a tax-heaven for businesses • Identify all business functions and and consumers. Now with the introduction stakeholders that are involved in VAT of VAT, the economics will have signifi cant • Determine objectives for the VAT function challenge in societal and behavioural change among the people – a paradigm • Allocate responsibilities for VAT to shift from tax free products to taxed ones. individuals within these functions Never the less, the GCC countries are • Identify risk areas for VAT and plan how embracing the change and have shown a these will be managed positive inclination towards the government • Develop communication, review and rules and regulations on VAT. escalation processes GCC countries have been discussing • Create awareness of VAT and touch VAT for more than a decade, and with the points across the organization signing of the VAT Framework Agreement, • Develop controls to ensure accurate VAT is implemented in three out of the six and timely VAT return submissions and GCC nations who have signed the GCC VAT on-time payments www.crowe.om 45 • Controls to identify relevant changes in Excise tax is introduced as an initiative the business (new products, change of to control the consumption of products the supply chain) that are considered harmful to health and • Process to capture non-routine wellbeing. transactions The legal framework governing the • Process for tracking in-country implementation of excise tax in Oman is legislative developments the Common Excise Tax Agreement of the States of the Gulf Cooperation Council • Training of staff (GCC) that was agreed by the GCC Member • Use of technology States in November 2016. • Use of external advisers The Selective Tax Law levies a tax on tobacco and its derivatives (100 per cent), Excise tax carbonated beverages (50 per cent), alcohol Oman has followed in the footsteps of Saudi (100 per cent), energy drinks (100 per cent) Arabia, UAE, Bahrain and Qatar in imposing and pork products (100 per cent). While a selective tax, dubbed as ‘sin tax’ on goods these categories are relatively well-defi ned, and beverages, seen to have a level of harm a comprehensive listing of beverages and associated with their consumption. energy drinks subject to the new tax will go On 13 March 2019, His Majesty Sultan a long way in removing any scope for doubt Qaboos bin Said issued Royal Decree No. or confusion. In the executive regulations 23/2019, approving Oman’s Excise Tax Law. to come, the Ministry will clarify further on The Royal Decree is effective from 15 June the type of beverages that will be subject 2019 i.e. 90 days from its publication in the to Excise Tax and what shall be considered Offi cial Gazette, released on 17 March 2019. as ‘Energy Drinks’ for the purposes of the Excise Tax system in Oman. Indirect taxes and duties Indirect taxes and duties imposed/not applicable in Oman as tabulated below:
Type of tax Applicable Rate
Municipality tax Yes 5%
Tourism tax Yes 4%
Electricity bills exceeding RO 50 per month Yes 2%
Lease agreements Yes 5%
Custom duty Yes 5%-100%
Capital duty No -
Property (real-estate) tax No -
Stamp duty No -
Transfer tax No -
Excise duty Yes 50% or 100%
VAT Expected from 2021 Proposed at 5%
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Offi ce Directory Davis Kallukaran FCA, CFE Founding and Managing Partner Muna Al Ghazali Founding Partner Dr. Khalid Maniar FCCA Founding Partner Tom C Mathew FCA Partner Audit & Assurance Services Jose Chacko FCA, CIA, CFE, ACDA, CFAP, CFIP, ISO 37001 LA & LI Partner - Forensic Technology Services Jim Joseph Itty FCA Associate Partner - Corporate Finance & Assurance Karl Jackson FCA Associate Partner - Audit & Assurance Gibu Chacko FCA Associate Partner, Salalah Offi ce P.R. Pillai MCom, CAIIB, ACS Director Banking Advisory Services Crowe Mak Ghazali llc Aastha Rangan, FCA Director VAT Advisory Services Auditors & Business Advisors Antony Kallukaran Main Offi ce : Director Business Advisory Services Level 5, “The Offi ce”, Opp. Muscat Grand Mall, Al Khuwair, P.O. Box 971, P.C. 131, Muscat, Ramya K FCA Director Tax Advisory Services Sultanate of Oman, Tel: 24036300, Fax: 24587588, [email protected] Yasser El Gbaily CA Director Audit & Assurance Services Branch Offi ce: 104, Al Baz, (Bank Sohar Building) Adel Maniar BBA (US), ACCA (UK) Director Compliance 23 July Street, P.O. Box 2987 James Ravi FCA, CPA Postal Code 211, Salalah, Sultanate of Oman Director - Audit & Assurance Tel: 23291341, Fax: 23292150, www.crowe.om Jojie T. Sunga CPA Director - Finance & Admin