The Commercial code of Oman provides that foreign nationals can engage in commerce in the Sultanate of Oman only after obtaining "permission to do so in accordance with the applicable laws". Article 24 of the code provides that foreign companies may not establish a branch in the sultanate or engage in commerce except through an Omani local agent who is a merchant and in accordance with the rules set forth by the law.
The Regulation of Foreign Capital Investment, in particular, provides that: -
1. Foreign nationals may not conduct any business activities or participate in an Omani company without obtaining a license to that effect from the Ministry of Commerce and Industry.
2. License to conduct business in Oman are granted to Omani entities whose share Capital is not less than OR 1,50,000 and in which the foreign participate is not more than 49%.
3. Foreign investors are permitted to own up to 100% of an entity provided it is engaged in a national economic development project. The project has to be approved by the National Development Council, and has to have a minimum capital investment of Omani Riyal (OR) 5,00,000.
TYPES OF ENTITIES:
The following are the modes of setting up an entity and commencing business in Oman as applicable for foreign nationals and/or entities. Depending on the type of activity, its volume, future development and length of stay, the status may be decided.
I. Equity Participation in Local Commercial company.
II. Formation of joint venture with a local partner
III. Appointment of a local Commercial agent.
IV.Contracting with the Public Sector.
I. OMANI LOCAL COMMERCIAL COMPANIES.
The Commercial Companies Code provides that commercial companies with non-Omani partners must comply with the Foreign Capital Investment law.
The following types of commercial companies are open for foreign participation under the Commercial Companies Code.
A. Limited Liability Companies "LLC"
An LLC must have an atleast two partners. The share capital of an LLC with foreign participation may not be less than OR 1,50,000. The capital is divided into equal parts and is not available for public subscription. The partners’ liability is limited to their share of the capital. An LIC may not engage in banking, financial guarantees, or commercial aviation activities. LLC’s are popular as they are easy to incorporate.
B. Joint Stock Companies
There are two types of joint stock companies permitted in Oman.
- Closed joint stock companies whose shares are not publicly traded.
- Public Joint stock companies whose shares are not publicly traded.
For either type of Companies, the minimum capital is set at OR 1,50,000 if there In foreign participation, Joint Stock companies may not be incorporated without the prior approval of the Ministry of Commerce and Industry and issuance of a license to that effect.
II. JOINT VENTURES
The Commercial Companies Code regulates Joint Ventures. Joint Ventures are not considered Juristic persons under the law. Joint Ventures agreements are private arrangements, and thus, do not require public recording. An Omani partner must hold at least 51% ownership of the Joint venture project.
If the joint venture conducts business with third parties as a joint venture, the transactions will be subject to the provisions of Al – Tadamon Company and the provisions of the general partner in a Tadamon Company.
III. LOCAL COMMERCIAL AGENCIES:
Commercial agencies are basically for importing products and/or services into the sultanate and not to establish business presence. Commercial agencies are governed by the Commercial Register law.
The Commercial Agencies Law defines a commercial agency as "Any agreement through which a merchant or a commercial company in the Sultanate is assigned to promote or distribute the products or services of a foreign person or entity in consideration for profit or commission ".
Only Omani nationals (or a naturalized person who has been a citizen at least three years) who is eighteen years age or older and who is registered as a member of the Oman Chamber of Commerce, or companies duly established in accordance with the laws of Oman and with at least 51% Omani ownership may be appointed as commercial agents.
The commercial agency agreement must be in writing and must be duly certified and authenticated. The agency agreement must include at least the following essential elements.
- The names of the agent and principle and their nationality:
- The products or services and subject matter of the agency:
- The term and the territory.
The agreement must be directly between the providers of the services or the manufacturer of the products and the agent. During the term of the agency, the principal shall not engage in the sale of the products and services in territory, whether directly or through any other intermediary. The agent will be entitled to his/her commission/share of profit for any such sale.
An agency agreement must be registered at the Commercial agencies register at the Ministry of Commerce and Industry to be enforceable.
Omani law provides substantial protection to commercial agents, especially in the context of the termination. If the principle terminates an unlimited term commercial agency without cause, the principal must compensate the agent. With respect to limited term agencies, the principal is free to cancel registration at the end of the term. However, an agent may seek compensation where the principal has abused this right to terminate.
1. Contracts Agency: The principal compensates the agent for promoting the principle’s services/products in the territory. The agent remains independent and may or may not have the authority to sign on behalf of the principal.
2. Commission Agents: This type of agency is usually used when the principal is concealed and the agent contracts in his/her name but for the benefit of principal .
3. Trade Representatives: This type of employment contract whereby the principal sends representatives to Oman.
4. Brokers: This is an agency agreement whereby the principal entrusts the agent to locate and identify possible buyers in consideration for a commission.IV. PUBLIC SECTOR PROCUREMENTS:
The Public Tenders Law governs government procurements in Sultanate. All government procurement and public works contracts are to be governed by the Tenders Law and shall be conducted via a public tender with the exceptions of :-
1. Defence Contracts and projects (which the Ministry of Defence overseas)
2. Specific exceptions provided for the law: the law provides that, upon meeting certain criteria, Ministries may form their own internal tenders, committees, contract directly with the supplier, or sole source.
The Tenders Committee is responsible for overseeing all government tenders. Persons who reside in the Sultanate and have an address to which a valid notice may be served are permitted to submit bids. Furthermore, the bidder must have a local agent or a sponsor who must be named in the bid. Tenders may also be submitted through local agents who must present a proper power of attorney duly authenticated from the bidder’s country.
TAX ON INCOME:
There are no personal income taxes in Oman. Corporate income tax in Oman is regulated by the Corporate Income Tax Law. The law also applies To Omani joint ventures and any entity that has a "permanent presence" in Oman and is supported by a foreign entity. The Tax Law defines the words "Entity with Permanent Presence". An entity that has a fixed place of activity in which the project conducts all or part of its business" and it includes in particular :
- A place for selling;
- A place for management.
- A branch;
- An office;
- A mine, quarry, or ant other place for natural resources.
- A construction site or place or an assembly plant.
The applicable tax rates vary depending on whether or not the company is wholly owned by Omani participation in the company’s share capital if it is "a mixed company" (i.e. includes Omani and foreign shareholders) and the activity in which the company is engaged. In all cases, the applicable rates apply to slices of income on a progressive scale.
A. Tax Rates
B. Exemptions and Tax Holidays:
Corporations whose main object is manufacturing agriculture, fishery, tourism, Exportation of local products, public utility projects and infrastructure projects, as well as companies whose activities are deemed essential for economic development , may be exempt from tax for five years. These corporations may carry forward losses incurred during the five year exemption period foras many years needed until the losses are set off against taxable income.
C. Withholding Tax:
Foreign companies without a permanent presence in Oman and who receive Fees/ income from management contracts, royalties, lease of equipment and machinery, technical expertise and / or research and development, will be subject to a withholding tax amounting to 10% of the total fees/ income received.