Question

1. Explore the possibility of starting a business in Oman without an Omani partner. You must explain the relevant provisions of Foreign Capital Investment Law to
support your advice.

2. The Government of Oman is providing several incentives to encourage multinational companies to invest in Oman. You are required to identify these
incentives and advise Brogan on how they can benefit from them.

3. There are many forms of business structures which Foreign Companies can use to start operations in Oman. As Brogan’s legal consultant you must recommend to
them a suitable form of business organization.

4. Evaluate the tax implications for Brogan Group’s business establishment in Oman.

Answer 1

Possibilities of starting a business in Oman without an Omani partner

Oman is a member of the Arab League and part of the Gulf Cooperation Council (GCC). Businesses are governed by the Sultanate of Oman's Commercial Law, which are similar in nature to other Middle Eastern countries. The Sultanate of Oman has made significant progress towards economic growth and prosperity in recent years, which makes Oman an increasingly favorable location for business investment. The Government recognizes foreign investment makes a substantial contribution to the development of Oman's infrastructure, industries and resources, and its policy is to welcome and encourage long-term direct foreign investment that has beneficial economic effects.

Expatriates will be allowed to start a business without an Omani partner and no minimum capital requirement will be necessary if a draft law prepared by the Ministry of Commerce and Industry (MoCI) is approved by the government.

The new foreign capital investment law will allow 100% foreign ownership and remove the minimum capital requirement to provide foreign investors with an open market in Oman. Under the current law, foreign investors are required to have a local shareholder, with at least a 35 per cent stake. A number of multinationals are unwilling to have a local shareholder for their own reasons including, commercial, operational, legal, etc. Therefore, such multinationals, who are reluctant to invest in Oman due to this requirement, will be attracted under the new law to invest in Oman.

The new foreign investment law would provide a conducive environment for investment and make Oman more attractive for local and foreign investments. This will increase investor confidence by ensuring consistency and avoiding conflict with international trade arrangements and agreements. In addition to 100% foreign ownership, MoCI has also proposed the removal of a minimum capital requirement for foreign investors to stimulate investment. The removal of minimum capital requirement follows international best practices on an overall basis and therefore will have a positive impact. The law will also allow tax incentives and exemptions will be removed from the new investment law as it is more appropriate for such incentives to be addressed in the income tax law.

Apart from capital requirements, the law has other aspects, such as setting out clearly foreign investors' rights and responsibilities. The proposed investment law also provides for dispute resolution and includes international arbitration; in accordance with procedural norms laid down in the rules of the United Nations Commission on International Trade Law, the International Centre for the Settlement of Investment Disputes, and other international institutions concerned with arbitration matters.

Incentives to encourage multinational companies investing Oman and how Brogan can benefit from them

Oman has strong incentive schemes to drive further investment into the country, ranging from

1. subsidized interest rates

2. custom duty exemptions

3. income tax exemptions for a period of time.

There has been a shift towards liberalizing the Foreign Business and Investment Law, allowing up to 70% of foreign equity ownership, and up to 100% for vital development projects to Oman.

The government provides incentives to approved projects under 'The Law for Organisation and Encouragement of Industry'.

a. Exemption from custom duties on import of raw materials, plant and equipment.

b. Subsidised electricity, water and fuel charges.

c. Government soft loans.

d. Preference in government purchases of local products.

e. Provision of planned and service industrial plots for setting up projects and ready industrial units at concessional lease rent.

Tax Holiday Incentives All companies engaged in priority sector activities are given an income tax holiday period for the first five years from the date of commencement of production or activity. These exemptions are renewable for another five years.

Forms of business structures which Foreign Companies can use to start operations in Oman(Advising as Brogan’s legal consultant)

To start a company in Oman, one may choose from the following legal entity types:

Limited Liability Companies (LLC) - Both local and foreign investors most commonly opt to establish a limited liability company (LLC) to conduct their business activities in Oman. LLCs have a number of advantages: LLCs require only two participants; they provide limited liability to the participants; they are less regulated than joint stock companies; and they are subject to a lower minimum capital requirement (OMR 150,000 for LLCs with foreign investment and OMR 20,000 for LLCs with 100% Omani ownership).

Joint Stock Companies (JSC) - The shares of a public joint stock company in Oman can be traded publicly. The minimum share capital required to start such a company is OR 150,000 (about 390,000 USD). A private joint stock company in Oman requires a minimum of 3 shareholders (one of whom should be an Omani citizen holding at least 30% of the total shares) and a minimum share capital of OR 50,000 (about 130,000 USD).

Commercial Agency - A commercial agency in Oman is a company which is assigned to promote or distribute products or services of a foreign entity in the Sultanate. The primary function of such a company is to export goods and services to Oman by a foreign business. In a commercial agency in Oman, the role of a commercial agent can be assigned only to an Omani national registered with the Omani Chamber of Commerce or a local entity having at least 51% local shareholding.

Other investment structures - Before investing in Oman, it is important to consider the range of investment options. For example, if the foreign investor enters into a direct contract with a government authority, such as a Ministry, it may be able to open a branch office. If the company wishes to distribute its products in Oman, it may be able to do so through a commercial agency agreement with a local company or person. Foreign investors may also open a local representative office for marketing and promotion of their services and products.

Investors will need to be aware of the following legal framework for doing business in Oman:

• Foreign Capital Investment Law (FCIL) – sets out the general rules regulating foreign investment in Oman

• Commercial Companies Law (CCL) – regulates the type of business structures that can be licensed to carry on business in Oman, and how those business structures may operate

• Civil Transactions Law (Civil Code) – adopted in 2013, this is a fundamental law which governs all civil and commercial transactions in Oman

• Labor Law – regulates the conditions for employment in Oman of both Omani and foreign personnel

• Income Tax Law (ITL) – establishes the tax regime for businesses in Oman.

Tax implications for Brogan Group’s business establishment in Oman

The law will allow tax incentives and exemptions to be removed from the new investment law as it is more appropriate for such incentives to be addressed in the income tax law.

Corporate tax is payable by Omani companies and foreign entities that have a permanent establishment in Oman at the rate of 15% of profits. There is also no tax- free threshold. Entities whose main activity is in the industrial sector may be granted a tax exemption. Income derived from the sale of oil and gas originating in Oman is taxed at a rate of 55%. However, the petroleum company that realizes such profits, although still considered a taxpayer in Oman, would typically have its tax obligations discharged by the government of Oman under the terms of its Exploration and Production Sharing Agreement.

The tax rate for companies engaged in petroleum exploration is 55% on income derived from the sale of petroleum products. Omani companies are liable to tax on their overseas income. Credit is given for taxes suffered overseas irrespective of whether the country where the activity is carried out has a double tax treaty with Oman. The credit is limited to the Oman taxes applicable to such overseas income.