Oman: Promoting Business Through the Lens of Development
Oman’s Business Environment
The Sultanate of Oman is proudly recognized as a nation founded on political stability with exceptional prospects for economic growth.
Much like the rest of the gulf region, Oman and its business sector are far more than simply ‘developing’, with an abundance of natural resources in minerals, renewable energy and technology, Oman has been dedicated to the diversification of its economy away from oil production. Oman has undertaken a complete renovation of its laws, regulations and policies relative to commercial activity in the aim of creating a more accessible and fluid environment for economic development and foreign investment, particularly within the last five years. With the aim of creating an accessible business environment that uplifts the nation’s ever-growing economy, Oman has seen the introduction of new industries across its various governorates and “Free Economic Zones”.
Ease of Restrictions on Investment with the promulgation of the Foreign Capital Investment Law issued by Royal Decree 50/2019 (“FCIL”)
A significant achievement for economic growth in Oman came with the amendment of the nation’s foreign investment laws which have facilitated growth and investment opportunities by relaxing restrictions allowing for 100% ownership on all investment ventures thereby removing the requirement of having an Omani shareholder to sponsor shares and eliminating minimum share capital requirements.
Yet, there are still a number of restrictions to consider. The above amendments do not override the requirement on foreign investors to ensure appropriate registration and licensing. It should be noted that non-Omanis looking to establish business operations are still required to establish a formal entity or utilise a local commercial agent. Nevertheless, all mandatory licensing and registration procedures required by FCIL to operate a business in Oman have subsequently been restructured to a single, online, fast-track system managed under one authority, the Investment Services Centre of the Ministry of Commerce, Industry and Investment Promotion (“MOCIIP”). Oman’s government has placed specific emphasis on ensuring the ease of obtaining of all required licensing through its “single approval” policy in key industries required for development projects in special industries such as renewable energy, ports, public infrastructure. The FCIL further provides a list of incentives inclusive of special provisions for the establishment of investment in less developed areas of Oman.
As a law firm, how have we found these amendments impact on the legal process behind establishing foreign investment in Oman?
We believe the changes adopted by FCIL have greatly attracted the influx of foreign investment in the Sultanate. Easing the process and allowing for 100% ownership without the need of a local partner allowed foreign investment full autonomy in the ownership, beneficial interest, and decision making of their investments in Oman. That being said, FCIL has further stipulated that each foreign investment is to be complemented with a project description and adherence to the relevant rules and regulations in place in Oman. The governmental fees for establishing range between USD $7,800 and USD $9,500. As practitioners, K&Co. have noted the ease of process and the time saving implementations in place and have greatly promoted foreign direct investment in Oman.
OVERCOMING COMPETITION IN THE REGION
Oman understands the competition it faces in the rising GCC region, and to attend to such competition and to overcome them, the Omani government recently established Invest Oman, creating a one-stop-shop official investment marketing initiative for the Sultanate, managed by the MOCIIP. All governmental requirements for high value investments are finalised in this institution, ensuring the ease of investment, and overcoming any competition faced in the region. K&Co. regularly advises clients with the intention of investing in Oman to utilise such platforms and make use of the benefits that are provided to create an attractive environment for investment. Yet, there are still a number of restrictions to consider. Notably, the ‘Prohibited Activities’ list outlined under Ministerial Decision 209/2020 determining the list of activities that are prohibited to be undertaken by foreign investment. Certain industries remain protected for Omani entities only and this includes activities from manufacturing and sale of traditional apparel to the establishment of real estate brokerages. Considering that Oman follows a single regulatory approach, laws often take time to be officially rendered. As a result, there remains uncertainty on whether specific historical restrictions issued under separate legislations pre-dating the FCIL remain applicable, such as higher investment requirements for certain industries. In all such cases, it remains best to obtain confirmation from the relevant authority, MOCIIP. Investors should be sure to maintain compliance with the regulations of the FCIL and MOCIIP as failure to do so may incur a fine anywhere from OMR 1,000 up to OMR 150,000 depending on the breach itself. Importantly, investors looking to establish any form of entity in Oman should take consideration of the country’s labour and employment law and regulations in order to ensure the legality of their operations.
How has the introduction of the new CCL facilitated your business in managing M&A transactions and company incorporations?
We believe that three factors have combined in facilitating corporate transactions in Oman. Firstly, the recent adoption of the CCL created the environment required for M&A transactions as per the best practices, when it comes to the forms of companies that are available now under the law and the availability of an up to-date legislation able to keep abreast of the developments in the region and worldwide. Secondly, the adoption of online systems which allow for desk incorporations of companies have added to the comfort and ease of establishing in Oman, the client may now establish the company remotely and no physical attendance is required. Lastly, and most importantly, the Oman 2040 vision and objectives have reflected the CCL’s developments and the need for attractive legislation and the paperless establishment procedures currently in place.
Understanding the Labour Law and the importance of Omanisation
Oman’s labour market is highly regulated under the authority of the Ministry of Labour (“MoL”) in the government’s attempts to combat the national unemployment rate amongst locals. Oman has made large strides in terms of developing its policies and practices towards its work force this past year, with the introduction of the new Labour Law Issued Royal Decree 53/2023 (“Labour Law”). The Labour Law introduced significant changes from its predecessor (Labour Law Issued Royal Decree 35/2003 “Old Labour Law”). Under the Old Labour Law Omanisation was seen as a priority, however, the requirements of Omanisation were put in general terms: all employers are required to staff their businesses in alignment with Omanisation policies to “the utmost possible limit”. On the other hand, under the new Labour Law Omanisation has clear guidelines which must be followed by businesses. Under the new provisions, notable emphasis has been placed on the long-term employability of Omanis. The Labour Law aims to ensure the replacement of non-Omanised positions with well-trained and capable Omani employees. Heavier emphasis has been placed on employers’ obligations towards the maintenance and implementation of Omanisation procedures. Employers must comply with new reporting structures which ensure the submission of an annual report via the MoL online portal detailing the following in accordance with Article 19:
Omanisation Plan.
Detailed report of current Omani employees with their professions and wages.
The vacancies which have been available within a year if and when applicable.
Employers should further remain cautious about ensuring the replacement of Omani employees with Omanis.
The Labour Law also addressed the issue caused by fixed term contracts, as fixed term contracts no longer automatically convert to unlimited term contracts upon renewal. The contract will only be converted to an unlimited term contract if employment continues for more than five years.
As for termination, employers are now allowed to terminate employees for poor performance, provided they have notified the employee of the performance issues. However, implementation of this provision requires employers to ensure the establishment of a (6) six-month improvement period within which employers are required to provide for an improvement plan, monthly performance reviews, and the notice to the MOL at least (3) three months prior to any termination procedures. Furthermore, employers must ensure that the position be replaced with an Omani employee if it was previously held by an Omani. The Labour Law clarifies the grounds for termination whilst emphasising the compensatory limits for unfair dismissal. Employees terminated unlawfully are entitled to receive between (3) three to (12) twelve months compensation based on their last gross salary in accordance with the conditions of Article 11.
Employers should take into consideration the prerequisites for fair dismissal outlined under Article 43 of the Labour Law inclusive of:
Reaching the age of retirement in accordance with the provision of the Social Security Law issued by Royal Decree 52/2023.
Termination of the basis of the implementation of an Omanisation plan in favour of a capable Omani employee.
Poor performance subject to conditions outlined below.
Closing, downsizing or amendment of activity of the establishment.
Economic reasoning.
There are a number of considerations which must be kept in mind for expat employees. Unlike the Old Labour Law employers are no longer obligated to maintain the visas of expatriate ex-employees throughout any on-going labour dispute procedures. Employers obligations to ensure the repatriation of an expat employee post the conclusion of their employment contact is now limited to (60) sixty days under Article 14. Under the same provision, the Labour Law now relieves employers of such a responsibility in the event that an expat employee refuses to leave and places the responsibility on the Competent Authority. Moreover, the Labour Law provides under that MOL now requires notice and shall provide approval of on the secondment of an expatriate employee. MOL further requires explicit notice, through its online portal, of the transfer of a non-Omani employee to another employer which the Ministry must approve prior to the employee starting at a new employer.
The Social Securities Law issued Royal Decree No. 52/2023 which is linked to the new gratuity/end of service benefit provisions of the Labour Law, addresses the entitlement of expats employees. As under the Old Labour Law expat employees were entitled to 15 days salary for each of the first three years of service and then 30 days salary for each following year when calculating end of service benefit. Currently, expats are entitled to a full month’s salary for each year.
What major labour considerations should investors in Oman focus on assessing when taking on business opportunities in Oman
As discussed above, Oman’s labour is highly regulated by the MOL and we believe that the following are the major labour considerations in which investors in Oman should assess before investing. First and foremost, they should evaluate the labour laws and regulations in Oman, including employment contracts, working hours, minimum wages, and employee benefits. Understanding the legal framework will help investors comply with labour standards and avoid any potential legal issues. Omanisation of certain positions is considered a challenge and the violation of such may lead to imposition of fines on the investor. Furthermore, investors should consider the cultural and social aspects of labour in Oman. It is essential to understand the local customs, traditions, and working practices to ensure effective communication and collaboration with Omani employees. This cultural awareness promotes a positive working environment and enhances productivity. A minimum monthly wage of USD $845 is in place, however, the competition in the market ultimately leads to an increase in monthly wage. In our experience as major practitioners in the labour market and the legal disputes that they may entail, we believe that the major hurdle many investors face is the Omanisation and the balance between international HR practices in place in multinational companies and the adoption of such in Oman.
How might Oman’s labour and employment environment affect UK firms looking to establish in this region
The labour and employment environment in Oman can have various effects on UK firms looking to establish their presence in Oman. One key consideration is the regulatory framework governing labour laws and employment practices. UK firms must familiarise themselves with Omani labour laws, including employment contracts, working hours, wages, and benefits, to ensure compliance and avoid any legal complications and compare and contrast such with the legislative framework made in Oman. Another factor of note is the availability and quality of the local labour force. UK firms should assess the skills, education, and training levels of the Omani workforce to determine if they can meet the specific needs of their business operations, or the UK firms will need to resort to international experience to ensure the transfer of knowledge is present. This evaluation will help identify any potential skills gaps and allow for effective workforce planning.
Understanding Corporate Structures and Governance in Oman under New Commercial Companies Law issued by Royal Decree 18/2019 (“CCL”)
Oman’s facilitation of foreign investment has been complemented by the promulgation of the CCL repealing its predecessor which had governed corporate entities since 1974. Keeping in theme with Oman’s progressive stance towards business and economic growth, the CCL has emphasised the relaxation of restrictions on investors whilst repealing numerous provisions to bolster protections available towards minority shareholders. Most recognisably, the CCL has emphasised transparency in corporate governance procedures whilst expanding the forms and conduct of legal entities.
Companies in Oman may take form as either of the following forms:
public or private joint stock companies (JSCs)
limited liability companies (LLC)
holding companies,
single-person companies (SPC),
joint ventures (JV),
general partnerships
limited partnerships.
The CCL introduced SPCs into the market allowing for the establishment of an entity by a single natural or corporate entity. SPCs are regulated in the same manner as LLCs and with the establishment of the FCIL, the provisions now apply to all local, GCC and non-regional investors. The CCL further abolishes explicit minimum capital requirements for LLCs. With LLCs being a highly popular form of entity in the region, the CCL does well to combat issues prevalent under the old legislation by enforcing higher standards of conduct onto managers restricting access to personal gain or benefit. All entity forms in Oman may be established on offshore, tax-free Free Zones and Special Economic Zones as may be relevant to the conduct of the business, to be outlined in further detail below.
In a massive movement towards the modernisation of its laws, CCL most notably has emboldened the rights and protections of minority shareholders. Effectively, the CCL lowered minimum shareholding requirements allowing for shareholders as low as 5% to obtain business-decisions making powers. Additionally, the CCL placed stricter obligations onto executive management and directors of JSCs have been implemented under the new legislation, in particular, the CCL has increased the minimum quorum for meetings of the board of directors and set a quota of four board meetings to be conducted per year. The new law further provides for the rights of shareholders to access information and decisions made by the board of directors which had not been established under the old legislation.
MOCIIP are a highly influential entity when considering doing business in Oman as all entities are required to establish and maintain registration with MOCIIP, all of which is now done online. Further to this, any amendments to constitutive documents, company or managerial structure require the approval and registration from MOCIIP. Outside of JSCs, all constitutive documents must be established in Arabic primarily however, may be established in English as required. Investors should note that incorporation of all entities requires a number of important documents not limited to valid identification documents, a Commercial Registration application, and Articles of Associates (where relevant). MOCIIP holds the discretion to request further documentation such as statements showcasing good financial standing. Further to MOCIIP, registration is required by the Chamber of Commerce and Industry and companies may be subject to further municipality licensing.
Free Zones and Tax Considerations
In recognizing that Oman does not currently impose personal income tax, expect for individuals wholly owning an entity in accordance with the FCIL and CCL, the introduction of the amended Income Tax Law issued by Royal Decree 9/2017 (“ITL”) applicable to “Taxable Persons” meaning an “establishment, Omani company permanent establishment”. As it currently stands, the ITL stipulates a 15% income tax on all establishments with lower rates provided to small and medium enterprises (SMEs) and further specified percentages for entities operating in the petroleum field. Entities are taxed on their global income. Special provisions are applicable for the taxation of income from the sale of petroleum, this is currently set at 55%.
Value Added Tax (VAT) is another recent introduction implemented under Royal Decree no. 121/2020 with a set rate of 5% on all goods and services except those specifically exempt such as financial services, education, local transportation services and residential rent. VAT returns must be filed quarterly with penalties ranging from OMR 500 to OMR 5000 for delays and an additional 1% of their VAT liability per month applicable on each month payments are delayed. VAT registration is completed online, registration is mandatory if the total value of annual supplies exceeds or is expected to exceed OMR 38,500, and it is voluntary to register if the total value of annual supplies / expenditure exceeds or is expected to exceed OMR 19,250.
In its dedication towards the promotion of its business sector, the laws and regulations relative to the local tax system provide for a number of key exemptions and incentives that aim to bolster the ease and flow of investment. Companies may choose to establish under Oman’s tax-free “Free Zones” and Special Economic Zones to benefit from tax-exemptions ranging from 25 to 30 years. There exist a number of exemptions for corporations established in key industries such as industrial manufacturing, hospitality, education, and mining. Oman has three Free Zones inclusive of Salalah Free Zone, Sohar Port and Free Zone, Al Mazunah Free Zone, within which established entities benefit from no corporate taxes, exemptions on customs duties, full repatriation of profits and relaxed Omanisation requirements. Free Zone companies may not be nationalised except by virtue of a law in exchange for a fair compensation, it is also not permitted to seize assets except by virtue of a judicial ruling. In order for the working company to enjoy the advantages, exemptions, and facilities stipulated in this law and the decree establishing the free zone, it must carry out its business and activities within the free zone and export a percentage of its products specified by the board..
Further exemptions on investments projects made in accordance with the FCIL, provided no contradiction with existing corporations within the GCC on tax exemptions, customs and non-customs duties for projects that meet the following criteria:
Integrated Tourism Complexes.
Projects relating to information and technology.
Industrial projects exceeding OMR 10,000,000 rials.
Projects related to the transportation sector and seaports (logistics).
Strategic projects that are determined by a decision of the competent authority after the approval of the Council of Ministers.
Projects in which the number of the national workforce is not less than (200) two hundred workers according to what is fixed in the records of the National Center for Employment, or in which the percentage of Omanisation exceeds (25%) twenty-five percent of the prescribed Omanisation rates, provided that technical means and technology are used. Modern production or service provision.
Industrial projects that use raw materials from within the Sultanate.
Any other projects determined by the competent authority after the approval of the Council of Ministers.
Other forms of tax applicable to tax residents in Oman include social security (only applicable to local and GCC nationals) and real estate tax, currently set at 3% for transfer of ownership payable to the Ministry of Housing. Notably, there currently exists no environmental taxes.
In choosing to highlight these key areas of our business sector and its legal framework, it is clear that Oman is working hard to establish itself as a lucrative investment house for the growth and benefit of the region. Numerous areas of law are still currently in development; however, key legal and regulatory considerations have already been made to expand the region into new industries, such as the promulgation of the Data Protection Law issued by Royal Decree 6/2022 which came into effect February 2023, expanding the nation’s legal framework in the cyberspace and space technology fields. Oman’s legal and business landscape is working to push the country to new heights and has taken a critical look at its legacy establishments in the hopes of paving the way for a new era of economic growth.