Commentary | Al Busaidy, Mansoor Jamal & Co

2019 has been a year of change for those conducting business in the Sultanate of Oman, as the government continues with its plans to strengthen and diversify the country’s economy in the face of regional instability and a world moving towards a post-oil future.

Some of the key changes to the business landscape that have occurred during 2019 include the introductions of a new Commercial Companies Law, RD18/2019 (CCL); a new Privatisation Law, RD 51/2019 (Privatisation); a new Public Private Partnerships Law, RD52/2019, (PPP); the issue by the Omani Capital Markets Authority of the Takeover and Acquisition Regulations for public joint stock companies listed on the Muscat Securities Market, Decision No. 2/2019, (Takeover Code); and changes to the Omani tax system, which have seen both the temporary suspension of the application of withholding tax and the introduction of new ‘sin taxes’ on the consumption of products such as tobacco and alcohol.

In our view, the most significant of the changes has been the introduction of the new Commercial Company Law, (CCL). While this new law is not a complete departure from the old law, it has made sweeping changes to the establishment and administration of commercial entities. Some of the more interesting changes introduced include:

    • The introduction of a new commercial entity known as the single member company. This new type of entity allows for the establishment of a limited liability company with a sole shareholder;


    • The removal of certain restrictions concerning the issue of preference shares, previously only possible at the time of a company’s incorporation;


    • The requirement that holding companies be established as Joint Stock Companies, resulting in more detailed organisational and administrative structures; and


    • The introduction of specific provisions relating to Sukuks, recognising the growing importance of Sharia compliant finance as a source of funding for companies in Oman.

The CCL came into force on the 17 April 2019 and there is a transition period of one year for companies to make the necessary changes. As a result AMJ has been busy advising clients seeking to make their organisations compliant ahead of the 17 April 2020 deadline.

While many of the changes introduced by the CCL are seen as a welcome attempt by the government to streamline corporate structures and improve the appetite for foreign investment, specific provisions regarding the implementation of some of the changes remains uncertain. That said, the CCL provides that the Ministry of Commerce and Industry are to publish Executive Regulations by the 17 of April 2020 and the expectation is that these regulations will clarify the current uncertainties.

To further the government’s objective of diversifying the Oman economy, the new Privatisation and PPP Laws seek to improve the process for introducing private investment into public services. While the Privatisation Law refreshes the methods by which the government of Oman can sell certain of public assets to private operators, the PPP Law introduces a new framework whereby the government can invite private sector operators to provide government services – a new innovation in the Oman market and one that is likely to prove tempting to international investors with expertise in re-invigorating the provision of government services. As with the CCL, certain aspects providing for the implementation of the Privatisation and PPP Laws remain unclear, with the detail to be provided in the form of Executive Regulations over the course of next year.

With respect to capital markets, the Omani Capital Market Authority, CMA) has recently issued a Takeover Code. Under the Code, a person who intends to acquire 25% or more of the voting rights of a company listed on the Muscat Securities Market is obliged to make an offer to all the remaining shareholders of the target company. The requirement of a mandatory offer is also triggered when a person (alone or in concert) holding 25% of the voting shares or voting rights increases its stake by acquiring additional shares carrying more than 2% of the voting shares of the target company in any 6 month period from the date of first purchase. The provisions of the Code will therefore be a material consideration for any potential investor looking to take a controlling stake in a publicly listed company and brings the Oman capital market more in line with international norms on the conduct of takeovers, something that will be welcomed by international investors and shareholders alike.

Royal Decree No. 9/2017 introduced key changes to the Oman Income Tax Law (Royal Decree 18/2009) (“Tax Law”) including the introduction of new categories of payment attracting withholding taxes such as dividends, interest and the provision of services which previously were not taxable . The accompanying Executive Regulations issued by Ministerial Decision No. 14/2019 have clarified that withholding tax only applies to joint stock company dividends and investment funds. Consequently, no withholding tax is payable on profit distributions by LLCs. Furthermore, the CMA announced on the 15th of May 2019 that, pursuant to a Royal directive, withholding tax applicable to dividends distributed by the Omani joint stock companies to its foreign shareholders and interest on foreign borrowings stands suspended for a period of three years from 6th of May 2019. The Secretariat General for Taxation subsequently issued a circular on the 11th of June 2019 confirming the suspension. Also this year, Royal Decree No. 23/2019 introduced an excise tax, known as the ‘sin tax’, which taxes the consumption, on health grounds, of alcohol, tobacco and energy drinks. While the impact of these changes to the Omani tax system in 2019 are still to be fully felt, they are adding to the overheads for the tourism and hospitality sectors.

Looking towards 2020, the big change will be the introduction of the new Foreign Capital Investment Law, RD 50/2019 (FCIL). While this law was promulgated on the 1 July 2019, it will not come into effect until 1 January 2020. Importantly, the FCIL appears to remove the requirement for a minimum 30% Omani ownership in a commercial company. As such it appears that full foreign ownership may be permitted in respect of certain economic activities once those activities have been determined by the Omani Ministry of Commerce and Industry.

Lastly, over the past few years, we have noticed a more assertive CMA in its role as regulator and custodian of the Oman capital markets, as it looks to expand these markets. It will be interesting to see how it seeks to develop these over the next 12 months in the context of a number of planned, high-profile Initial Public Offers.