DOING BUSINESS IN THE SULTANATE OF OMAN

Doing business in Oman

DOING BUSINESS IN THE SULTANATE OF OMAN

DOING BUSINESS IN THE SULTANATE OF OMAN

Although the greatest possible care has been observed in drawing up this publication, the possibility always exists that certain

information has in time become outdated or is no longer correct. RSM & Co, therefore do not accept any liability for the consequences resulting from activities undertaken on the basis of this publication. Consultation of an expert remains necessary at all times.

International

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Published by RSM & Co -The Sultanate of Oman - Updated January 2002

DOING BUSINESS IN THE SULTANATE OF OMAN

CONTENTS

Why Invest In Oman

General And Economic Profile

Business Structures

Company Registration Procedures

12

Legal & Judiciary System

14

Grants And Incentives

16

Corporate Taxation

19

Range Of Services

29

Useful Contact Numbers

31

This guide is for private circulation only.

RSM

&

Co.

is

affiliated

with

PKF and

International, an international association of qualified professional Accountants Business Advisors, having over 150 member firms in 107 countries. In the Sultanate of Oman our staff look after DOING BUSINESS IN THE SULTANATE OF OMAN the needs of several clients with a wide range of business interests. The quality of our service depends upon the people who provide it, so our practice is one built upon a careful balance between responsiveness to the requirements of our clients and the highest professional standards of independence and objectivity. This is

accomplished not only through the technical competence of our staff, but by matching specific expertise to the assignment in hand.

DOING BUSINESS IN THE SULTANATE OF OMAN WHY INVEST IN OMAN Oman offers following advantages to the foreign investors to invest in Oman.

Political stability. Liberal foreign ownership in companies permitted. Oman is rich in oil and gas. Capital and profits of a business entity is fully repatriable. No personal income-tax. All individuals can fully repatriate their savings. Committed development. to privatisation, industrialisation, economic diversification and

Free trade and open market policy. Low income tax rate structure for joint ownership companies and double taxation relief treaties available with many countries.

Income tax holiday period of five years renewable for further period of five years, available for business entities engaged in priority areas of economic development.

Geographically ideally located, proximity to Gulf, Asian and African markets. Well regulated stock exchange. Industries fulfilling certain conditions can get interest free / soft loans, exemption from custom duty on import of plant, equipment and raw materials and export credit insurance.

Government leased land available at a very nominal price, cheap utilities and natural gas available in abundance for industrial purposes.

Modern infrastructure with good roads, airports, sea ports, and state of the art telecommunications and other services.

English is used widely in day to day business and commerce.

GEOGRAPHY Oman is the second largest country after Saudi Arabia in the Arabian Peninsula. It stretches over 300,000 KMS (120,000 Sq.Miles) in the south east corner, south of the Strait of Hormuz with a long coast line of 1,700 kilometres. To the west, Oman is bordered by Saudi Arabia and United Arab Emirates; to the south, the People's Democratic Republic of Yemen; to the north, the Strait of Hormuz; and to the east, the Arabian Sea. The total population of Oman, is about 2.1 million. Omani nationals are 1.5 million, and immigrant population is approximately 0.6 million comprising of businessmen and employees mainly from India, Pakistan, Philippines, Sri Lanka, Europe and other Arab countries.

COMMUNICATIONS Oman is linked with the rest of the world by the most modern telecommunications system. Oman has one International airport i.e. Seeb International Airport at Muscat. There are several small airstrips located through out the country . Oman also has an impressive network of roads connecting all the parts of the country and also links Oman with U.A.E. Oman's main sea-ports are Mina Sultan Qaboos at Muscat and Mina

Raysut at Salalah which are fully equipped to handle ships touching these ports.

GOVERNMENT AND CONSTITUTION The highest executive authority is the Council of Ministers deriving its power from His Majesty the Sultan, to whom it is collectively responsible. There are specialist councils, the Majlis A'Shura i.e. the Council of the People, the Government of the Capital and ministries.

CURRENCY AND EXCHANGE CONTROLS The monetary unit of Oman is Omani Rial (R.O.). The Rial is divided into 1000 equal units called Baizas. The Rial is tied to US Dollar, at the rate of Baizas 384.5 to US $ 1. There are no exchange controls in any form on inward / outward investment or on repatriation of capital and profits, either by nationals or expatriates.

LANGUAGE The official language is Arabic and all communication with government is generally required to be made in Arabic. English is generally used for all written communication between businesses. AGRICULTURE AND FISHERIES Agriculture and Fisheries receive a lot of importance in the country's development plans as the livelihood of number of local Omanis particularly in rural areas comes from these two sectors. Within the framework of general objectives of agriculture development, the Ministry of Agriculture and Fisheries have implemented several programmes for maintaining / making available water resources in the Sultanate and finding new ones. The Ministry's policy is to encourage specialisation in Agriculture in accordance with the water status in each of the geographic sites in Oman. REAL ESTATE Foreign ownership of land is not generally permitted in Oman. Building permits are required for construction of all types. IMMIGRATION Foreign nationals seeking entry into Oman are required to have visas, which may be obtained through an Omani sponsor from the Immigration Department of the Royal Oman Police. Amongst others, the following entry visas to the Sultanate are issued:

Residence visa (investor visa, joining visa, family joining visa) Visit visa (trade mission, job contracting, family and friends visit, official visit, artiste groups, express business visa)

Tourist visa Transit visa (via airports, via sea, and truck drivers visa) Work visa (with companies and servant visa)

For visit to neighbouring gulf states by road, road permits are also issued by the Sultanate.

FINANCE The Central Bank of Oman is the apex body which acts as the official bank of the government and supervises the finance in the banking sector. There are 15 licensed commercial banks operating in the country and there are over 25 exchange houses in the country. All banks and exchange houses are regulated and governed by a detailed banking law. Central Bank of Oman ensures strict compliance with this law by making it obligatory for the banks and exchange houses to file periodical returns with the Central Bank of Oman. In addition to commercial banks, there are specialised banks in specific sectors viz. Housing banks, Oman Agriculture and Fisheries Bank, Industrial Development Bank, Oman Development Bank, etc. There are companies who specialise in hire purchase and lease finance activities. There are also investment banking companies and number of pension funds. ECONOMY Oman is an oil based economy with production of about 900,000 barrels per day, accounting for about 70% of government revenues and contributing about 40% to the Gross Domestic Product (GDP). Fluctuations in the global oil prices result in wide variations in gross revenues and GDP. The GDP has increased from RO.6,011 million in 1999 to RO.7,603 million according to initial estimates for the year 2000. The ambitious Oman LNG Project was founded to exploit the country's proven gas reserves and is expected to become a major non-oil revenue source, besides giving encouragement for development of gas intensive industries. The Economic Vision 2020 outlines Oman's development priorities and objectives on a long term basis. These include balancing government finances, omanisation, doubling per capita income, faster adoption of advanced technology, etc. The overall objective is to develop a free diversified economy with a vibrant private sector, alongwith ecologically sound and balanced economic development of all the sectors. The government strategy for economic development is based on a series of five year development plans, and the fifth five year development plan covering the period 1996 to 2000 had the primary goals of a balanced government budget, encouragement of the private sector and diversifying the economic base of the country. The government has embarked on an economic diversification policy that lays emphasis on agriculture, fisheries, tourism, mining, public utilities, and manufacturing industries that, use local raw materials and products, help in maximising value addition and are export oriented. Although the non-oil sectors contribution to GDP has been steadily

increasing over the years, Oman's dependence on oil is likely to continue in the years to come. Oman has been a leader in devising and implementing privatisation policy. The government has given impetus to the privatisation plans to promote inward investment, develop the basic services and mobilise private sector capital for developing the infrastructure of the country viz. electricity, water, roads, telecommunications, airports, sewerage, etc. INDUSTRIAL DEVELOPMENT Industrial development receives great importance in the country's development plans so as to reduce Oman's heavy reliance on oil. A number of projects are engaged in producing intermediate goods for construction, and a wide variety of manufacturing goods are now produced in the country, ranging from food and beverages to furniture, textiles, paper products, chemicals, fabricated metal products, electrical goods, consumer products, etc. New manufacturing industries have been growing through continuous encouragement by the government through soft loans, cheap land, good infrastructure and facilities, import duty exemptions, government sponsored feasibility studies, etc. The government has also established industrial estates in Rusayl, Raysut, Sohar and Nizwa. The small size of the local market and free imports are major constraints on development of the manufacturing sector. The manufacturing sector contributes more than 5% to the GDP. However, this contribution is expected to increase with plans to develop gas intensive industries including a petro chemical complex, a fertilizer plant, an aluminium smelter plant, etc. The government is actively promoting Sohar as an industrial Center, through development of the Sohar port and providing incentives to the private sector. The Omani Center for Investment Promotion and Export Development was established by the government to promote private sector and foreign investments, and to support the export of Omani products. The Center also acts as a one stop shop, offering various services to investors including processing of proposals, assistance in raising finance, facilitating / obtaining of licenses, approvals, exploring foreign markets / customers, etc. MUSCAT SECURITIES MARKET Muscat Securities Market is the stock exchange of Oman. It was set up in 1989 with the main objective to bring about the flow of funds in stocks for serving the national economic interest. It regulates the primary and secondary market of shares and bonds issued by joint stock companies (SAOG) registered in Oman. All joint stock companies are required to be members of Muscat Securities Market (MSM) and have their shares and bonds listed with MSM.

The market operates through licensed brokers and the activities of these brokers are limited to portfolio management and underwriting primary issues. In 1999 Muscat

Securities Market was reorganised into three separate entities as under: 1. 2. 3. The Capital Market which handles the regulatory and supervisory functions. The Stock Exchange which is Muscat Securities Market. Muscat Share Registration and Depository which acts as the Central registrar and depository for all listed companies with Muscat Securities Market. OMANISATION To encourage employment of local nationals, all business entities are required to submit an Omanisation plan. Article 1 of Ministerial Decree no.127/94 specifies the Omanisation percentage for private sector as under: ------only. Petrol Filling Stations are required to have an Omanisation level of 50% and Commercial Banks are required to achieve an Omanisation level of 90%. SALALAH PORT AND SALALAH FREE TRADE ZONE Salalah Port The Salalah Port Services Co. SAOG. (SPS) is a Joint Venture Company (70% Omani and 30% Foreign - Maersk Sea Land) operating a world class container hub port and terminal. Salalah Port's strategic location at the region's transshipment traffic has once again placed Oman into the center of sea trade, and puts it in the best position for feeder services to major ports in Red Sea, Gulf, Straits of Hormuz, Yemen, and Horn of Africa as well as Karachi and Mumbai. In a short span, Salalah port has placed itself amongst the top ten ports in the world. Sector of Transport, Storage and Communications Sector of Finance, Insurance and Real Estates Sector of Industry (manufacturing) Sector of Restaurants and Hotels Sector of Wholesale and Retail Trade Sector of Contracting 60% 45% 35% 30% 20% 15%

Further, certain specified categories of employment are reserved for Omani nationals

Salalah Free Trade Zone The Salalah Port Servies Company has been appointed as Managers for the Salalah Free Trade Zone. The free trade zone is positioning itself as a cargo handling, The services offered include

processing and distribution complex for the region.

breaking down of shipments into smaller sizes, repackaging, relabelling, inter-mediate storage, sorting, grading, mixing and blending of commodities, basic production with local / imported materials, and post sales maintenance and services. The proposed incentives for the Salalah free trade zone are:

No custom duties. 100% foreign ownership. No corporate taxes. No maximum period for re-exports. 10% Omanisation initially. Made in Oman status for goods with over 40% value addition. No restriction in repatriation of funds and capital. Sub-leasing of land and warehouses. Low rental and utilities charges. Export insurance cover for commercial and political risks. the following services is also

The one-stop-shopping concept encompassing

proposed at the Salalah Free Trade Zone (SFTZ), to reduce the bureaucratic paperwork and delays in project set-up and implementation, and attract foreign investment.

All necessary licensing by Oman Development Authority (ODA). ODA to issue all visas and SFTZ to act as sponsoring agency. On site accommodation for investors. Recruitment agency. Availability of services viz. International Accounting, Consultancy, Law firms, Banking, etc.

Coordination with local authority by SFTZ in respect of visas, immigration, health cards, driving license, car registration, communications, etc.

Business friendly and result oriented management team.

BUSINESS STRUCTURES

DOING BUSINESS IN THE SULTANATE OF OMAN

Following commercial entities can be registered with the Ministry of Commerce and Industry.

SOLE PROPRIETORSHIP A Sole Proprietorship is allowed to be formed only by Omani nationals or by G.C.C. nationals and only for those activities which are considered to be permissible activities.

GENERAL PARTNERSHIP A General Partnership is formed by two or more persons, natural or juristic, who are jointly and severally liable for all its obligations to the full extent of their property. Any person who allows his name to be included in the partnership name, though not himself a partner, is liable to the same extent as a partner where third parties have relied in good faith on that name. In absence of any agreement to the contrary, the partners share profits and losses in proportion to their capital contributions.

LIMITED PARTNERSHIP A Limited Partnership has two categories of partners: --One or more general partners with unlimited liability and One or more limited partners whose liability is limited to the extent of their capital contributions. If a limited partner allows his name to be included in the partnership name, he will be liable to the same extent as a general partner where third parties believe him in good faith to be a general partner.

BUSINESS STRUCTURES

DOING BUSINESS IN THE SULTANATE OF OMAN

JOINT STOCK COMPANY Closely held joint stock company (SAOC) A Closely held Joint Stock Company (SAOC) cannot offer shares for public subscription and shares of SAOC company are not allowed to be traded in Muscat Securities Market. The minimum capital of closely held joint stock company shall not be less than R.O.500,000/-. The company should have at least three promoters who are natural or juristic persons and the promoters of the company should subscribe to the capital of the company and submit a Memorandum of Association and Articles of Association for the approval of Ministry of Commerce and Industry. The liability of the shareholders is limited to the value of the shares he subscribes. General Joint Stock Company (SAOG) A General Joint Stock Company shall have at least three natural or juristic persons as founders who shall subscribe for their part of capital and submit to the Ministry of Commerce and Industry an Articles of Association and Memorandum of Association. The capital of the general joint stock company shall not be less than 2 million. Promoters of the company which offer shares to the public for subscription shall subscribe neither less than 30% nor more than 60% of the shares and offer the remaining shares for subscription. No single promoter is allowed to own more than 20% of the capital. The liability of the shareholders is limited to the value of the shares he subscribes. In case of closely held joint stock company and general joint stock company, 10% of the net profits after tax is required to be set aside as a legal reserve before declaration of dividend till such a time as the reserve equals 1/3rd of the company's paid up share capital. The legal reserve is not available for distribution in the form of dividends. The company must have one or more auditors. LIMITED LIABILITY COMPANY A Limited Liability Company can be formed by two or more natural or juristic persons whose liability is limited to the nominal value of the shares in the capital of the company. The number of shareholders of a limited liability company shall not exceed 40. The minimum capital of a limited liability company is R.O.20,000/- when no foreign participation in equity of the company is involved. However, when a foreigner is a shareholder in a limited liability company, the minimum capital requirement is R.O.150,000/-. 10% of the net profits after tax is required to be set aside as a legal reserve before declaration of dividend till such a time as the reserve equals 1/3rd of company's paid up share capital. The legal reserve is not available for distribution in the form of dividends.

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BUSINESS STRUCTURES
JOINT VENTURE

DOING BUSINESS IN THE SULTANATE OF OMAN

A Joint Venture is a commercial company formed by two or more natural or juristic persons. Unlike other companies, it has no separate legal personality/entity of its own, except for taxation purposes. Joint venture should have a contract defining the

objectives and the terms of the joint venture between the members in which their specific scope of work, rights, responsibilities and obligations towards each other and third parties dealing with them is clearly defined. Joint venture shall not have a name of its own and its existence shall not be raised as a defence against claims made by third parties. The third parties shall have recourse only against the members of the venture with whom they deal. HOLDING COMPANY A Holding Company is a joint stock company or a limited liability company which exercises financial and management control over one or more other companies through ownership of at least 51% of the share capital of such company. The capital of holding company shall not be less than R.O.2 million and the holding company is prohibited from holding shares of a general or limited partnership companies nor shall it hold any shares of other holding companies. BRANCH OF A FOREIGN COMPANY A Branch of a Foreign Company is permitted to operate in Oman as a permanent establishment without Omani participation. However, it may appoint an Omani agent or sponsor and the sponsorship / agency agreement must be registered in the commercial register with the Ministry of Commerce & Industry and become a member of the Oman Chamber of Commerce & Industry. COMMERCIAL AGENT A Commercial Agent can be appointed if a foreign business does not wish to invest in establishing a permanent operation in Oman and only wants to export goods and services to Oman. The agent must be an Omani national or a business with at least 51% Omani participation. Commerce and Industry. Agencies have to be registered with the Ministry of

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THE REGISTRATION FORMALITIES Application for authorisation to engage in trade or business in the Sultanate of Oman or to form an Omani commercial company (General Partnership firm or Limited Liability Company) with non-Omani members would be required to be filed with the Director General of Commerce, Ministry of Commerce & Industry, which should include the following: The Constitutive Contract or Articles of Association signed by all members (in case of partnership firm, copy of the partnership agreement signed by all the partners) clearly stating the name, capital and the objectives of the company. Name, address, date and place of birth and nationality of each member/partner, their shareholding / ownership patterns in the capital of the company (or in case of a juristic person, its name, address, form of nationality and a copy of its Constitutive Contract and its Articles of Association). A Bank certificate stating the amounts deposited by the partners / shareholders in the company's bank account towards the capital of the company. The minimum capital of the company, with foreign ownership should be RO.150,000/- and where there is no foreign ownership, it should be RO.20,000/-. Such other information as may be required by the Ministry of Commerce & Industry to register the company. Copy of identity card of Omani Partner/shareholder. Copy of the passport of non-Omani Partner/shareholder. The procedure to establish a joint stock company is as under: A letter to the Director General of Commerce, Ministry of Commerce & Industry, seeking permission to establish the joint stock company. The letter should include, names of the founders of the company, its type, equity capital, and commercial activities and should be signed by at least three founders. A form disclosing that no company exists with the same name and approval of the committee for the proposed name of the company. Photocopies of the passports of the natural founders. Articles of Association and Constitutive Contract signed by all the founders. Bank's certificate stating the amount deposited by the founders towards portion of the value of shares subscribed by them. Within thirty days of the authorisation of the issue of shares, the founders should invite the public for subscription of the shares. The notice for public subscription should be approved by Muscat Securities Market (MSM) and should appear atleast twice in two daily newspapers one week before the issue opens. A copy of the notice to subscribe for shares along with a copy of the newspaper in which it was published has to be filed with the Company Affairs Department at the Ministry of Commerce and Industry and also with the Muscat Securities Market. Prospectus to be prepared in the prescribed format and should be approved by the Muscat Securities Market.

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Subscription to shares should be through at least three national banks licensed to operate in the Sultanate of Oman. Adequate copies of the prospectus and the Articles of Association duly signed by all the members of the board of directors to be kept with these banks, so as to enable the subscribers to the issue to study the above documents before subscribing to the shares of the company. The amounts subscribed shall be deposited in a special account to be opened in the name of the company followed by the expression "under incorporation" in one of the designated banks. The amounts deposited shall not be used before the constitutive meeting has approved the incorporation expenses. The bank shall keep the funds received from the subscribers and shall, if all subscriptions have been accepted, release such funds to the board of directors or its representative after the incorporation of the company. Establishment of a foreign branch: The following documents needs to be filed with the Director General of Commerce, Ministry of Commerce & Industry. A copy of the registration certificate of the Head Office which establishes that the company was atleast in existence since 10 years. An undertaking from the head office to undertake full responsibility for the operations of its branch in Oman.

Power of attorney for the Resident Manager to sign documents, negotiable instruments and to authorise all his acts on behalf of the branch office.

The qualification certificates and experience of the Resident Manager which should not be less than 10 years along with the copy of his passport.

Details of the projects handled by the head office. The constitutive contract and articles of association of the Head Office. The last annual financial statements of the head office.

All the above certificates/documents should be attested by competent authorities in the country of the head office and also by Oman Embassy, or if Oman embassy is not present in that country then Embassy of any Arab country which is a member of the Arab League.

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LEGAL SYSTEM The Sharia Law which is based on the Holy Quran is the general law of the land. To regulate and control its economic affairs, Oman has developed a comprehensive framework of laws and regulations. The Basic Law provides for equality to all its residents and is established on the principles of a free economy and the sanctity of private properties. JUDICIARY SYSTEM The Basic Law ensures the independence of the judiciary and the role of judges in upholding the law of the country. Commercial disputes are dealt and settled by Commercial Courts. Criminal matters / disputes are dealt and settled by Magistrate Court. Disputes between employers and employees in the private sector is primarily dealt by the Labour department of the Ministry of Social Affairs and Labour and Vocational Training, and unresolved disputes are referred to the Commercial Court. Commercial Courts. OMAN COMMERCIAL LAWS Regulation of business activity and investment in Oman is done through the following laws: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Commercial Registration Law Commercial Company Law Foreign Capital and Investment Law Banking Law Insurance Law Tender Law The Law for the Organisation and Encouragement of Industry Law of Commercial Agencies and its Regulations The Law of Income-tax on Companies 47/81. Muscat Securities Market Law Capital Market Law Law of Commerce Oman Labour Law Law of Trade Mark and Data Law Law on Organisation of Engineering Consultancy Offices Tax disputes are dealt and settled by the

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16. Compromises and Arbitration Regulation 17. Law organizing Brokerage Profession in Real Estate Activities 18. The Copy Right Law 19. Accounting and Auditing Profession Law It is obligatory for all business activities to register with the Ministry of Commerce & Industry and also become members of the Oman Chamber of Commerce and Industry. Joint ventures and individuals engaged in fisheries, agriculture and small scale services are not required to be registered with the Ministry of Commerce and Industry and Oman Chamber of Commerce and Industry. FOREIGN CAPITAL AND INVESTMENT LAW Requirements of foreign business and investment law: A non-Omani national whether a natural or juristic person who desires to engage in business in Oman or acquires an interest in the capital of an Omani company must obtain a license to do so from the Ministry of Commerce and Industry. The license would be granted provided the non-Omani national carries out his business activity through one of the types of companies recognised by the commercial company law with a capital of not less than RO.150,000/-. Non-Omani participation in the capital of a company is not allowed to exceed 49%. However, in certain exceptional cases 65% of the capital of the company is allowed to be owned by foreigner by the Ministry of Commerce and Industry on a recommendation made by Foreign Capital Investment Committee. Normally the above exceptions are made in the following cases. 1. Industries which use local raw materials and products which helps in maximising value addition. 2. Export oriented industries. 3. Industries using modern technology. 4. Projects involving construction of integrated tourist villages and zones. 5. Projects that attract and localise internationally reputed industries. The council of ministers on a recommendation from the Ministry of Commerce and Industry may allow 100% foreign ownership in an Omani company subject to fulfillment of the following conditions: 1. The capital of the company should not be less than RO.500,000/-. 2. Projects contribute towards economic development. Recently there has been relaxation in ownership of shareholding by non-Omani shareholders. Presently Ministry of Commerce & Industry is allowing upto 70% foreign shareholding in most of the business activities including trading.

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GRANTS AND INCENTIVES

DOING BUSINESS IN THE SULTANATE OF OMAN

THE LAW FOR THE ORGANIZATION AND ENCOURAGEMENT OF INDUSTRY The government provides incentives to approved projects under "The Law for Organisation and Encouragement of Industry". Following incentives are available only to licensed industrial units on the recommendation of Industrial Development Committee: 1. 2. 3. 4. Exemption from custom duties on import of raw materials, plant and equipment. Subsidised electricity, water and fuel charges. Interest free or subsidised loans. Import protection by imposing or increasing custom tariff on imported goods similar to those produced locally. 5. 6. 7. Preference in government purchases of local products. Preference in allotment of government loans. Financial assistance towards the cost of carrying out economical, technical and feasibility studies. 8. Provision of planned and service industrial plots for setting up projects and ready industrial units at a very nominal lease rent. Foreign investors benefitting from the above concessions and exemptions should maintain proper records and should periodically submit a progress report to the Ministry of Commerce and Industry, including the financial statements. Omanisation of 25% of the work force is required unless there is a specific waiver from this requirement by the Ministry. Tax holiday incentives All companies engaged in industry, mining, export of locally manufactured or processed products, promotion of tourism which includes operation of hotels and tourist resorts, fishing and fish processing, agriculture and agricultural industries and public utilities 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.

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A recent amendment exempts Universities, Colleges and Private Higher Educational Institutions from Income-tax.

Financial Incentives for private sector projects LOANS Incentives for project loans are tabulated below: Nature Project of the Financing Authority Ministry of Commerce and Industry (MOCI) Eligibility Conditions Omani capital not less than 75%. For Strategic Projects, Omani capital not less than 51% --do-Financing Limits Financial Incentives

Industrial projects (medium and large scale) - non-joint stock company

Maximum limit Interest free RO.250,000/-, loan. provided that the loan amount should not be more than 100% of the paid up capital in Muscat and 125% outside Muscat. No maximum limit. Interest free Loan should not loan. exceed 100% of the paid-up capital in Muscat and 125% outside Muscat. Maximum Soft loan RO.250,000/- and (reduced maximum 150% of interest) the paid-up capital in Muscat Governorate and 250% outside Muscat.

Industrial Projects MOCI (medium and large scale), - joint stock companies

Various Development Projects

Oman The project Development should be Bank (ODB) subject to Oman Commercial Law and registered in Oman. The feasibility studies, both technical and economic, should establish the projects importance.

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Nature Project

of

the Financing Authority

Eligibility Conditions

Financing Limits

Financial Incentives

Small scale MOCI industries costing more than RO.100,000/-

For Omani 40% of graduates of investment Universities, Technical Colleges or Vocational Training Institute. --do--

total Interest free loan.

Tourism Projects

MOCI

Maximum Interest free RO.500,000/- Loan loan. amount should not exceed 100% of the paid-up capital in Muscat and 125% outside Muscat. a) Financing unlimited. b) Covering 80 to 85% of the loss resulting from non-payment by importer. Loan with interest at rate of 7%.

Export Financing

ODB in coordination with commercial banks

General Export with value added not less than 40% to Arab Countries and 25% to the rest of the world.

CAPITAL GRANTS Nature Project of the Financing Authority Eligibility Conditions Financing Limits Financial Incentives

Projects not costing more than RO.100,000/1. Industrial MOCI For full time Omanis who are not graduates 30-60% of project Noncost, as per the repayable location and grant. conditions of the region. --do--

2. Fishing Projects

Ministry of For full time --do-Agriculture Omani and entrepreneurs Fisheries

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TAXABLE ENTITIES Taxation of Profits Income tax on Commercial Companies Only Commercial Companies are liable to pay income tax in Oman. There is no personal income tax, gift tax, wealth tax or any form of estate duty, and there is no sales tax or value added tax. The Secretary General of Taxation at the Ministry of Finance is responsible for the assessment and collection of income-tax from commercial companies. Entities liable for income tax on its taxable income are as under: a) Partnership. b) Limited partnership. c) Joint stock company. d) Limited liability company. e) Joint Venture. f) Holding company. g) Any establishment of a permanent nature as defined in article 2(11) of Royal Decree 47/81 in Oman which is supported by a foreign foundation or which the Director of Taxation deems to be supported by a foreign foundation. h) Foreign companies which do not have permanent establishment in Oman as defined in article 2(11) of Royal Decree 47/81 and receives income from permanent establishments in Oman by way of

Royalties; management fees; rentals from equipment;

i)

transfer of technical know-how or transfer of scientific research. Commercial and Industrial establishments owned by an Omani individual.

TAX ACCOUNTING PERIOD Business entities are required to file income tax returns along with audited accounts for each tax year. Oman's tax year coincides with the calendar year i.e. 1st January to 31st December. Companies prepare accounts for accounting period corresponding to a tax year. However, business entities may apply to the Secretary General of Taxation to use any other accounting year provided that the year end date is followed consistently. For the first accounting period entities may elect to use a period less than twelve months or for upto maximum of eighteen months. In the event of a company being in liquidation, the accounting period may be for less than twelve months.

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FILING OF TAX RETURNS Provisional return of income is required to be filed based on estimated income of an entity within three months of the financial year end. Tax due based on estimated income has to be paid along with the provisional return of income. Annual return of income along with audited accounts is required to be filed within six months of the end of the financial year and should be accompanied with the balance tax payable, if any. Extension of time to file tax returns and audited accounts may be obtained from the Secretary General of Taxation. However, in such cases normally a penal interest calculated at the rate of 1% per month on the balance tax amount payable is charged. Audited financial statements are required to be filed only if the capital of an entity is RO.20,000/- or more. ACCOUNTING RECORDS All business entities shall preserve all accounting records and documentary evidences to support any entry in the books of account for a period of not less than ten years. INCOME CHARGEABLE TO TAX Income chargeable to tax means the gross sum of revenues less allowable deductions. Income chargeable to tax shall be computed in accordance with one of the generally accepted methods of commercial accounting followed consistently on accrual basis. However, the Director of Taxation may permit the use, of other method of commercial accounting e.g. cash basis, for which an approval is required from him. The law provides that income tax shall be charged for every tax year on the taxable / assessed income of any establishment whose income has realised or has arisen in Oman or which the Director of Taxation Affairs deems to have been realised or accrued or arisen in Oman in relation to the following sources of income: Profits or gains of:

Any business; Any right granted to any individual to benefit from or utilise any land. Interest. Royalties. Rent of plant, machinery and equipment. Management fees, amounts collected against technical expertise transfer or research and development. Any monies considered as income under this law. Any income from any other source.

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EXPENSES ALLOWED TO BE DEDUCTED IN DETERMINING TAXABLE INCOME OF AN ENTITY All actual expenses incurred during each tax year shall be deducted to the extent that such expenses are incurred wholly and exclusively for business purpose and has resulted in the generation of gross income for the company. EXPENSES NOT ALLOWED AS A DEDUCTIBLE EXPENSE Following expenses are not allowed as a deductible expense in computation of taxable income of a company. Income tax paid in Oman or outside in other countries and tax fees paid to tax consultants. Capital expenditure. Expenditure or loss which may be recovered by virtue of any insurance contract or claim for compensation. Provisions made i.e. for doubtful debts, stocks obsolescence, warranty, etc. Any expenditure which the Director deems inappropriate and unreasonable in relation to the value of services offered or any other considerations connected therewith. If the Director has a reasonable cause to believe that the intention of any transaction was to avert or to reduce a tax liability. Any expenses which are not supported by documentary evidence are liable to be disallowed. CERTAIN EXPENSES DEDUCTIBLE ONLY UPTO SPECIFIC AMOUNTS Following expenses/charges are restricted to specific amounts in computation of the taxable income of an entity. Payments made to local sponsor (if any) is restricted to 5% of taxable / assessed income. In respect of Branches of Foreign Companies, allowance for head office overheads which cannot be directly identified for Oman operations is restricted to least of the following amounts, provided that the head office role is not limited to only supervision and control of the branch:

Expenses estimated and claimed by the branch, as provided in the accounts; Average head office expenses approved for the branch during the three years immediately preceding the previous taxable year subject to assessment; 3% of the branch's total gross income during the year. However, this percentage will be increased to 5% in respect of branches of foreign banks and insurance companies.

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The percentage may be increased to 10% in respect of branches of major industrial companies which use the latest and most advanced methods for production techniques or pursue scientific methods or provide technical assistance or use patents which require exchange of information and technical assistance with their Head Offices. Gifts / donations made only to organisations as specified by the Council of Financial Affairs will be allowable, provided that the value of such gifts / donations does not exceed 5% of the gross income. In case of an Insurance company, insurance commission paid to an authorised agent in Oman by a foreign company is restricted to 25% of the net premium underwritten. If the Director has reasonable cause to believe that a transaction was not carried out at arms length, then he may allow such a transaction to the extent he deems fit. Remuneration (salaries and perquisites) paid to the partner/director/proprietor and their spouse and minor children, other than that of a professional firm, shall be allowed as a deduction provided they are full time engaged in management of the business and do not get salaries and perquisites from any other entity. The amount allowed shall be limited to the amount specified in the employment contract or an amount of RO.1,000/- per month whichever is lesser (for professional firms, RO.3000 per month). However, total amount of remuneration allowable to all partners/directors of an entity shall not exceed 10% of the taxable income of an entity before deducting the salaries and the losses brought forward from preceding years. Remuneration paid to Chairman and members of the board of directors of joint stock companies shall be considered as a deductible cost as per limits specified in articles (101) and (106) of the commercial companies law. Rent paid to a director / partner of an entity would be allowed to the extent it is considered reasonable by the Director. However, in case of proprietorship it would be allowed as a deduction to the extent of 4% of the cost of the real estate utilised for business purposes, and the period of utilisation of real estate shall not exceed 25 years from the date of purchase or construction of the real estate. DEPRECIATION AND AMORTIZATION Since the capital expenditure cannot be written off in the year in which it is incurred, the income tax law has established a system of depreciation in order to allow the tax payer to recover its costs over the estimated useful life of the property. Amortization of intangible assets is also allowed, at a rate approved by the Director of Taxation Affairs. Rates of depreciation prescribed in the Income tax law is as under: Assets Permanent buildings Prefabricated buildings Bridges, platforms, pipelines, permanent way and railway lines Heavy equipment Light vehicles Furnishings Other equipment and tools Aircraft and ships Rate (%) 4 15 10 33 1/3 33 1/3 33 1/3 15 15

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Hospital buildings and educational establishments Scientific research implements

100 100

Depreciation is to be accounted on a straight line basis. In case of buildings used for industrial purposes (excluding building for housing of employees, offices and storage), the stated rates of depreciation shall be doubled. In case of tools and equipment which are used for three shifts of work per day, depreciation rate stated above shall be increased by a maximum of 50%. The additional depreciation is to be computed by reference to the number of days the tools and equipment are used for three shifts in proportion to three hundred days. CORPORATE TAXATION RATES I. Net taxable assessed income is subject to the following tax rate structure. Entities wholly owned by Omanis or where Omanis shareholding in capital of a company is 51% or more. (Revised from tax year 2001 to entities wholly owned by Omanis and mixed ownership companies of which 70% or less than 70% capital is owned by foreigners and public joint stock companies, be it Omani shareholders or foreign shareholders, provided it is in accordance with the capital market law). The First RO.30,000/- of the taxable income Exempt Taxable income over RO.30,000/Taxed at a flat rate of 12% Tax rate of 12% will be applicable to General Joint Stock Companies irrespective of the extent of foreign shareholding. Tax rate of 12% will apply in case of investment funds set up pursuant to the Muscat Securities Market Law. In case of companies (i.e. Limited Liability Company/partnership firm etc.) where Omanis own less than 51% of the share capital of the company, tax rates applicable would be as under: (Application of this para is deleted from tax year 2001 i.e. as from tax year 2001 there will be only two categories of tax slab [I] and [III]). Exempt 1. The first RO.30,000 of the taxable income 15% 2. Next RO.100,000 of the taxable income 20% 3. Next RO.150,000 of the taxable income 25% 4. In excess of RO.280,000/- of the taxable income As regards companies in which non-Omanis owns 100% of the capital, tax rates as provided for in the Second Schedule [i.e. the tax rates applicable to branches of foreign companies] of earlier Royal decree no.47/81 would be applicable, which is as under:

II.

III.

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Taxable/assessed income Over RO. 0 5,000 18,000 35,000 55,000 75,000 100,000 200,000 300,000 400,000 Over 500,000 From tax year 2001 applicable tax and mixed ownership companies foreigners will be as under. Taxable/assessed income Over Not over Tax rate RO. RO. % 0 5,000 0 5,000 18,000 5 18,000 35,000 10 35,000 55,000 15 55,000 75,000 20 75,000 100,000 25 100,000 30 The tax on income due in respect of a company for any tax period shall be the lesser of the two sums prescribed in Paragraphs (a) and (b) below: (a) The annual percentage of tax which is applicable on the income of a company in every tax period shall be defined in accordance with the category within which the income of such company falls. Apply to a part of the taxable income (equal to the upper limit of taxable income in the immediately preceding lower band) the tax rate applicable to that lower band, and adding to the resultant product the excess of the company's taxable income over the upper limit of the taxable income of that lower band. Not over RO. 5,000 18,000 35,000 55,000 75,000 100,000 200,000 300,000 400,000 500,000 Tax rate % 0 5 10 15 20 25 30 35 40 45 50 rates for 100% foreign ownership companies where more than 70% capital is owned by

(b)

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IV.

Petroleum Companies Special provisions are applicable to taxation of income derived from sale of petroleum, the tax rate is 55% since 1970. Oman LNG Company L.L.C. is subject to special tax rate as per provisions of Royal Decree No.95/96.

CARRY FORWARD OF LOSSES As per the Royal Decree no.47/81 the losses were not allowed to be carried forward for more than five subsequent assessment years. However, by virtue of amendment by Royal decree no.87/96, companies which are mainly engaged in any of the fields of activity specified in para (a) to (g) mentioned below can indefinitely carry forward their losses beyond the exempted period of five years and deduct it in subsequent years until the losses are fully absorbed / set off against the profits of future years. BUSINESS ENTITIES EXEMPTED Companies which are mainly engaged in any of the following activities shall be exempted from income tax for a period of five years from the commencement of the production, or from the date of commencement of the business, as the case may be, on the recommendation made by Minister of Commerce & Industry to the Ministry of Finance and Economy. The exemption may be renewed for a further period of not more than five years by a decision to be issued by the Council of Financial Affairs and Energy Resources. [a] Industry and mining. [b] Export of locally manufactured/processed products. [c] Promotion of tourism including operation of hotels and tourist villages, excluding management contracts. [d] Agriculture-farm production, farm processing including animal husbandry, processing/manufacturing of animal products and agricultural industries. [e] Fishing and fish processing. [f] Utilisation and performance of services such as projects for public facilities excluding management and project contracts. [g] Universities, colleges and private higher institutes (Recent Amendment in tax law). DIVIDENDS As per Royal Decree 77/89, income-tax will not be levied on dividends received by any business entities from shares held by them in capital of another company provided the company paying dividend has already paid tax on its profits in Oman. The above decree has been recently amended vide Royal Decree no.68/2000, which stipulates that tax would not be imposed on Dividends received by a company through shares in the capital of the other companies.

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MARINE COMPANIES Article 5 of Royal Decree no.68/2000 exempts commercial marine establishment owned by Omani individuals from income tax. WITHHOLDING TAX Foreign companies which have no permanent establishment in Oman and receive Royalties, fees in return for management, rent of equipment, machinery and devices or amounts in return for transfer of technical know-how or research and development from companies or permanent establishments situated in Oman, tax at the rate of 10% of the gross income shall be deducted at source. The obligation to deduct this tax shall rest with the company or the permanent establishment which pays the above amount. INCOME TAX PARITIES FOR G.C.C. NATIONALS WITH OMANI NATIONALS Business entities owned by Gulf Cooperation Council states nationals are treated at par with Omani nationals in respect of Omani income tax, provided they are engaged in following permissible economic activities and they fulfil the conditions as laid down in various ministerial decisions. 1. Retail trade in goods provided it does not import, export and hold commercial agencies and goods are sold directly to the consumers without any intermediary through one shop. 2. Wholesale trade allowed to import, export and hold agencies. 3. Hotels and restaurants. 4. Economic activities in fields of agriculture, livestock, industry and contracting. 5. Economic activities in field of fisheries other than fishing. 6. Inspection and survey. 7. Operation and maintenance of machines, apparatus, factories, etc. 8. Translation, surveying, soil testing, computer programming, analyses and operations. 9. Professions of medicine, accountancy, advocacy, engineering, consultancy in economics, management, technical, agriculture, fisheries, industrial fields, and pharmacy, excluding the imports of pharmaceuticals products except through the approved national agent. 10. Skilled crafts. 11. Educational services for kindergartens and nurseries. 12. Private medical centres and private hospitals and treatment for the disabled. 13. Vocational training centres set up for giving training in languages, computers, office administration, typing, accounting, book keeping, management, and support management / administrative positions. 14. Weight and measuring services to others for charges. 15. Marketing services for goods and products of third parties for commission or fees. 16. Cleaning services.

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TAX ASSESSMENTS AND OBJECTIONS The Secretary General of Taxation issues a tax order based on tax returns, audited accounts, various details, documentary evidences and representations made by the company. Normally a detailed investigation is carried out before a tax order is issued. Tax payable as per tax order, if any, is required to be paid within 30 days of the date of the order . Any taxable entity may object to a tax assessment by submitting an objection in writing under article 45 to the Secretary General of Taxation within 45 days from the date of the tax assessment order. If a taxable entity is not satisfied with the decision of the

Secretary General issued under article 45, it can appeal against the decision of the Secretary General within 45 days by submitting in writing an appeal under section 46 to the President of the tax committee. Entities have a further right to appeal against the order of the President of the tax committee before Commercial Court (circuit of first instance) within 45 days from the date of the tax ruling given by the President of the tax committee. The taxable entity and the Secretary General of Taxation, can appeal against the ruling of the commercial court (circuit of first instance) to the appellate division of the commercial court. Further, the taxable entity and the Secretary General of Taxation may further protest against the appeal ruling by requesting for reconsideration of the final judgement. RELIEF FOR DOUBLE TAXATION (A) Presently, Oman has double taxation treaties with following countries: (1) (2) (3) (4) (5) (6) France United Kingdom India Pakistan Mauritius Tunisia

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(B)

Double taxation treaties in process of being ratified with the following countries: (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Malaysia Singapore Thailand China Turkey Kazakhstan Russia Egypt Algeria Italy

SOCIAL SECURITY Every company employing Omanis must pay a social security premium equivalent to 8% of the basic salary of its Omani employees. The company must also deduct and pay every month to the Public Authority for Social Insurance, another 5% from the basic salary of Omani employees. Further, 1% of the basic salary of Omani employees has to be paid to the corporation by the employer towards security against occupational injuries and diseases. CUSTOM DUTIES Normally custom duty is levied at 5% on most of the items. Certain essential consumer goods are exempt from custom duty. Usually a manufacturer is granted an exemption from custom duty on import of machinery and raw material for which he has to take necessary approval from the Ministry of Commerce & Industry. Higher custom duties are charged sometimes on certain items that compete with the goods manufactured in Oman. Very high custom duty is charged on liquor, cigarette and tobacco items. CONTRIBUTION FROM EMPLOYERS TOWARDS THE VOCATIONAL TRAINING LEVY Vocational training levy is levied at a flat rate of RO.100/- per expatriate employee per annum. Some of the other taxes are briefly listed below: On annual rental of leased premises Electricity bills in excess of RO.50/General sewerage charge in water bills Hotel bills Leisure and cinema tax Tourism levy Tax rate % 3 2 10 5 10 4

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RANGE OF SERVICES

DOING BUSINESS IN THE SULTANATE OF OMAN

As a firm of Chartered Accountants and Consultants, we provide a wide range of professional services as stated hereunder which are designed to provide specialised assistance to business enterprises.

AUDIT

Statutory audits under international accounting standards Evaluation and design of operational and accounting systems and controls Internal audits Due diligence reviews

MANAGEMENT CONSULTANCY

Business valuations Feasibility studies Financial advisory services Mergers and acquisitions Consultancy in information technology Partners search Investigations

INTERNATIONAL ACCOUNTING STANDARDS ("IAS")

Application & Interpretation of "IAS" Conversion of "IAS" to and from other standards Technical Support & Training on "IAS"

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HOTEL CONSULTANCY

Hotel feasibility studies Market demand and supply studies Hotel operational studies

OFFSHORE COMPANIES AND REGISTRATION

Corporate structuring Registration requirements

TAXATION

Legal tax planning and compliance services Double tax treaty benefit Cross border investments

HUMAN RESOURCES SOLUTIONS AND EXECUTIVE RECRUITMENT

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USEFUL CONTACT NUMBERS

Telephone number Ministry of Commerce & Industry Secretary of Commercial Register Head of Business Registration Head of Company Control Section Director of Company Affairs Department Director General of Tourism Director of Tourism Marketing Department Director of Tourism Planning & Development Department Director General of Industry Director of Development of Incentives Department Ministry of Agriculture and Fisheries Oman Chamber of Commerce & Industry Oman Telecommunications Company SAOC The Omani Centre for Investment Promotion & Export Development Ministry of Finance Office of H.E. The Secretary General of Taxation 7712344 738201 737178 7713500 7714234 774453 774459 7716232 774370 7716527 774331 7717085 774367 7710547 7717245 7714246 774385 7714253 696300 707684 631000

31

RSM & Co. - OMAN

PARTNERS : M.A.Rafik - Managing Partner N.B.Daruvala Dinesh Kanabar Percy R. Bhaya Zarir J. Patwa

DOING BUSINESS IN THE SULTANATE OF OMAN

DIRECTORS

LOCATION Suites 107 & 108, Hatat House, Wadi Adai P.O.Box 1171, Postal Code-112, Muscat, Sultanate of Oman Telephone Fax E.mail : : : (968) 563195 (968) 563194 rsmcomct@omantel.net.om

41

DOING BUSINESS IN THE SULTANATE OF OMAN

Although the greatest possible care has been observed in drawing up this publication, the possibility always exists that certain information has in time become outdated or is no longer correct. RSM & Co., therefore do not accept any liability for the consequences resulting from activities undertaken on the basis of this

publication.

Consultation of an expert remains

necessary at all times.

International

Published by RSM & Co.-The Sultanate of Oman - Updated October 2000

NOTES

42

"Developing a business relationship"

Developing a good business relationship with our clients' owners and management is a key to our providing a proactive and effective service. Constructive advice on a range of business issues is an important element of our work.

43

Doing Business in the Sultanate of Oman

A BUSINESS AND TAX PROFILE

International