Table of ConTenTs

i. Overview - 3

ii. Challenges and Oppurtunities - 5

iii. struCture OF Business entities - 6

iv. liMited liaBilitY COMpanY - 7

v. JOint stOCK COMpanY (saOg Or saOC) - 10

vi. BranCh OFFiCe - 14

vii. hOlding COMpanY - 16

viii. representative OFFiCe - 17

ix. lOCal agenCY - 18

x. uninCOrpOrated JOint venture - 18

33

overview

Oman’s economy is principally based on its

limited hydrocarbon resources, mainly oil and

gas, which contributed to about 80% of the

government’s revenue in 2012. after achieving

commercial discovery of oil in 1962, the sul-

tanate of Oman exported its first oil cargo in

august 1967 following construction of the 279

km long pipeline from Fuhud to Mina al Fahal.

Further exploration led to the discovery of al

Khuwair in 1968, al huwaisa in 1969, ghaba

north, Karen alam, seih nahayeda and ha-

bour in 1971, and amal and seih rool in 1973.

By the end of 2009, there were more than 130

producing wells in the sultanate of Oman.

however, Oman recognizes that its oil and gas

reserves are a limited resource and therefore

appreciates the significance of continued lib-

eralization and diversification of its trade re-

gime beyond oil and gas, in order to expand the

economy and offer greater economic opportu-

nities for its fast growing workforce. to that

end, the Omani government: has taken steps

to actively encourage foreign investment; has

implemented strategies for small and medium

enterprise development; is boosting industri-

alization, expanding privatization, and; has

developed anti-trust regulations to encour-

age development of small to medium sized

enterprises. Currently, Oman primarily seeks

foreign investment in the industrial, food pro-

cessing, logistics, information technology,

tourism, healthcare, fisheries, and higher edu-

cation market sectors.

in support of its effort to reduce the Oman’s

economic dependence on petroleum related

resources, the government uses five-year de-

velopment plans to encourage private sector

diversification across an array of industries.

in 1975, 33% of Oman’s gross domestic product

was generated outside its oil and gas sector –

by some estimations the figure is now closer

to 59%. the country’s eighth Five-Year devel-

opment plan (2011-2015) continues the diver-

sification policy and sets a goal of average

annual economic growth rates of not less than

3%. Oman’s gdp growth in 2012 was 5 per-

cent. Oman’s economy is principally based on

its limited hydrocarbon resources, mainly oil

and gas, which contributed to about 80% of the

government’s revenue in 2012. after achieving

commercial discovery of oil in 1962, the sul-

tanate of Oman exported its first oil cargo in

august 1967 following construction of the 279

km long pipeline from Fuhud to Mina al Fahal.

Further exploration led to the discovery of al

Khuwair in 1968, al huwaisa in 1969, ghaba

44

north, Karen alam, seih nahayeda and ha-

bour in 1971, and amal and seih rool in 1973.

By the end of 2009, there were more than 130

producing wells in the sultanate of Oman.

however, Oman recognizes that its oil and gas

reserves are a limited resource and therefore

appreciates the significance of continued lib-

eralization and diversification of its trade re-

gime beyond oil and gas, in order to expand the

economy and offer greater economic opportu-

nities for its fast growing workforce. to that

end, the Omani government: has taken steps

to actively encourage foreign investment; has

implemented strategies for small and medium

enterprise development; is boosting industri-

alization, expanding privatization, and; has

developed anti-trust regulations to encour-

age development of small to medium sized

enterprises. Currently, Oman primarily seeks

foreign investment in the industrial, food pro-

cessing, logistics, information technology,

tourism, healthcare, fisheries, and higher edu-

cation market sectors.

in support of its effort to reduce the Oman’s

economic dependence on petroleum related

resources, the government uses five-year de-

velopment plans to encourage private sector

diversification across an array of industries.

in 1975, 33% of Oman’s gross domestic product

was generated outside its oil and gas sector –

by some estimations the figure is now closer to

59%. the country’s eighth Five-Year develop-

ment plan (2011-2015) continues the diversifi-

cation policy and sets a goal of average annu-

al economic growth rates of not less than 3%.

Oman’s gdp growth in 2012 was 5 percent.

Currently, Oman’s primary trading partners

are the united arab emirates, Japan, Korea,

the united Kingdom and the united states. its

trade with countries in africa, asia, europe,

and the americas is growing. in 2012, u.s. ex-

ports to Oman totaled approximately us$ 1.7

billion while u.s. imports from Oman totaled

around us$ 1.3 million. Both countries have

sought an expanded trade relationship and

entered into a bi-lateral Free trade agreement

(Fta) which became effective on January 1,

2009. as a result, american investors are ac-

corded preferential treatment in business – the

Fta removed most custom duties immediately

upon effect of the Fta and the remaining tar-

iffs are to be phased out over a period of ten

years.

Oman is also a signatory to the agreement on

trade-related aspects of intellectual property

(trips). the sultanate is also a signatory to the

new York Conventions on arbitration.

55

CHallenGes & oPPorTUniTies

while Oman presents an enticing market for

a number of products and services, there are

certain challenges foreign firms must meet.

Bureaucratic impediments remain and in-

clude, among others, clearances for visas and

work permits for foreign labor and prolonged

business registration requirements for consul-

tancies.

the division between the government and the

private sector can seem murky in Oman – and

government decision-making less than trans-

parent. however, there are many foreign firms

which have proven their success in Oman de-

spite the existing constraints. amongst the

factors often cited as being key to a foreign

company’s success in Oman is previous expe-

rience in the Middle east, and/or a full-time

in-country representative or office.

One notable concern for many international

firms doing business in Oman is the “Omaniza-

tion” process. the term “Omanization” refers

to the Omani government’s policy of establish-

ing quotas on a sector-by-sector basis for Oma-

ni employment in the private sector. Oman is

not unique in this respect. indeed, most of the

gulf states have similar requirements though

implementation differs from country to coun-

try.

while the Fta does provide for some excep-

tions for specialized upper management, u.s.

firms must nevertheless comply with these re-

quirements.

Oman’s Ministry of Finance stated its intention

in its 2011-16 eighth Five Year plan, to allocate

spending as follows: rO 13bn (us$ 33.8bn) on

infrastructure, e.g., ports, highways, rail and

airports, rO 8bn (us$ 8.84bn) on financing

oil and gas projects, rO 3.4bn (us$ 8.84bn) on

the electricity sector, and rO 700m (us$ 1.8bn)

to tourism with a focus on meetings, indus-

try conventions, and exhibitions. Finally, rO

500m (us$1.3bn) has been allocated to resorts

and conference centers and rO 200m (us$

520m) on infrastructure.

under the “national treatment” provisions of

the Fta, u.s. companies may register as an

Omani firm, with 100% u.s. ownership, without

requirement for local ownership or partners.

notably, other foreign companies, outside the

gCC, are controlled by the Foreign investment

law which generally limits foreign sharehold-

ing to a maximum 70% of any company.

66

sTrUCTUre of bUsiness enTiTies

the Commercial Companies law (royal decree

no. 4 of 1974, as amended) and the Commer-

cial register law (royal decree no. 3 of 1974),

govern formation and regulation of business

entities in Oman. recent amendments to the

Commercial Companies law provide for more

sophisticated and efficient corporate struc-

tures and encourage wider share ownership

and public participation in joint stock compa-

nies.

the Ministry of Commerce and industry is im-

plementing a one stop e-government shop to

facilitate and simplify the process of register-

ing a company in Oman. services such as in-

dustrial licensing, industrial registration and

mineral related licensing are also included.

this system will bring in the benefits of paper-

less transaction services. the e-government

shop will link the Ministry of Commerce and

industry with the Ministry of Manpower, the

Oman Chamber of Commerce and industry,

the local municipalities and the royal Oman

police.

the Foreign Capital investment law (royal de-

cree no. 102 of 1994) governs the participation

of non-Omani nationals in a trade or business

in Oman. the law specifies capital require-

ments and levels of Omani participation in

capital and profits.

Foreign companies desirous of entering the

Oman market can establish their business in

a number of ways, each of which has its own

requirements, advantages, and disadvantages.

the principal entity forms and/or business av-

enues to consider include:

• limited liability Company (llC)

• Branch Office

• Joint stock Company (saOC and saOg)

• holding Company

• unincorporated Joint venture

• representative Office

• local agency

77

liMiTeD liabiliTY CoMPanY

the llC is the form most often chosen by for-

eign investors due to the short time period

required to establish an llC, and its cost in

comparison with other entity forms. nota-

bly, llCs are not required to be listed on the

Muscat securities Market in Oman. an llC is

formed by at least two and no more than 40

natural or legal persons. generally speaking,

the minimum capital required to establish an

llC is rO 20,000. however foreign ownership

in the llC results in an increase of the mini-

mum paid capital requirement from rO 20,000

to rO 150,000.

all shareholders in an llC are required to

sign the company’s by-laws and deposit, in a

blocked bank account, their respective (full)

capital contributions to capital. For capi-

tal contributions made in-kind, appropriate

transfer instruments must be deposited. Com-

pany details are then entered into the Com-

mercial register at the Ministry of Commerce

and industries (MOCi). the llC is then deemed

established and the bank may release the de-

posited capital.

an llC’s capital must be divided into shares of

equal nominal (par) value and issued in reg-

istered form. while shares are not divisible,

they may be held by two or more joint owners

so long as one of the owners acts as their rep-

resentative to the company.

Companies are graded based on capital – an

excellent grade entitles a company to be in-

cluded on a list of companies with preference

over those with lower grades. the grades are:

CaPiTal (ro) GraDe250,000 and above Excellent100,000 to 249,999 First

50,000 to 99,999 Second25,000 to 49,999 ThirdUp to 24,999 Fourth

88

a foreign investor may own up to 70% of an

llC’s equity, however, that can be increased

to 100% if (1) the relevant foreign investor

demonstrates the entity is in need of foreign

technical know-how or expertise which is not

readily available in Oman; or (2) the foreign

investor is participating in developing the

national economy and is investing substan-

tial capital in the country. a minimum share

capital of rO 500,000 is required for 100% for-

eign investor equity participation. an Omani

company may be owned 100% by gCC natural

persons or corporate entities owned entirely

by gCC nationals.

For a foreign investor, the specific require-

ments to establish an llC commence with

identification of an Omani national who will

be the llC’s second member.

next, approval of the llC’s proposed name

must be obtained from the MOCi – the pro-

posed name may include the foreign investor’s

name.

the charter of the llC must set forth its ob-

jectives, amount of capital, number of shares,

nationalities of its members and their respec-

tive percentage ownership and voting rights,

membership meetings, etc.

the charter must be prepared in arabic and

executed by the foreign investor(s) in addition

to the Omani partner. after execution, the

charter is submitted to the MOCi along with an

application letter and:

99

1) a bank certificate from a local bank certify-

ing that the full value of each member’s contri-

bution to the llC’s capital has been paid in full

into account in the approved name of the llC

“under formation”;

2) a copy of the foreign investor’s charter;

3) a resolution of the authorized parties on

behalf of the foreign investor approving the es-

tablishment of a llC in Oman with the named

Omani partner and proposed capital;

4) a power-of-attorney in favor of the person

who will be responsible for dealing with the for-

mation of the llC in sufficient terms to enable

such person to carry out all necessary acts and

to sign on behalf of the foreign investor; and

5) a power-of-attorney appointing and autho-

rizing a person to act as the foreign investor’s

manager and authorized signatory of the llC.

items 3 through 5 may be combined in a single

document and items 2 through 5 must be legal-

ized (apostilled) by the foreign investor’s cham-

ber of commerce and the Omani Consulate in

the country of its jurisdiction prior to submis-

sion to the MOCi in Oman.

Once the MOCi has approved the llC’s charter

and all other enumerated requirements have

been satisfied, the llC will be registered and

assigned a Commercial register number. the

number is required to be used on the llC’s sta-

tionery, nameplates, etc. the llC will also re-

ceive an official registration Certificate.

generally speaking, approval of the llC’s

name takes approximately seven (7) days, and

formation of the llC, after all required in-

formation has been received, should not take

more than four (4) weeks. the process is ex-

tended however if the foreign investor seeks to

form an llC with foreign ownership exceeding

70%.

in addition to the required capital, the cost of

forming an llC in Oman includes a MOCi reg-

istration fee of 1.5% of the llC’s capital (sub-

ject to a maximum of rO 200), and an Oman

Chamber of Commerce and industry registra-

tion fee which is calculated on a sliding scale

according to the amount of capital, e.g., rO 225

for capital of rO 150,000.

the applicable tax rate is a flat rate of 12% on

taxable profits in excess of rO 30,000.

1010

JOINT STOCK COMPANY (SAOG OR SAOC)

a joint stock company is the largest form of

company entity. its formation, in addition to

the wording of its memorandum and articles

of association, are subject to prior approval

from the MOCi. Certain business activities,

such as banking and insurance, may also be

conducted by stock companies.

there are two types of joint stock companies:

• the public Joint stock Company or “saOg”

is a company which has offered its shares

to the public and is listed on the Muscat se-

curities Market;

• the Closed Joint stock Company or “saOC”

is a company which has not offered its

shares to the public, and is required to

have a minimum of three (3) shareholders.

in addition to a minimum of three (3) share-

holders, the saOC must be minimally capital-

ized in the amount of rO 500,000. the mini-

mum capitalization of a saOg is rO 2,000,000

and the saOg’s founders are required to sub-

scribe for between 30 and 60% of the capital.

however, not all the authorized capital must

be issued at the outset and there can be differ-

ent classes of shares. in principle, shares are

freely negotiable, and loan stock can be issued.

Both the saOC and the sOag are required to

a have a minimum number of members of the

board of directors. the saOC must have at

least three (3) and a maximum of twelve (12),

while the saOg must have at least five (5) with

a maximum of twelve (12). an exception pro-

vides for an additional two members

of the maximum. Moreover, any shareholder

with at least 10% of the capital has a statuto-

ry right to board membership. an additional

requirement of the saOg form of business is

that audited accounts must be published as are

semi-annual unaudited accounts.

whether a saOg or saOC, the foreign compa-

ny must first apply to the Commercial regis-

trar of the MOCi for approval of the company’s

proposed name. next, an application must be

submitted to the director general of Commerce

at the MOCi for issuance of an administrative

decision. the documents to be included in the

application include:

•Anapplicationfortheformationandregis-

tration of the company as a saOC.

• Thecompletedandsignedmemorandum

and articles of association of the company in

arabic. in order to finalize the memorandum

and articles of association and the application

for formation and registration of the compa-

ny, the stated purpose(s) of the company, in

accord with the Commercial Companies law,

should be provided in addition to the amount

1111

of the total share capital to be contributed

by the founder shareholders, the respective

shareholding of each of the founder share-

holders, and confirmation of whether any cap-

ital contributions are to be made in-kind.

•AbankcertificateissuedbyabankinOman

confirming that each of the founder sharehold-

ers has deposited their capital contributions

with the bank in the name of the to-be-formed

company. in the event any capital contribu-

tions are to be made in kind, an approved eval-

uation report would also need to be submitted.

• Copiesof identificationdocumentsof the

founder shareholders, if natural persons.

these papers would consist of a copy of the

individual’s passport (if foreign national) or

identity card (if Omani national). in case any of

the founder shareholders is a corporate entity,

its constitutional documents including copies

of its commercial registration documents (in-

cluding its memorandum and articles of asso-

ciation, forming contract, and certificate) and

the original of its board / shareholder resolu-

tion confirming the investment to be made by

such entity into the capital of the company to

be formed and the name(s) of its authorized

representative(s) empowered to sign the com-

pany’s formation documents on its behalf.

•Intheevent,thecompanywillincludefor-

eign shareholders which are corporate entities,

their above referred to forming documents, in-

cluding the original board/shareholder reso-

lutions must be legalized (apostilled) to by the

chamber of commerce, the ministry of foreign

affairs, and the Omani embassy/consulate, in

their country of the foreign company’s juris-

diction.

1212

Once the completed application package, along

with the required fees, is submitted to the

MOCi, the director general of Commerce at the

MOCi has 30 days to determine whether to ap-

prove the company’s formation. if approved,

an administrative decision for registration of

the company is issued. during the 30-day re-

view period, the director general may request

amendments be made to the proposed compa-

ny’s memorandum and articles of association,

and may request additional copies of all sub-

mitted documents.

Once an administrative decision approving

the formation of the company is issued, the

company’s founding members have 30 days to

convene a Constitutive general Meeting (CgM).

at this initial meeting, the members must ap-

prove all actions taken by the founders prior

to the registration date of the company. those

actions include ratification of any agreements

entered into on behalf of the company and ap-

proval of all pre-formation expenses incurred

for the registration and formation of the com-

pany. the CgM is additionally required to elect

the members of the initial board of directors

and to appoint its first auditors. lastly, the

CgM should ensure, and declare, that all for-

malities and conditions for the formation of

the company have been met. prior to conven-

ing the CgM, the founders must invite the MOCi

representative to attend.

1313

immediately after the CgM, but no later than

30 days from issuance of the administrative

decision, the company must be registered on

the Commercial register. to that end, the first

board meeting must be convened at which the

chairman and deputy chairman will be elected

and authorized signatories will be nominated.

the extent and limit of authority of the nom-

inated signatories should also be determined

at this first board meeting. Minutes of both

the CgM and the initial board meeting must be

filed with MOCi along with a completed autho-

rized specimen form of the company (includ-

ing a list of authorized individuals who can

act and sign on its behalf, the extent and limits

of their authority, and their specimen signa-

tures). Once submitted, the MOCi will issue the

company’s commercial registration certificate.

the company will then register with the Oman

Chamber of Commerce and industry (OCCi) –

the OCCi registration requires submission of

copies of the company’s commercial registra-

tion certificate, authorized specimen signa-

ture form, and the MOCi’s computer print-out

of the company.

all of the above enumerated requirements

apply to the formation of both a saOC and a

saOg, however, the latter also requires the

compilation and approval of a prospectus by

the Capital Market authority for the public of-

fering of a minimum of 40% of the company’s

issued share capital.

Both entity forms are subject to a flat tax rate

of 12% on taxable profits in excess of rO 30,000.

while the minimum capital of these entities

differs, as noted above, the fees for formation

of either of these entities is the same:

Ministry of Commerce and Industry RO 100-200Oman Chamber of Commerce and Industry RO 585Municipal Fees RO 25-125MSM RO 100MDSRC RO 2000 (maximum for one year)Capital Market Authority 0.05% of the issued share capital

1414

branCH offiCe

pursuant to the Commercial register law,

royal decree 3/74, a branch office of a foreign

company may be established so long as 1) the

foreign company has been awarded a govern-

ment contract, and 2) the company has a local

agent in Oman.

after award of a government contract, the for-

eign company may register a branch in Oman

for the purpose of contract performance, and

it is required to register with the Commercial

register at the MOCi. the registration remains

valid for the duration of the foreign company’s

contract performance, subject to the granting

of extensions of time. any such extensions

must also be registered in the Commercial reg-

ister of the MOCi.

a branch is governed by the Commercial law,

royal decree 55/90, and the Commercial law

of Oman (the “CCl”), and is not affected by the

specific royal decrees promulgated for the

purpose of regulating the conversion of branch

offices of specific professions such as legal, ac-

counting, engineering, or design consultancies

in Oman.

while there is no Omani legal requirement to

appoint a sponsor, branch offices of foreign

companies are required to appoint local ser-

vice agents who provide administrative ser-

vices such as those relating to labor and immi-

gration requirements. Branch office applicants

must submit the following to the Office of Com-

mercial register at the MOCi:

1515

•CertificateofIncorporationoftheforeign

company from the country of incorporation;

•MemorandumandArticlesofAssociation

of the foreign company;

•SpecimenSignatureCertificateofthepro-

posed manager or signatory on behalf of the

foreign company (the specimen signature

may be contained in the pOa or as separate

document);

•Passport/IDcopiesoftheproposedmanag-

er or signatory on behalf of the foreign com-

pany;

• Undertaking(intheformofaboardres-

olution) from the company’s head office ac-

cepting full responsibility for any liabilities

incurred by the branch office in Oman;

•PowerofAttorney,executedinfavorofthe

proposed resident manager of the branch of-

fice;

• A signed copyof theagreement entered

into with the Omani government agency; and

• Acopyoftheagencyorthesponsorship

agreement entered into with the local agent or

the sponsor.

with the exception of the passport/identifica-

tion documents, the signed copy of the gov-

ernment Contract, and the copy of the agency

or the sponsorship agreement, the submis-

sions must be certified and attested to by the

foreign ministry of the company’s country of

incorporation and the Omani embassy in that

country.

the costs for establishing a branch office in-

clude registration fees to the MOCi in the

amount of rO 1,500, rO625 to the OCCi, and

rO135 in Municipality fees. Branch offices are

currently taxed at a maximum rate of 12% of

annual profits earned in Oman in excess of rO

30,000.

1616

HolDinG CoMPanY

the holding company form of business entity

is relatively new to Oman. a holding compa-

ny may be established either as a llC, saOC,

or saOg. the minimum capital requirement

to establish a holding company, no matter

its form, is rO 2,000,000. the company is re-

quired to retain primary financial and admin-

istrative control of one or more subsidiary

companies in which it owns at least 51% of the

subsidiary’s share capital. the term “holding”

is required to be a part of the company’s name

and must be included on its letterhead.

the purposes of a holding company may be:

• Management of subsidiary companies

or participation in the management of oth-

er companies in which the holding company

owns shares;

• Investmentof its funds inshares,bonds

and securities;

•Grantingloans,guaranteesandfinancing

to its subsidiaries; and

• Acquisitionofpatentrights,trademarks,

concessions and the other tangible rights for

the exploitation by the company or lease to its

subsidiaries or to other companies.

a holding company is managed by a board

of directors whose authority is registered in

the forming registration documents recorded

with the MOCi.

1717

rePresenTaTive offiCe

as the name implies, a representative office

represents its foreign parent in Oman. unlike

a branch office, a representative office is only

permitted to market the company’s activities

and/or establish trading contacts, and may not

carry out any business activities in Oman. im-

porting, exporting, selling or publicizing prod-

ucts or services other than those of the parent

company is strictly disallowed. the one excep-

tion is the import of commercial samples of

goods produced by the parent company or un-

dertaking for the purpose of publicity. Foreign

companies whose business activities relate to

commerce, industry or tourism are allowed

to utilize a representative office, however the

office must be registered in the Commercial

register. establishing a representative office

allows for:

•Establishingcontactwithcustomersinthe

public and private sectors in Oman with the in-

tent of introducing the foreign company’s prod-

ucts;

•Contactingexportersandsellersofrawand

semi-manufactured materials needed by the

company or organization and facilitating their

prompt supply;

•Notifyingtheparentcompanyofanycom-

plaints relating to its products and minimizing

any difficulty in product distribution;

• Establishing services and utilities which

enable the company to carry on its business

in accordance with prevailing Omani laws and

regulations; and

• Registrationoftheactivitiestheofficein-

tends to undertake.

the cost of establishing a representative of-

fice in Oman include a MOCi registration fee of

rO500, an OCCi registration fee of rO650, and a

Municipality license which costs between rO25

and rO125 depending on the activities to be un-

dertaken by the office.

1818

loCal aGenCY

UninCorPoraTeD JoinT venTUre

the requirements for the appointment of a

commercial agent in Oman are contained with

the Commercial agency laws of Oman, royal

decrees 26/77 and 82/84. they were somewhat

liberalized by royal decree 73/96 which al-

lowed for appointment of more than one agent

i.e., non-exclusive for the same product within

the territory. prior to the amendment, MOCi

had the authority to block parallel imports by

unregistered agents. while the amendment’s

intent was to break the virtual monopoly, in

practice, if a pre-existing registered agency

agreement granting exclusivity to the regis-

tered agent is in place, consent of the registered

agent must be obtained by the principal prior

to the appointment of any additional agents.

in essence, such pre-existing agreements are

grand-fathered in and may only be changed by

express consent. Of note, “commercial agents”

may include distributors.

to establish legal compliance, a commercial

agency agreement must be signed by the for-

eign principal in accordance with prescribed

legal formalities, and it must then be regis-

tered in Oman with the MOCi. registration,

however, does not equate to a right by the

foreign principal to establish a local business

presence in its own name in Oman.

termination of an agency agreement may

prove difficult – where one party to the agree-

ment terminates it, or does not renew it upon

its expiration and the other party to the agree-

ment has duly performed all obligations and

wishes to continue, the non-renewing party

will usually be entitled to compensation for

such termination or non-renewal. the amount

of compensation is subject to the discretion

of the court, and generally amounts to 2 to 3

years’ value of the agency agreement. Of sig-

nificance, a contractual provision attempting

to nullify the right to such compensation is in-

valid, and unenforceable.

this is a rarely used type of business form that

is not suitable for foreign entities.

1919