The Case for Investing in Oman
The Sultanate of Oman is using its resources to spur growth and expand the economy. Many development programs and policies were put in place to increase production, free the market, keep products competitive, and make the services sector an important part of the economy. Despite low oil prices the economy growth rate has been remarkable. Oman witnessed steady growth in the years 2013, 2014, and 2015. Observers believe the growth will continue in 2016 figures. In this brief review we will attempt to highlight polices and norms that have contributed to this growth and created a better business environment. There are many economic policies that may have contributed to the creation of a better business environment and, consequently, the ongoing growth. In this review we will highlight those that have tangible impact day-to-day effect on businesses, as they are deemed very important in attracting foreign capital and investment.
From as early as 1975 the Sultanate has taken serious actions to improve cross-border trade, reform custom and tax laws, and liberalize its economy to achieve growth. In the year 2000, Oman accessioned to the WTO, and between the years 2002 and 2015, the government enacted and adopted legislation to that affect, thus showing its commitment to improving growth.
Some of the main steps taken to improve the business environment include the adoption of the GCC Unified Custom Regulations in 2003 and the enactment of the Tax Law in 2009 with its implementing regulations that were decreed a couple of years after. In addition to investing in bureaucratic and IT infrastructure the Sultanate of Oman is consistently developing Free Trade Areas, Industrial Areas, and Economic Areas with regulations and guidelines conducive to attracting foreign investments.
In 2003, Oman implemented the GCC Custom Regulations. One of the main objectives of the regulations is to facilitate, organize, and economically exploit trade between GCC members on the one hand and between the GCC states and its trading partners on the other hand.
The GCC unified custom regulations and streamlined the custom fee and custom procedures with the rest of the GCC states. Perhaps unifying the custom charge rate at 5% of the value of the goods is one remarkable feat for these regulations. In addition to providing much-needed certainty, unity of charge, unity of documents, predictability, and lowering risk, these regulations provided stability to the market and kept trade between Oman and the rest of the GCC running smoothly and relatively without problems.
The Omani General Directorate of Customs offers many online services through a portal called “Bayan.” Through this portal importer and exporter or their agent of goods to declare and clear the goods with Directorate General of Customs by filing all the required documents and information online. The portal also allows online submission and registration of manifest for “shipping agents and freight forwarders/consolidators.”
One of the main developments in the taxation area is the introduction of the unified tax rate for businesses in the Sultanate of Oman. The tax rate for foreign as well as national business in Oman is 12% of the annual profit. This is a rate that is considered low compared with many industrialized economies. It is worth mentioning that the rate of 12% applies to gross income after deductions of cost and expenses. Capital gains and dividends are taxable at the same rate.
There is a higher rate of taxation on companies that work on oil exploration. The rate is 55% and is calculated from profit of the actually sold oil.
Incomes from commission or brokerage, from R&D, right to use software, and income from administration/management activities are taxable at the rate of 10%.
According to the law all interests derived from assets are considered income and therefore taxable. For example, the law stipulates that profit from any commercial activities, interest that is derived from a right to use software, rent derived from real estate and equipment, interest from shares and bonds, insurance proceeds, and profit derived from the use of intellectual property are all considered income and therefore taxable. With the exception of profit from IP rights all these types of income are taxable at a rate of 12%.
What is Deductible?
The law allows businesses to deduct at least 10 types of expenses and costs. These include: licensing and filing fees; employee salaries; social security amount paid to the Social Security Administration per the social security law; retirement fund monies; unrecoverable debts, except debts that are regulated by other laws such the central bank regulations concerning banks and finance institutions; cost of acquiring assets except the cost of acquiring assets of exempted entities; depreciation in assets; auditors fees and or cost; cost of sponsorship to the business; and up to 5% of the taxable income to approved charities or entities.
Who is exempted from tax?
According to the law certain industries and activities are exempt from taxation, for up to five years, renewable. These include companies that work in the following fields: manufacturing; mining; exportation of domestically made or assembled products; operation of hotels and tourism; farms- farms products, farms and animals by products; fisheries and fish farms; educational institutions; health and medical companies; and private hospitals.
The law requires taxpayers to maintain book and accounting papers in Omani rial and also requires the keeping of records for 10 years.
Personal Income Tax and VAT
In addition to low corporate tax rate, Oman’s citizens and expatriates equally benefit from no personal income tax and no VAT.
Resolution of Tax Disputes
The law allows, within 45 days from the day the taxpayer is informed of the taxes levied upon it, to dispute or object to the amount of the taxes and any decision thereof at the Director of Taxation Department at the Ministry of Finance. If the taxpayer is not satisfied with the director’s decision it may, after 45 days from the director’s decision, petition the Committee for Income Tax. The Committee is part of the Ministry of Finance. Finally, if the taxpayer is not satisfied with the Committee’s decision or resolution it may resort to the civil court and petition the Court of First instance for relief. All tax disputes that were filed with the court of first instance could be appealed to the appellate court and the Supreme Court.
Oman has four free trade areas or zones: Salalah, Sohar, Al Mazyonah, and Al Duqum. All these areas offer many incentives to foreign businesses. In addition to the no duty charges on goods, some of them offer tax incentives such as 10 years of no corporate tax. In some situations there is a tax exemption for up to 50 years. Free zones also require no startup capital. A foreign company can register a free trade entity and own a 100% of it. Rent of warehouses is very competitive and expedite licensing processing is also available in some of these zones. Some of these areas also require only a minimum of 10 % of the employees be Omani nationals.
In addition to the Free Zones, in Oman there is also what is termed “economic areas,” such as the Knowledge Oasis in Muscat and seven “industrial areas.” Three more industrial areas are under construction. The economic and industrial areas offer foreign investors lots of incentives to do business in Oman. Some offer similar incentives to those offered by the free zone areas.
Investing in IT and Bureaucratic Infrastructure
In the last few years the government has introduced several initiatives to facilitate business formation and make doing business in Oman easy. Such initiatives, for example, include the use of IT and online services to transact with government and authorities. One shining example of these initiatives is “Invest Easy” portal. It is the Ministry of Commerce and Industry website for helping applicant and registered companies to transact with government. Through Invest Easy businesses could register and apply for license, modify registration, pay fees, submit annual reports, and find business information from their desks, and so on. The portal provides 76 services. Many of the tasks and services can be done within hours now. In the past it used to be weeks, if not months. To give a better picture of what invest easy has achieved, in September of 2016, the Ministry announced that just in seven months, as many as 46,722 economic activities authorization were received online through the Invest Easy portal. All these applications and activities took place from February to August 2016. Out of the total number of transactions, 45,430 were completed and 1,264 were pending at the time the announcement was made. Approximately 28 were rejected for not following with the required conditions.
All in all, given the government commitment to make doing business easy, the existence of IT and bureaucratic infrastructure and the very encouraging regulatory regime and policies there has not been a better time to do business in Oman. Investors should expect the continuing commitment of the government to achieving a higher growth in the coming years. They should also expect the government to keep investing in infrastructure, education, maritime transportation, and all other sectors of the economy. With the existence of the current polices and regulatory regime, which are conducive to businesss, there is only growth and economic prosperity in the future of the Sultanate of Oman.
*Ali Gouda, Gouda, Esq., is a senior legal counsel with the law firm of Al Yahayei & Salt. He works on issues of business law, taxation, corporate, and civil practice.