THE SET UP

Oman 2014 | EXECUTIVE GUIDE | REVIEW

Curtis, Mallet-Prevost, Colt & Mosle LLP reveal the ins and outs of investment and running a business in Oman, as well as provide some key tips on how the legal environment is developing.

There are three main ways in which foreign investors and foreign companies conduct commercial business activities in Oman. They are:

(1) establish a Foreign Company Oman Branch (provided the company has a contract with the government or state-owned companies);

(2) appoint an Omani Commercial Agent; or

(3) establish a Company.

The Foreign Capital Investment Law (RD 102/1994 as amended) requires foreign investors and foreign companies to register their commercial activities in Oman with the Ministry of Commerce and Industry. This law also requires companies with foreign participation to have a minimum share capital of OMR150,000 and a 30% minimum participation of an Omani national.

There are some important exceptions to the Foreign Capital Investment Law (RD 102/1994). These exceptions include US nationals and GCC nationals who benefit from free trade agreements (FTAs). Companies established in one of Oman's free zones are also exempted from the minimum capital requirement and the minimum participation requirement.

EFFICIENCY OF THE LEGAL FRAMEWORK

The legal framework in Oman is under evolution. Therefore, it is necessary to involve lawyers from the conception of any project.

The Sultanate has a three-tiered court system: Primary Courts, the Appeals Courts, and the Supreme Court. As Oman is a civil law jurisdiction, the principle of stare decisis is not well established and higher court decisions do not carry much precedential value. However, the objective of the Supreme Court is to issue judgments, which, thereafter, should not be contradicted by the lower courts.

A final, non-appealable Oman Court judgment should be automatically enforced in any of the other GCC states, by virtue of the 1996 Treaty for the Enforcement of Judgments, Judicial Delegation, and Courts Summons between the Arab Gulf Countries Cooperative Council (AGCC).

ARBITRATION PROCEDURES

Arbitration continues to be popular amongst commercial parties as an alternative to the courts. Arbitration is legally recognized pursuant to the Arbitration Law (RD 47/1997). If parties wish to resolve their disputes by arbitration, the contract must expressly provide for arbitration. In practice, many different arbitration rules and forums are used by foreign investors and foreign companies making investments in Oman. There are two relevant types of arbitral awards in Oman. The first type is an arbitral award rendered in Oman. This award should be automatically enforced in any country that, like Oman, has signed the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. Under the requirements of the New York Convention, any country that is a member of the convention is required to give effect to private agreements to arbitrate disputes. In addition, member countries are required to recognize and enforce arbitration awards made in another contracting country. Oman signed the New York Convention in 1999, and currently there are 149 member countries worldwide.

A second type of arbitral award involves those awards rendered in a fellow member state of the New York Convention. If the respondent to the claim fails to pay the award, the claimant may seek to enforce the award in an Omani court. This particular scenario has not been widely tested in Omani courts, but the terms of the New York Convention would require the Omani court to enforce the arbitral award, just as the courts of all signatories to the New York Convention would be required to do.

DEVELOPMENT OF COMMERCIAL LAW

Commercial law is well developed in Oman. The commercial law of Oman was codified in the Law of Commerce (RD 55/1990). The Law of Commerce provides the statutory basis for commercial transactions in Oman.

The recently enacted Civil Code (RD 29/2013) also applies to commercial transactions where there is no specific law and where the specific law is silent. The Civil Code is compromised of 1086 articles, making it the largest piece of Omani legislation to date. To an extent, the Civil Code consolidates existing Omani legislation.

These general laws are supplemented by specific laws that cover specific commercial activities. Commercial agencies are subject to the Law on Commercial Agencies (RD 26/1977). Engineering consultancy offices are subject to the Law on Engineering Consultancy Offices (RD 120/1994).

There are also sector laws that regulate specific sectors. Sector laws include the Banking Law (RD 114/2000), Capital Market Law (RD 80/1998), Insurance Companies Law (RD 12/1979), Mining Law (RD 27/2003), Oil & Gas Law (RD 8/2011), and Telecoms Law (RD 30/2002).

There is a requirement for persons performing commercial activities in Oman to be licensed by the Ministry of Commerce and Industry (RD 3/1974, RD 102/1994). As the laws of Oman are multifaceted, it is recommend to take legal advice before conducting commercial activities in Oman.

KEY LEGISLATIVE CHANGES

There are legislative changes concerning the development of a legal framework to promote small- and medium-sized enterprises (SMEs) and to endorse Islamic banking.

SMEs

Royal Decree 36/2013 establishing a public authority for the development of SMEs was issued in 2013. One important provision included as part of the Sultanate's initiative to grow SMEs is that small businesses are exempted from many of the registration and filing requirements under the tax laws.

The Omani government has recently showcased an increasing interest in the development and support of SMEs. The initiative is in compliance with His Majesty's directive to support and develop SMEs as “the future engines for the growth of Oman's economy."

ISLAMIC BANKING

The Islamic Banking law issued by Royal Decree 69/2012, by way of an amendment to the existing Banking Law (RD 114/2000), together with Circular IB issued by the Central Bank of Oman adopting the relevant Islamic banking regulations, lays down the foundation for the evolution of Islamic banking in Oman.

While the amendment introduces a new chapter to the Banking Law, it is anticipated that the changes effected by the amendment will be a watershed as Oman embarks upon the age of Islamic banking, finance, and investment.

AVAILABLE COMPANY STRUCTURES & VEHICLES

The Commercial Companies Law (RD 4/1974, as amended) prescribes the legal entities that can be created for commercial activities.

These include partnerships, joint ventures, limited liability companies, and joint stock companies. The most commonly used entity is the limited liability company.

As mentioned, the Foreign Capital Investment Law (RD 102/1994, as amended) introduces minimum share capital requirements and minimum Omani participation in the share capital of the company.

Some sector laws require a joint stock company. For example, listed companies, banks, and insurance companies must be a joint stock company. Real estate companies with foreign participation must be a joint stock company.

There is no practice of “shelf companies" in Oman. Investors either establish a new company or acquire shares in an existing company. When acquiring shares in an existing company it is advisable to perform due diligence.

EMPLOYMENT ISSUES

The labor law provides for the employment of Omanis to the maximum extent possible (Omanization). Omani companies are subject to Omanization requirements. By commercial activities, the Ministry of Manpower sets the percentage of Omani nationals that the company must employ and the applicable training requirements.

Therefore, to employ expatriates, the employer must obtain a prior labor clearance from the Ministry of Manpower. The clearance is subject to conditions such as:

a) Qualified Omanis are not available; and

b) The employer has achieved the minimum sector specific Omanization target.

All expatriate and local employees must have an employment contract. The employment relationship will be subject to the Oman Labor Code (RD 35/2003, as amended).

Courts in Oman tend to favor the employee in employment disputes. In comparison to US, UK, and European employees, employees in Oman are quite well protected. There are statutory grounds for immediate termination. Any termination will require substantial and justified cause.

Therefore, it is recommended to take legal advice when preparing employment contracts and terminating them.

OVERALL FOREIGN INVESTMENT CLIMATE

The Sultanate of Oman is encouraging foreign investment to achieve one of its main objectives, which is to diversify the economy and reduce the economy's dependence on oil revenues.

With this in mind, the Sultanate has enacted legislation that:

1. grants foreign investors the right to freely invest in approved economic activities;

2. transfers the imported capital and export profits and gain without restrains on the project outside;

3. protects foreign investments from confiscation or ownership removal unless it is in line with the general interest. In this case, fair compensation for the investment is to be paid; and

4. provides arbitration and dispute resolution from outside of Oman.

Furthermore, the Sultanate has enacted free zone laws that provide generous incentives for inward investments into Oman. These incentives include Royal Decree 56/2002 (the FZ law), which enables the establishment of free zones in Oman.

There are free zones in Duqm, Knowledge Oasis Muscat, Salalah, and Sohar. A free zone is essentially a special area in which there are certain incentives for companies involved in certain commercial and industrial activities.

ADVICE FOR FOREIGN INVESTORS

Ideally, foreign investors should take independent legal advice when seeking to implement investments in Oman. Appropriate legal advice can help orientate an investor, avoid pitfalls, and ensure that investments are properly structured and documented.