THE LAY OF THE LAND

Oman 2017 | EXECUTIVE GUIDE | REVIEW: ACCOUNTANCY

RSM in Oman, George Mathew LLC provides an overview of what any investor looking to set up in Oman will need to know.

Oman is a thriving economy with modern infrastructure and continuing investments in economic and social sectors. Poised at the entrance to the Arabian Gulf, the source of the world's major oil exports, Oman is in the middle of the East-West trade routes, ensuring easy access to markets in the Middle East, India, South-East Asia, Africa, and Europe.

Membership of various regional associations has further opened up trade routes. Oman's membership of the World Trade Organization (WTO) ensures its adherence to international trade norms and practices. Oman is also a member of the Indian Ocean Rim Association for Regional Cooperation, which opens up a potential market of over 1.5 billion consumers. Membership of the Gulf Cooperation Council (GCC) ensures duty-free export of products within the member countries. The GCC countries have entered into a free trade agreement with Singapore and Oman can benefit from this agreement. Oman has also signed a free trade agreement with the US. This agreement allows US citizens and fully US-owned companies to establish business in Oman without local Omani participation in equity and also to own property in Oman.

Education and vocational training have been given priority by the government to ensure that a professionally trained workforce is being developed. The local labor force can be harnessed and trained to specific requirements. In addition, investors have easy access to a skilled and disciplined expatriate workforce.
Oman has all social amenities and a culturally rich and religiously tolerant society. The traditional hospitality of the country acts as an added incentive for foreign investors.
Oman also ranks highly at 66th place out of 190 countries as per the Doing Business 2017 report published by the World Bank.

Basic Company Law

Foreign Investment Entities

• Choosing the correct business structure for foreign investors' needs is one of the keys to successfully doing business in Oman.
• Foreign entities can set up business in Oman through Limited Liability Companies, Joint Stock Companies, Branch Offices, Representative Offices, and/or through Agencies.
• Most foreign companies form a Limited Liability Company (LLC), as there are far fewer procedural, disclosure, and corporate governance requirements for LLCs than for joint-stock companies.
• The main advantages of an LLC are that it may continue to exist indefinitely, it may service both private and government clients, and it limits the foreign parent company's liability to the amount of its capital contribution.
• All the above entities will require compliance with the provisions of Foreign Capital Investment Law, a Commercial Registration Certificate from Ministry of Commerce and Industry, and registration with the Oman Chamber of Commerce and Industry.
The business activities in Oman are mainly governed, among others, by:
• The Commercial Companies Law
• The Commercial Registration Law
• Foreign Capital Investment Law
• The Income Tax Law
• Labor Law
• Money Laundering Law
Registration formalities
Every business entity doing business in Oman must be registered in the Commercial Register of the Ministry of Commerce and Industry and the Oman Chamber of Commerce and Industry. All non-Omani persons doing business in Oman have to also get approval under Foreign Capital Investment Law.
A non-Omani national, whether a natural or juristic person who wants to do business in Oman or acquires an interest in the capital of an Omani company, must obtain approval to do so from the Ministry of Commerce and Industry. The approval for an LLC is given if the capital is not less than OMR150,000/-. There is a proposal to reduce this limit, however, this is yet to be approved. Non-Omani participation in the capital of a company is not allowed to exceed 70%. However, in certain exceptional cases, 100% of the capital of the company is allowed to be owned by a foreigner by the Ministry of Commerce and Industry provided:

1. The capital of the company should not be less than OMR500,000/-.

2. Projects contribute toward economic development and are approved by the government, OR

3. In case of a direct government contract, a foreign company can register a branch.

Compliance and audit obligations for companies

Audit Requirements

The auditing profession in Oman is regulated by the Ministry of Commerce and Industry. Only audit firms registered with the Ministry of Commerce and Industry are permitted to audit and issue audit reports of entities in Oman.

Joint stock companies have to get their financial statements audited and approved at their annual general meeting, which has to be held within three months of the end of the company's financial year. They must publish the annual audited financial statements in the newspapers within one month of the approval of the said documents in the annual general meeting.

Joint stock companies can appoint only those auditors who are accredited with the Capital Market Authority of Oman. Joint stock companies must rotate their auditors after each four-year period. All Joint Stock Companies have to follow the Code of Corporate Governance issued by the Capital Market Authority.
Brokerage companies licensed by the Capital Market Authority must submit half-yearly audited accounts to the body.

The Central Bank of Oman has made it compulsory for entities that enjoy credit facilities above certain limits to submit their audited financial statements to their banks within four months of the entity's financial year end.
The income tax law requires that all taxable entities with a capital of OMR20,000 or more should attach the audited financial statements with their final tax returns, which must be submitted within six months of the entity's financial year-end.

Filing of Financial Statements

Joint stock companies should file copies of audited financial statements to the Capital Market Authority and to the Commercial Registry at least two weeks prior to the annual general meeting of the company.

Corporate tax law

Income tax law in Oman is simple to understand, administer, and follow.
Business income tax is the only form of direct tax in Oman. Moreover, there is no personal income tax in Oman, which by itself is a big relief to individuals.

Filing of income tax returns

It is mandatory for all taxpayers to register with the Secretariat General for Taxation by filing a prescribed form within three months from the date of incorporation and notify, within two months, any changes in address, name, and legal status
Business organizations holding a Commercial Registration must file provisional and annual income tax returns. Provisional tax returns have to be filed within three months from the end of the financial year along with the payment of tax dues and the final tax return has to be filed within six months of the end of the financial year, along with the audited financial statements as applicable and balance tax payable if any.

Applicability

The Income Tax Law applies to all entities registered in Oman and permanent establishments doing business in Oman.

Chargeability

Income chargeable to tax as per the Income Tax Law means income of any kind, whether in cash or in kind earned in Oman.

Tax Period

The tax year is a 12-month period commencing from January 1 and ending on December 31. However, business entities may apply to the Secretariat General of Taxation for a different period. The first period can be up to 18 months.

Financial Statements and Records

The financial statements must be prepared under the accrual basis of accounting. Prior approval has to be taken for maintaining accounts under any other basis. The financial statements have to be audited by auditors legally licensed to operate in Oman. All accounting books, vouchers, and documents have to be preserved for at least 10 years from the end of the accounting year. All books of accounts have to be maintained in Omani rial. Books may be maintained in foreign currency only with the authorization from the Secretariat General of Taxation.

Rates of Tax

Every taxable entity in Oman shall pay tax at a flat rate of 12% on taxable income in excess of OMR30,000. No tax is payable on income up to OMR30,000. Taxpayers engaged in petroleum exploration shall pay tax at a rate of 55% of the taxable income in respect of any income derived from the sale of petroleum. The word petroleum includes crude oil, natural gas, asphalt, oil derivatives, and associated substances of each. There is a proposal to increase the income tax rate to 15% and withdraw the basic exemption limit, however this is yet to be approved.
Exemption from Income Tax
• All dividend income and also capital gains on sale of shares listed on the Muscat Securities Market are exempted from tax.
• Profits derived from turnkey contracts are exempt from tax, provided the services terminate before reaching Omani ports and the supplier does not conduct business activity in Oman.
• Income from certain specified business activities are also exempt from tax.

Withholding Tax

Withholding Tax is charged on certain payments made by businesses in Oman to foreign companies that do not have a permanent establishment in Oman.

Rate

The rate of withholding tax is 10% of the payment made or credit given.

Exemption

Dividend and interest income do not attract withholding tax.
Customs code

Customs Duty

Customs duty at a flat rate of 5% is levied on the CIF value of all imported goods, except for essential consumer goods, which are exempt. Customs duty is levied at a rate of 100% on alcoholic beverages, tobacco, and derivative products. On meat and meat products custom duty is at 20%. Goods imported for government contracts are exempted from customs duty.
The classification of items for the purpose of determining the custom duty is amended from time to time by ministerial decisions.

Other taxes

Municipal tax is levied at 5% on hotel and restaurant income, 5% on property rents, 10% on leisure and cinema income, and 2% on electricity bills exceeding OMR50 per month. A tourism levy of 4% is charged on the income earned by the entities licensed by the Ministry of Tourism. Value Added Tax (VAT) is expected to be introduced in Oman from 2018.

General business environment

Oman possesses modern infrastructure, a growing industrial base, a stable government, financial and monetary stability, a freely convertible currency, and, most notably, the institutions that protect investors and ensure their access to the market.

The Sultanate of Oman has worked at creating the right climate for new investments by developing a free, competitive economy with equal opportunities for all, and shaping laws and regulations that encourage enterprise. Liberal investor-friendly policies have been implemented, while procedures for clearances and approvals have been simplified.
Advantages of investing in Oman include:
• Stable laws
• Business friendly environment
• Low income tax
• Security
• Strategic geographic location outside the Strait of Hormuz and at the crossroads of the Middle East, Africa, and Asia
Oman is the destination for business investment, both for short term and long term.