Situated in the southeastern region of the Arabian Peninsula, the Sultanate of Oman serves as the gateway to the Arabian Gulf via the Strait of Hurmuz, which connects to the Arabian Sea. This strategic location is of great significance in the realm of international trade, as one-third of the world's petroleum traded by sea passes through the Strait of Hurmuz.
With a vast coastline spanning 2,092 kilometers along the Indian Ocean, Oman offers ample opportunities for the establishment of free and industrial zones in coastal cities. This not only benefits Oman but also presents a secure and attractive investment destination for other countries. The government of Oman heavily relies on oil and gas as its primary source of income. However, the country is also diversifying its economy by focusing on sectors such as fishing, mining, tourism, manufacturing, logistics, and other sources of revenue. Furthermore, Oman actively encourages foreign investors to participate in these sectors.
The Omani government has made substantial investments in developing a comprehensive public transportation network, including a railway project that will connect Oman with other member states of the Gulf Cooperation Council (GCC). This initiative will provide a convenient option for the movement of goods and people between the Gulf states.
Oman has entered into numerous international agreements, such as Free Trade Agreements (FTA) and World Trade Organization (WTO) agreements with the United States. Additionally, negotiations are underway for an FTA with the European Union, which will further enhance the legal framework for investment in Oman. These agreements offer attractive incentives to investors from countries that are party to these agreements, including lower tax rates, customs exemptions, and equal treatment to ensure a level playing field for both domestic and foreign investors.
When it comes to setting up a business in Oman, there are various structures and corporate forms available, depending on the nature of the products or services offered by the business. Investors have two main options: mainland Oman or the free zones of Oman. Each option has its own advantages and considerations, allowing investors to choose the most suitable approach for their business endeavors in Oman.
The Legal structures
There are three primary legal structures that companies can utilize to establish a business presence in Oman. A direct approach involves either a sole proprietorship or a corporate entity, while an indirect approach involves working with commercial agents.
The Sole Proprietorship
A sole proprietorship operates under a straightforward business model, where an individual conducts trade using a trade license issued in their name. Unlike a company, this type of business entity, known as an 'establishment', does not have a separate legal identity from its owner. Consequently, the sole proprietor is personally responsible for all the business's liabilities, with their assets being fully liable.
In Oman, sole proprietorships can be formed by Omani nationals and nationals of GCC countries. However, a concerning trend has emerged in recent years, where Omani nationals obtain trade licenses for sole proprietorships and then lease them to expatriates who assume management roles and retain all profits. This arrangement is not advisable, as it is illegal and can lead to complications if the business relationship between the parties deteriorates.
It is important to note that the legal holder of the trade license bears 100% liability for debts incurred with third parties, regardless of any private arrangements. To establish a sole proprietorship, the relevant documents must be submitted to the One-Stop-Shop at the Ministry of Commerce and Industry. The Chamber of Commerce and the Municipality also play a role in issuing the necessary licenses, with the main trade license being issued by the Ministry of Commerce and Industry.
The Corporate Forms
There are multiple legal structures to choose from when establishing a business in Oman. An overview of different corporate entities is provided, highlighting key features based on the Commercial Companies Law, Sultani Decree number 4/1964, as amended, which governs corporate entities in the country.
You must submit the necessary documents to the One-Stop-Shop at the Ministry of Commerce and Municipality, where you can obtain the required licenses such as the main trade license issued by the Ministry of Commerce and Industry.
There are different legal corporate forms to choose from when setting up a business in Oman. An overview of the various corporate vehicles available, along with a comparison of their features based on the Commercial Companies Law and Sultani Decree number 4/1947, which are the main laws governing corporate entities in the country.
The personal name
The company's operations are limited to the partnership between the partners and do not extend to third parties. The company's existence is confined to the agreement between the partners and should not be disclosed to outsiders. The partnership arrangement is the core of the company. Each partner is responsible for conducting business in their own name and cannot represent the interests of other partners. The liability of partners conducting business is unlimited and tied to the company's liabilities. Once the liability of other partners is revealed, the venture will be treated as a general partnership for all intents and purposes.
Joint participation ventures are favored by foreign companies looking to establish a short-term presence in Oman for specific projects. These ventures are established with some involvement from government entities. No formal registration is required for this type of company, as it lacks a separate legal identity.
The Joint Stock Company
The Commercial Companies Law (CCL) governs the operations of the Joint Stock Company (JSC), which is defined as a company with its capital divided into negotiable shares of equal value. Shareholders are only liable to pay for the subscribed shares they own, and their liability is limited to the nominal value of those shares. The CCL allows for both closed and public JSCs.
The Public Joint Stock Company (PJSC)
The PJSC is comparable to a public limited company in the United Kingdom. According to the CCL, the shareholders of a PJSC are responsible for the value of their shares in the company's capital. Each share of a PJSC must have a nominal value of less than 100 Baiza and not exceed OMR 1. The minimum share capital requirement for a general company is OMR 2 million, while it is OMR 20 million for a banking entity and OMR 5 million for an insurance company.
The Closed Joint Stock Company
A closed joint-stock company, also known as a PJSC, has several differences. Firstly, the minimum capital requirement for a closed joint-stock company is OMR 500,000. Additionally, shares of a closed joint-stock company cannot be offered to the public. Lastly, the shares of a closed joint-stock company are listed on the third market, while the shares of a PJSC are listed on the primary market.
It is worth noting that closed joint-stock companies are favored by foreign investors due to their lower capital requirement of OMR 500,000. Moreover, the procedures for establishing a closed joint-stock company are similar to those of a PJSC.
The Limited Liability Company (LLC)
The CCL governs the LLC, which is a popular choice for foreign investors looking to establish a business in Oman. LLCs in Oman are similar to private limited liability companies in the United Kingdom. However, it is important to note that LLCs are not allowed to engage in insurance, banking, and investment activities on behalf of third parties. In such cases, a PSJC must be established. According to the CCL, an LLC is defined as a company with limited liability, with the number of partners ranging from two to forty. Each partner is liable to the extent of their share in the capital, and their participation cannot be represented by negotiable certificates.
Here are some key points to consider about LLCs:
1. Public subscription for raising capital is not permitted.
2. A foreign partner can own a maximum of 70% of the company's capital, and the day-to-day management can be entrusted to a foreign manager.
3. The managers can be one or more of the partners or other parties, including foreigners.
4. National partners often have minimal involvement in the company's operations and may grant the foreign partner a power of attorney to vote on their behalf in the general assembly, but only for matters permitted by the CCL.
5. The distribution of profits and losses can be different from the share capital ratio, as stated in the Memorandum (also known as the Constitutive Contract under the CCL).
6. An accredited auditor in Oman must be appointed.
7. The appointment of the auditor is done by the general assembly, which consists of all the shareholders of the company.
Please note that these steps and regulations are specific to LLCs in Oman and should be followed accordingly.
The Holding Company
Holding companies are not widely favored due to their high capital requirement and complex structure, which amounts to OMR 2,000,000.
The objectives of a holding company should encompass the following:
1. Managing subsidiary companies or participating in the management of other companies that possess shares.
2. Investing its funds in bonds, shares, and securities.
3. Providing guarantees, loans, and funding to its subsidiaries, other companies, and holding trademarks, patents, concessions, and other intangible rights.
Additionally, exploring and leasing them out to its subsidiaries and other companies.
The Ministry of Commerce and Industry issues regulations governing holding companies and their subsidiaries. Foreign investors typically do not choose the legal form during their initial investment. Instead, they make this decision as their business progresses and there is a need to incorporate one of the aforementioned points.
The Branch Office of a Foreign Company
Foreign companies often choose to take advantage of the option to have 100% foreign ownership and establish a branch office of their parent company.
The establishment of branch offices for foreign companies in Oman is regulated by the Foreign Capital Investment Law, which was initiated through Sultani Decree number 102/94.
A branch office is considered a legal extension of its parent company and does not have a separate legal identity.
The branch office shares the same name as its parent company. In order to establish a branch office, the foreign company must have a contract with a government entity or a company that is wholly owned by the government.
As part of the registration process, the foreign company must provide an undertaking that states it will bear the liabilities of the branch office and the actions of its branch manager.
Typically, the branch office's operations are limited to the duration of the project it is established for in Oman. It is not allowed to engage in any other type of work for third parties.
The activities of the branch office must align with those of its parent company. Any additional activities must first be approved by the parent company and then registered with the Ministry of Commerce and Industry.
The Representative Offices of Foreign Companies
The Representative Office Regulatory Law, introduced by ministerial decision number 22/2000, governs the operations of representative offices. A representative office of a foreign company is legally separate from a branch office, allowing it to promote the parent company's activities.
If a parent company specializes in the sale and production of specific products and establishes a representative office in Oman, the office can market and promote these products, facilitate contracts, but cannot engage in direct sales or production.
In addition to the mentioned restrictions, representative offices are not permitted to obtain credit facilities or submit offers.
To set up a representative office in Oman, the parent company must submit a certified copy of the articles of association, authorization for the office manager, a certified copy of the commercial registration certificate, and a letter of undertaking to assume all office liabilities.
Foreign companies in Oman typically trade through importers and traders, which may not be suitable for continuous, high-volume trading. For overseas manufacturers or traders looking to import goods regularly in large quantities, establishing a commercial agency with a local trader or agent is recommended.
Commercial agencies are registered in the commercial agency register maintained by the Ministry of Commerce and Industry.
The Registered Commercial Agent
The Registered Commercial Agency is described in the Commercial Agency Law, Sultani Decree number 26/1977 as amended, as "the agreement in which a merchandise or a commercial company agrees to promote or sell a product or provide services in the capacity of an agent, representative, or mediator on behalf of the supplier or principal in exchange for a commission or profit." This provision is particularly relevant in this context.
Innovative Digital offers assistance with setting up your business by registering a company in Oman.
You may also find the following services of interest:
- Salalah Free Zone Oman
- Oman Special Economic Zone of Duqm
- Oman Mainland Company Formation
- Company Formation in Oman
- Business Setup Service in Oman.
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