Monday, June 19, 2017

Petition Orders: Oman's Injunctive Relief Mechanism

What are petition orders? 

A petition order, or an application for injunctive relief, is a mechanism that allows a petitioner to seek a declaratory judgment on an emergency basis when irreversible harm is reasonably feared to be imminent.

Common examples of when a petition order would be appropriate are when a petitioner reasonably fears that key evidence is at risk of being physically destroyed or damaged and when there is reasonable belief that recoverable assets will be removed from a sovereign territory.

A petitioner’s right to seek interlocutory or injunctive relief is established in Chapter 10 of the Civil Procedure Law (promulgated by Royal Decree 29/2002). Article 190 thereof expressly provides:

“In cases where the law sets out the legal right of the litigant to bring about an injunction he shall apply by petition to the judge for the provisional matters or to chairman of the panel which examine the case. The said petition shall be of two counter parts and includes facts of the application and supporting documents besides stating a domicile of choice to the applicant at the city in which the court is located.” 

The application for a petition order must be sufficiently detailed so as to enable the judge to review the file and to make an informed determination on its merits. Further, the application, and all assertions made therein, must be fully substantiated with evidence.

What is the process for filing a petition order? 

A petition order should be filed with the Primary Court – Commercial Circuit. The Primary Court will have exclusive jurisdiction to review the application, and to determine whether to issue a petition order. There is a presumption that the petition order will be immediately enforceable in the event that a favourable decision is granted by the Primary Court.

It is important to note that petition orders are not ex parte applications, that is, the party against whom the petition order is filed (i.e., the respondent) must be served, and must respond. Notwithstanding this, the Primary Court still may issue an interim decision prior to considering the respondent’s rejoinder, if it believes the circumstances indeed warrant immediate action.

The respondent will have the right to appeal the Primary Court’s decision to the Appeal Court, and, if necessary, to appeal the Appeal Court’s decision to the Supreme Court. However, a petition order issued by the lower courts will remain enforceable even if the respondent elects to appeal. It is only if the respondent is successful upon appeal that the petition order will be lifted.

Under what circumstances will a petition order be granted by the Omani courts? 

Article 190 of the Civil Procedure Law only permits the courts to consider injunctive application when the application itself is substantively grounded in a specific law. The legislature has chosen to regulate petition orders in this manner in order to prevent frivolous and groundless injunctive applications from being filed.

We touched on a few common examples as to when an injunctive order may be grounded in a specific law. Some further examples include:

  • the right to arrest a ship, pursuant to the Omani Maritime Law (promulgated by Royal Decree 35/1981), when it is reasonably feared that a vessel may leave Omani territories when there is a commercial debt owed; 
  • potentially freezing assets when parties are in the midst of a financial dispute; or 
  • seeking a travel ban on an individual when a criminal investigation may be forthcoming, pursuant to the Omani Penal Code (Royal Decree 77/1974).

Conclusion 

Injunctive relief is available in Oman in certain circumstances. Such a mechanism can be a valuable tool in disputes in which issues might be time-sensitive, or there is a risk that key evidence may be lost.

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Monday, June 12, 2017

Drafting Practical Arbitration Clauses in Oman

In recent years, arbitration has become an increasingly popular vehicle for dispute resolution in Oman. However, when preparing an arbitration clause, there are key elements that must be considered to ensure that the clause itself is both comprehensive and operates as intended by the parties.

This article will explore some of the key features that should be considered when preparing an arbitration clause.

Scope of the arbitration clause 

When preparing an arbitration clause, it is important to ensure that the clause decidedly covers all disputes that could potentially arise between contracting parties in connection with a specific contract. It is therefore recommended to construct the clause as broadly as possible, to ensure that certain types of disputes are not inadvertently excluded from the scope of the arbitration clause. Therefore, contracting parties may wish to include broad language in the arbitration clause to this effect.

Pre-dispute settlement 

Disputing parties may prefer to undertake a “good faith” attempt to settle any dispute prior to referring the matter to arbitration. Generally, however, it is difficult to determine whether negotiations have truly been made in “good faith.” Thus, a “good faith” negotiation by itself, without any other qualifiers, may cast doubt as to when a party’s contractual right to refer a matter to arbitration has matured.

Therefore, it is recommended to set a time frame within which the parties must reach an amicable settlement, to ensure that there is no question as to whether a party’s right to refer a dispute to arbitration has crystallised.

Forum 

Another important consideration is the forum for the arbitration. Essentially, the parties will have two options: (i) to select an international arbitral institution as the forum or, alternatively, (ii) for the arbitration to be administered as an Omani ad hoc arbitration, under the Omani Arbitration Law. It is important to note that if the parties’ contract does not specify a forum, the arbitration will then be administered as an Omani ad hoc arbitration, by default.

There are several prominent international forums from which contracting parties may select, including the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”) as well as the Dubai International Financial Centre – London Court of International Arbitration (“DIFC-LCIA”).

There are many advantages to selecting an international forum when compared to an ad hoc arbitration, most notably the involvement of the court-appointed secretariat. The secretariat will be responsible for ensuring that all aspects of the arbitration, from commencement to the final award, are efficiently administered. In doing so, the secretariat will manage all pre-arbitral issues, including the tribunal selection process, and by crystallising the issues in dispute. The secretariat will also play a vital role during the course of the arbitration, as well as when the final award is rendered.

Formulation of the tribunal 

The parties are free to determine whether they prefer a sole arbitrator or a three-member arbitral panel. It is recommended that the parties specify their preference in the arbitration clause itself.

If the arbitration clause provides for a sole arbitrator, the parties should be given a reasonable opportunity to mutually agree to the appointment of the sole arbitrator. However, either party may, at any point in time, apply to the President of the Commercial Court to seek the appointment of a sole arbitrator, pursuant to Article 17(1) of the Omani Arbitration Law (promulgated by Royal Decree 47/1997).

In arbitrations comprising three-member panels, it is customary for both parties to nominate an arbitrator to sit on the three-member tribunal, with the claimant nominating their preference first, and the respondent shortly thereafter. The two appointees would normally then be required to nominate the tribunal chair.

However, in the latter scenario, it is recommended to provide the respondent with a specific deadline for appointment of its nominee, after it has been formally notified that the dispute has been referred to arbitration. Likewise, the two appointed nominees should be given a specific time frame within which to appoint the tribunal chair.

It is important to note that under Article 17(2) of the Omani Arbitration Law, the respondent will be given 30 calendar days to make its selection from the date that it is requested by the claimant to do so. Similarly, the two appointed arbitrators will also have 30 calendar days to nominate the tribunal chair after they have been tasked with the assignment. If the time period lapses regarding the respondent’s appointment of arbitrator, or the appointment of the tribunal chair, an application may be made to the President of the Commercial Court seeking the appointment of the same.

Language 

It is recommended that the arbitration clause specifies the language in which the parties wish for the arbitration to be conducted. If the parties do not specify a language for the arbitration (other than Arabic), and the arbitration is governed by Omani law, the arbitration will, by default, be conducted in Arabic.

However, it is important to note that the parties may agree for certain components of the arbitration to be in another language. A common example is when the parties wish for the arbitration to be conducted in Arabic, but prefer for the evidence and supporting documents to remain in their original language.

Governing law 

It is recommended that the parties specify the governing law in the arbitration clause itself. When selecting the governing law, it is important to note that, generally, both the substantive and the relevant procedural laws of that specific country will be applicable.

Seat of the arbitration 

Selecting the “seat” of the arbitration – not to be confused with “place” of the arbitration – is in direct reference to the jurisdiction in which the arbitral proceedings will be conducted. Therefore, the specified “seat” will enable the courts of that jurisdiction to review any procedural, emergency or interlocutory applications that could be filed from time to time. It also may be prudent to select a specific city within a sovereign territory, as certain international arbitration institutions often require a city as the “seat.”

To avoid any unnecessary confusion, it is recommended that the seat of the arbitration be a domicile within the same territory as the governing law. Therefore, if the parties wish to adopt Omani substantive law, the parties should consider agreeing to Oman (or a specific city in Oman) as the seat of the arbitration.

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Monday, June 5, 2017

Bring in the Linguists: Common Arabic/English Legal Translation Issues

Introduction 

Any legal practitioner who has been working for some time in the Sultanate of Oman – or in the wider Arab world - will be familiar with the pitfalls that can develop when legal documents are translated from English to Arabic or vice versa.

Much of the time, mistakes in translation are harmless enough either to pass unnoticed or to give rise to nothing more serious than wry amusement. But there are instances in which the consequences of mistranslation can be more serious.

Under Omani law, all documents, correspondence and agreements submitted to the Government must be in Arabic. Omani courts and tribunals will consider and construe only documents submitted in Arabic.

When issuing a prospectus for the offering of securities in Oman, the Arabic-language version approved by the Capital Markets Authority is, by law, the official version of the prospectus. If any difference or discrepancy arises between the Arabic and the English texts, the Arabic text prevails.

In practice, many of the above documents are first prepared in English, then translated into Arabic. Conversely, when non-Arabic speaking lawyers are advising clients on local legislation, they will be relying on translations from Arabic into English.

It is easy to see how, in the above examples, even an apparently small translation error could have regrettable repercussions.

Problems specific to translating legal documents between Arabic and English 

In his 2002 article, “What is so Special about Legal Translation?” Malcolm Harvey describes the challenge of legal translation as “combining the inventiveness of literary translation with the terminological precision of technical translation.”

The challenge is compounded when translating legal English into Arabic or the other way around, not only because of the gulf between the English and Arabic languages, but because of the wide differences between English common law and the civil law system prevalent in the Arab world.

There are many technical terms in legal English that only make sense in a common law framework, and for which there are no direct equivalents in either Sharia or Arab civil law. Similarly, legal Arabic incorporates elements of both Sharia and Arabic civil law, many of whose concepts have no counterpart in English common law.

Such specialised legal terms often have fixed legal meanings and cannot be replaced by other words. In these cases, literal translation by the unwary is unlikely to offer a correct rendering of the term. 

Further, in legal English, lawyers still use Old and Middle English terms such as “hereby,” “hereof,” “hereinafter,” “thereby” and “aforesaid.” To add to the mix, legal English employs many Latin terms and expressions, some of which date back to the Middle Ages, such as “contra proferentem,” “delegatus non potest delegare,” “res ipsa loquitur,” et cetera.

Archaic English or Latin terms can often be translated perfectly accurately into modern Arabic. Sometimes such terms can safely be omitted altogether when they do not affect the meaning of the whole text. However, in cases in which no accurate equivalent is available and the term cannot be safely ignored, the translator will need to act as a cultural intermediary. He may have to interpret the wording conceptually rather than literally, then paraphrase fully the intended effect of the term or expression to avoid losing vital meaning in translation.

There are numerous English legal terms of art which are almost invariably mistranslated into Arabic, such as “indemnity,” most often translated as تعويض, the typical back-translation of which would be “compensation.” To any lawyer trained in the common law tradition, this rendering is gravely deficient.

The Arabic word رهن is used for both “mortgage” and “pledge,” while “assignment” is translated into Arabic by (inter alia) the words احالة، نقل and تنازل, used seemingly interchangeably. Unfortunately, depending on context, each of the three can convey an entirely different meaning. Unless the translator has sufficient grasp of the legal purpose of the document to be able to determine in such cases which meaning is intended, confusion is inevitable.

Conclusion 

To avoid the dangers posed by the specific problems inherent in translating legal documents between English and Arabic, practitioners need to ensure they are entrusting the business of legal translation to professionals with the necessary expertise.

Legal translators must have in-depth linguistic training and knowledge of the source language, and should ideally be native speakers of the target language. Finally, they must be steeped in the local culture and have a firm grasp of the applicable legal concepts and terminology.

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Monday, May 22, 2017

Oman Free Zones or Oman Onshore: Where Best to Operate?

Establishing an entity in a free zone area offshore Oman – as opposed to establishing it onshore Oman – has its many advantages and privileges.  These include: 100% foreign ownership, no minimum capital requirements, no custom duties, and a strategic location on the international trade route, among others. In addition, all free zones in Oman offer a single window (one-stop shop) through which licenses, permits and approvals can be obtained in an effort to streamline procedures required to set up entities within them.  The authority to set up such a one-stop shop has been accorded to free zones via Royal Decrees.  For example, Article (13) of Royal Decree 79/2013 – Issuing the Regulation for the Special Economic Zone at Duqm – states that the free zone authority shall have the functions of the General Secretariat of the Commercial Register at the Ministry of Commerce and Industry regarding the registration of projects,  meaning that the free zone authority will be able to issue approved commercial registration documents to set up entities in the zone.

The procedures required in order to set up an entity in a free zone area differ from those required to set up an entity in onshore Oman.

In order to set up an entity in onshore Oman, the party aiming to establish the entity must complete the following steps:

  • Step 1 – Set up a bank deposit of the required capital;
  • Step 2 – Register the entity commercially via the Ministry of Commerce and Industry’s one-stop shop; submit an application form with the necessary documents and pay the necessary fees;
  • Step 3 – Obtain licenses and permits required from the relevant ministries and authorities, which will depend on the nature of the business being established; and
  • Step 4 – Obtain a permit from the Muscat Municipality; this step entails submitting all the approved applications from other relevant ministries and authorities, and paying the required fees.
In order to set up an entity in a free zone offshore Oman, the party aiming to establish the entity must complete the following steps:
  • Step 1 – Submit a plot application form along with other necessary application forms to the designated one-stop shop at the free zone;
  • Step 2 – Obtain the internal approval of the free zone and be allocated a plot; this step entails obtaining a letter of “no objection” from the free zone, completion of a due diligence report on the entity being established, the selection of a plot and the payment of the required fee amount; and
  • Step 3 – Sign the land lease agreement.
The application forms required to set up the entity in the free zone depend on the nature of the entity being established. The following table highlights the required forms depending on whether the entity being established will be a limited liability company or a branch of an existing company:


Limited Liability Company
Branch of an Existing Company
1
Copy of current Certificate of Registration of the company or Certificate of Good Standing
Copy of the Certificate of Incorporation or Certificate of Good Standing of the parent company
2
Copy of the Memorandum and Articles of Association
Copy of the Memorandum and Articles of Association of the parent company
3
Original board resolution specifying establishment at the free zone area and appointment of manager along with a copy of his passport and specimen of signature
Original board resolution stating the setting up of a branch at the free zone area and appointment of a manager for the branch along with a specimen of his signature and a copy of his/her passport

All of the above documents are to be notarised by a notary public in the country of its origin and attested and consularised up to the Omani Embassy situated therein. 

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Monday, May 15, 2017

A New Law Re-defining Some of the MOCI's Responsibilities

Royal Decree 11/2017 (the “New Law”) issued on 12 March 2017 seeks to redefine some of the specialisations (i.e., responsibilities) of the Ministry of Commerce and Industry (“MOCI”).  In other words, under the New Law, a number of the MOCI’s responsibilities have been reallocated to other departments, for example, responsibilities concerning the mining sector, commercial ventures concerning artistic works, and consumer protection.  This article summarises some of the key changes to the specialisations of the MOCI and aims to provide an overview on the changes.

The New Law repeals Royal Decree 102/2005 (the “Old Law”) which originally determined the MOCI’s structure and specialisations.

In practice, the MOCI undertakes various activities through the numerous departments.  These activities include governing commercial entities, facilitating the commercial and industrial sides of the relationship between the Sultanate of Oman and other countries, generally improving the various sectors and their contributions to the economy as well as many other matters in relation to the commercial and industrial sectors in the Sultanate.

The New Law specifies the various activities that the MOCI shall undertake.  Further, there are a number of activities that have been removed from the MOCI’s responsibilities.  For example, Royal Decree 49/2014 had established the Public Authority for Mining (the “Mining Authority”) and specifically noted that the Mining Authority is to form part of the MOCI.  However, the New Law does not mention the Mining sector at all, in contrast to the Old Law which specifically mentioned that the MOCI governs improving the relationship between the Sultanate and other countries in the commercial, industrial and mining sectors.  This change can be construed as granting the Mining Authority greater autonomy from the MOCI.

Another example of the amendment made by the New Law is the exclusion of the MOCI from inspecting shops and commercial establishments that operate in the sector of artistic works.  Omitting these provisions from the New Law suggests that this task has been reallocated to a different branch of the government apparatus.

Another important amendment concerns the task of specifically protecting the consumer and spreading awareness in this regard.  Previously, the MOCI was tasked with all matters in relation to consumer protection. However, Royal Decree 26/2011 established the Public Authority for Consumer Protection (the “PACP”).  Therefore, tasks in relation to consumer protection were transferred through Royal Decree 53/2011 to the PACP including the task of protecting consumers and spreading awareness in relation to these matters.  Certain matters in relation to products and commodities have remained under the authority of the MOCI, such as determining the specific measurements of certain products and inspecting their quality.  However, the main task of protecting the consumer has now been transferred to PACP, who in certain matters may consult the MOCI for certainty.

Generally, the New Law can be seen as an amendment to and replacement of the Old Law in many provisions and an accounting of the changes that have taken place in the past twelve years, as aforementioned. Certain other provisions have remained the same or have been partly amended in a manner as to improve the structure and interpretation of the law.


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Monday, May 8, 2017

Establishing a Non-Profit Organisation in Oman

Applicable law

The establishment of a charitable organisation falls within the scope of the Civil Association Law - Sultani Decree 14/2000 (the “CAL”) rather than the Commercial Companies Law - Sultani Decree 4/74 (the “CCL”). The CAL is implemented and regulated by the Ministry of Social Development (the “MSD”) and governs the conduct of any form of communal or charitable work, or the operation of associations for socio-cultural or developmental purposes, through the establishment and operation of not-for-profit entities. Companies or individuals that are seeking to establish an Association must consider formally registering the Association in MSD. The MSD is authorised to impose penalties if an Association does not comply with CAL.

The CCL is not applicable to not-for-profit purposes, or for social, cultural and charitable activities, as a commercial company is essentially a contract by which two or more persons undertake to participate in an enterprise for profit, with a view to sharing any profit or loss resulting from the enterprise. Article 131 of the CCL provides that a “limited liability company is a commercial company with a fixed capital divided into equal shares.” Therefore, it is the element of profit that distinguishes a company from a charitable organisation, causing a charitable organisation to fall within the ambit of the CAL.

Article 1 of the CAL defines an “Association” as “any permanent group of natural persons organized to achieve purposes other than profit making and aiming at performing social, cultural or charitable activities. This includes associations, social and cultural clubs established by private institutions, companies and organizations, regardless of the name given to them, even if physical sports are among their activities, unless sports are the main activity of the association or the club.” An Association is permitted, by Article 4 of the CAL, to engage in the activities of providing care for orphans, children and mothers; women’s services; care for the elderly; and care for people with handicaps and special needs.

In the event that an activity which is intended to be undertaken by an Association is not provided for by Article 4 of the CAL, then the MSD must, upon receipt of a written application from the intending sponsors of the Association, obtain the prior approval of the Council of Ministers for the activity to be conducted by the applicant Association.

The establishment of an Association under CAL

In order to establish an Association, Article 9 of the CAL requires the founding members to elect from amongst themselves the first board of directors of the Association, of whom one member must be authorised to act on behalf of the Association for the registration of the Association. The registration application is submitted to the MSD together with copies of documents signed by the chairman of the board and the coordinator, including names of the founding members and the board members; minutes of the founding members’ meeting; minutes of first board of directors’ meeting; and board of directors resolution nominating the person to be responsible for undertaking and completing the registration of the Association and the by-laws of the Association.

Once the above documents are submitted, the MSD shall, subject to its right of refusal under Article 11, register the Association. The Association then acquires its legal personality from the date of publication of its registration in the Official Gazette.

The Association remains under the general supervision of the MSD in accordance with Article 17 of the CAL. Supervision is undertaken by investigators appointed by the MSD, who have the right to enter the premises of the Association and examine its registers, books, documents and correspondence. The MSD must be informed, in writing, of each meeting of the general assembly of the Association at least fifteen days prior to the meeting and must be provided with the agenda and the accompanying documents in accordance with Article 23 of the CAL. The MSD is to be informed of the results of the Association’s board meetings, as well as resolutions passed at such meetings. Copies of the minutes of the meeting are to be sent to the MSD within fifteen days from the date of each meeting, pursuant to Article 32. Article 33 gives MSD the right to annul the decisions of a board meeting if the meeting was convened in violation of the law or the by-laws of the Association.

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Sunday, April 30, 2017

Enforcing an Arbitration Award in Oman: Key Considerations

Many commercial contracts in Oman contain arbitration clauses.  The types of arbitration clauses often encountered include arbitration pursuant to well-known procedures such as the LCIA Arbitration Rules or ICC Arbitration Rules, or ad hoc arbitration under Royal Decree 47/1997 (the “Arbitration Law”).

The outcome of any method of arbitration is the publication of a final award by the arbitral tribunal.  However, as the arbitral tribunal is not a court, it is sometimes necessary for the successful party to take steps to enforce the final award against the unsuccessful party.
It is important to obtain legal advice in relation to the enforcement of any arbitral award.  Generally, the process for the enforcement of the arbitration award is as follows:

1. Firstly a party should check if there are any errors in the final award, such as typographical or mathematical errors, that affect the outcome.  It may be possible to have mere typographical or mathematical errors corrected by applying to the arbitral tribunal under Article 50 of the Arbitration Law.  Any such error must be corrected within 30 days. 

2. It is a good idea for the successful party to send a letter of demand to the other party stating that, per the arbitration award, the other party should pay the amount of the award.  This may save the need for any enforcement proceedings.  The letter should specify a time period for payment.  Often the contract will specify such a time period.  However, bear in mind that little can be done in the first 90 days if the other party fails to pay, irrespective of what the contract states.

3. If the other party fails to pay within 90 days from the date of the award, then a party should deposit the arbitration award with the Commercial Court for registration.  If the award is not in Arabic, an official Arabic translation must be included.  The Commercial Court will typically stamp the award within one week from the date of depositing the award. 

4. Thereafter, a party should arrange for its lawyer to submit an enforcement application to the Commercial Court.  The Commercial Court will then notify the other party about the enforcement application and will direct the other party to deposit the award sum per the award within seven days of being notified.

5. If the other party does not deposit the award sum within seven days of being notified, then the successful party should submit a letter to the enforcement department requesting the Court to issue a warning notice to the other party to make payment per the arbitration award.

6. After submitting the letter, the enforcement department will inform the party of further steps, which may involve physical seizure of the other party’s assets.

In the interim, a party should bear in mind that the other party may file an application for nullity of the arbitration award (i.e., set aside the award) within 90 days from the date of receipt of the award. Such an application will usually be accompanied by an application to stay enforcement proceedings. The grounds for doing so are limited, but such an application has to be fought before the award may be enforced.

Overall, the process can take considerably longer than 90 days in hard-fought proceedings.  However, arbitral awards have an advantage over court judgments in that, apart from applying for nullity, there is no right of appeal against an arbitral award.

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Monday, April 24, 2017

Key Takeaways on Consumer Protection Laws

The Public Authority of Consumer Protection (the “PACP”) issued Ministerial Decision 77/2017 promulgating the long-awaited Executive Regulation (the “Regulation”) of the Consumer Protection Law, which was promulgated by Sultani Decree 66/2014. This Regulation came into effect on 13 March 2017 and replaced the previous executive regulations of the Consumer Protection Law, issued under Ministerial Decision 49/2007. The Regulation will be the tool by which the Consumer Protection Law will introduce greater protection for consumers in Oman. The Regulation codifies and regulates the investigative powers of PACP and the conduct of its legally empowered officers. The Regulation has 52 articles, divided into five chapters and three appendices, which include the rights of consumers, duties and obligations of suppliers, the procedures of detecting potential violation and the administrative penalties that apply to confirmed violations.

The Regulation provides criteria for what are considered fake, spoilt and counterfeit goods. The Regulation authorises the chairman of the board of directors of PACP (the “Chairman”), after coordinating with the concerned entities, to issue a decision to suspend rendering a service or trading a good or to destroy a good if that good or service falls below any of the standards specified in the Regulation. Further, in case of a significant increase of the prices of commodities or services due to a crisis, natural calamity, exceptional circumstance or unusual event, after the approval of PACP’s board of directors and the Council of Ministers, the Chairman is authorised to take temporary measures to reduce and control such increase in prices. It is important to note that the Regulation confers wide powers on the Chairman, who is empowered to take all measures that will ensure consumer rights, regulate the integrity of transactions in a manner that respects the general rules concerning the safety of goods and services, and ascertain that the goods and services are in conformity to the standard specifications provided for in the Regulation.

The Regulation also strengthens the rights of consumers. Appendix 2 of the Regulation contains an extensive list of the various types of goods covered by a statutory guarantee given by a supplier. If any goods falling within this category of goods are damaged or do not conform to the standard specifications or are not fit for the purpose for which it is to be used, the consumer has the right to exchange the product, have it repaired, or return the goods to the supplier, and recover its cost from the supplier, without any additional cost. Additionally, the consumer has been granted the right to compensation for damages incurred, in the event of exchanging the product or returning it and recovering its value. The consumer’s entitlement under this Article is subject to certain conditions, such as presentation of the receipt for purchase, and any flaws not being caused by consumer misuse. The Regulation also prescribes a two-fold obligation on the supplier to provide the consumer with an invoice for the purchased goods and/or services and to ensure that the consumer is informed of and accepts the contents of the receipt.

The Regulation sets out extensive responsibilities and duties of the supplier. Suppliers are obliged to declare safety threats to consumers and the consumer’s property that arise due to a flaw in the goods or services, immediately after discovery. In this case, the supplier must inform PACP and the consumers of this threat, then withdraw the goods from the market. Suppliers are prohibited from engaging in monopolisation of goods or services and trying to control the market, thus harming the consumer’s interest. As such, groups of suppliers are prohibited from coordinated price fixing.

As a remedial action, the Regulation authorises the legally empowered officers of PACP to freeze goods suspected of violating the provisions of this Regulation and to prevent them from entering the market until such time as PACP, or a court, releases them. After the investigation procedures are completed, PACP may take one of the following actions:

  1. Instruct the violator to remedy the situation and remove the violation immediately or within a specific time period; 
  2. Impose an administrative penalty in accordance with the provisions of the Regulation and the decision issued in this respect; 
  3. Impose an administrative penalty in accordance with the provisions of the Regulation and the decision issued in this respect and refer the file to the Public Prosecution in case the violation is punishable criminally in accordance with the law; or 
  4. Discontinue the complaint administratively, if appropriate. 

The administrative penalties specified in the Regulation are without prejudice to the applicable penalties under the Consumer Protection Law. The administrative penalties range from OMR 20 to OMR 2,000. Violations affecting the safety of consumers or their property range from OMR 100 to OMR 2,000.

The Regulation is an important step towards enhancing consumer protection, deterring suppliers from dishonest enrichment and holding them accountable, if necessary. The Regulation and the Consumer Protection Law give PACP’s legally empowered officers the discretion to investigate any commercial entity which provides goods and/or services, regardless of whether a complaint was filed against such supplier. This may have the desired effect of acting as a great deterrent to suppliers infringing upon the rights of consumers and, in instances where infringement does occur, an effective way to detect such violation of consumer rights and penalise suppliers accordingly.

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Monday, April 17, 2017

Harsher Penalties for Tax Avoidance - A Blueprint for Compliance

A more punitive penalty regime has been implemented with the promulgation of Sultani Decree 9/2017 (Issuing Amendments to Some Provisions of the Income Tax Law) (the “New Law”) amending Sultani Decree 28/2009 (together, the “Law”), for the purpose of encouraging compliance with the Law, and to encourage self-assessment. This article will provide an overview of the penalties of which taxpayers should be fully aware.

Assessments by the Secretary General 

Electronic lodgement of tax returns will commence following the issue of the amendments to the Law. Pursuant to Articles 13 and 14, returns must be submitted in an electronic format by the due date. The Secretary General is empowered with the right to examine those returns from a random sample, in accordance with Article 15, and in accordance with rules and regulations issued by the responsible Minister and as proposed by the Secretary General. These are yet to be decided, so there will be additional considerations applicable to the electronic lodgement of returns. The Secretary General will also examine assessments of any taxpayer returns if:

  1. A final return has been submitted without fulfilling the conditions for electronic filing in compliance with Article 13, including failure to enclose accounts; 
  2. An examination of the final return in the application of Article 15 demonstrates that it did not include the real taxable income; or 
  3. Upon request by the taxpayer within three years from the submission of the final return in the tax year for which the assessment is to occur. 


Taxpayers will need to ensure they are conversant with the procedures for filing returns in order to comply.

Time Limits on Assessments by the Secretary General 

With the lapse of time, the Secretariat General is prevented from examining returns and assessments (see Article 18). For any tax year, following the lapse of three years from the end of the tax year for which the final return is submitted, the Secretary General is prevented from conducting examinations of returns or assessments. This does not apply to cases of fraud and deception, wherein the Secretary General may conduct examinations for up to five years following the end of the tax year in which the return is submitted. Final returns must be submitted within five years following the end of the tax year for which the final return is due. It should be noted that taxpayers are entitled to object to an assessment, correction or amendment or to make an additional assessment, and to dispute a decision of the Secretariat General.

The penalties below will be imposed by the Secretary General in respect of the regime outlined above.

Penalties 

Taxpayers will risk facing penalties for failure to file notifications within the specified time, with such notification to be provided in respect of commercial or industrial registration, or other formal records including name, address and any relevant amendments. Notifications must be submitted within 60 days of either incorporation or the start of the activity, whichever is earlier, and within 30 days of making any amendments to the information. Additionally, taxpayers will be liable for failure to file a provisional or final return during the specified deadlines. The maximum penalty in each instance is OMR 2,000.

Pursuant to Article 21, penalties will be imposed by the Secretary General for failure to declare the correct income in a taxpayer’s return. The maximum penalty imposed is 25% of the difference between amount of tax on the basis of correct taxable income and amount of tax as per the return submitted, providing a significant incentive for taxpayers to be accurate.

Penalties will be imposed under Article 22 for failure by the taxpayer to provide data, information, accounts, accounting records or any other documents required by the Secretary General or failure to attend at the time and place specified by the Secretary General to discuss the taxpayer’s return or assessment of the return, or answer questions about the return, the assessment or the taxpayer; or failing to file a tax card application from the commencement of incorporation onwards or comply with Article 15 in retaining records for 10 years for the end of the relevant accounting period which will attract a maximum penalty of OMR 2500. The fine can be levied on the principal officer or the taxpayer, or both.

Harsh penalties for obstructionist practices 

Taxpayers should be fully aware that, subject to harsher penalties in Oman’s Criminal Law, Article 23 imposes harsh penalties should the principal officer intentionally fail to submit a return in accordance with this Law, or if the taxpayer or principal officer prevents the Secretary General from exercising its functions or rights specified by this Law. The penalty for doing so is imprisonment of between one to six months and a maximum fine of OMR 20,000. Previously, imprisonment was only for a period of one month with a maximum fine of OMR 2,000. So it is quite apparent that breaches of this nature are to be taken very seriously in the future.

Repeat instances of failing to issue a return by the principal officer will attract harsher penalties from the Secretary General if the abstention occurs over two consecutive years. In such cases the principal officer will be held accountable and may be imprisoned for three months to one year, and/or the Secretary General may impose a maximum fine of OMR 30,000.

In the event the Principal Officer intentionally refuses to file returns with the actual income of the entity or should an incorrect tax liability be intentionally disclosed or documents and records be disclosed, the tax authority may impose upon the principal officer a period of imprisonment of between six months and three years and a maximum fine of OMR 50,000 (see Articles 23-24).

In order to avoid the harsh penalties imposed by the New Law, principal officers and taxpayers should be diligent in filing their returns in an accurate manner, on the due date, together with all relevant information. Should the tax authorities require examination of returns and assessments, principal officers and taxpayers should act in compliance with the requests of the tax authority and should attend all requested meetings and provide all relevant information.

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Monday, April 10, 2017

Key Changes to Oman Tax Law

Royal Decree 9/2017 issued on 19 February 2017 and published in the Official Gazette on 27 February 2017 introduces a number of changes to the Oman Tax Law. This article will summarise the major amendments.

Effective for all financial years beginning on or after 1 January 2017, the general tax rate has been increased from 12% to 15% to be calculated in respect of any taxable income of any enterprise, Omani company or permanent establishment for any tax year. Companies are subject to the new tax rate beginning in their respective 2017 tax years; e.g., a company adopting a financial year from 1 April to 31 March will be subject to the new tax rate from 1 April 2017.

The tax-free threshold of OMR 30,000, previously applicable to all taxpayers, has been removed. To support small businesses, the new Law introduces a specific lower tax rate of 3% which applies only when all the following conditions are met by the relevant taxpayer:

  1. The taxpayer must be an Omani sole proprietorship, partnership or limited liability company with a registered capital of no more than OMR 50,000 at the beginning of a tax year. Although the purview of these provisions is not explicitly limited to fully Omani-owned companies, the capital requirement automatically excludes foreign investment companies, which under the Foreign Capital Investment Law must have a minimum capital of OMR 150,000. Exceptions to this rule may include fully owned GCC companies, US companies established under the Free Trade Agreement, and companies registered at Knowledge Oasis Muscat and Engineering Consultancy Companies, as these may all be registered with a minimum share capital of OMR 20,000. 
  2. The gross income of the taxpayer shall not exceed OMR 100,000 for any tax year. 
  3. The average number of employees during the tax year shall not exceed 15. 
  4. The taxpayer shall not carry out business in air and sea transport, banking, insurance, mining and public utility concessions. Other excluded activities may be added to this list in the future. 

Tax exemptions, previously available for an indefinitely renewable period of five years to companies engaging in activities such as industry, mining, tourism, agriculture and fishing, medical care and education, have now been restricted and will apply only to industrial companies. The term has been reduced to five years only (non-renewable). The amendment is effective from 27 February 2017. The newly introduced provisions will not affect exemptions that have already been granted.

Another amendment, which will undoubtedly have far-reaching consequences, relates to the new provisions regulating withholding tax (“WHT”). The WHT previously applied only to specific categories of services provided by foreign companies without a registered entity in Oman; these included (a) royalties; (b) research and development; (c) software licences; and (d) management fees. The scope of the WHT has now been extended to all services provided by a foreign person without a taxable presence in Oman and availed in Oman. As the term “foreign person” is not defined in the Law, the WHT applies to both foreign corporations and individuals and covers all services, including those provided under existing contracts. WHT is payable upon payment for the service, by deduction to be made by the Omani paying entity, who is responsible for the payment of the relevant amount to the Tax Authority within 14 days from the end of the month in which the payment to the foreign person is made. The WHT rate is 10% calculated on the gross amount. Although Government entities (Ministries, Public Authorities, etc.) do not fall under the definition of “taxpayer,” the Law provides specifically that WHT will be due also on payments made by Government entities.

Issues will arise, inter alia, with respect to mixed contracts including the supply of goods and the provision of related services (e.g., the supply of equipment and its installation). In such cases, we understand that the value of the contract will need to be split and WHT will have to be paid on the amount relating to the services. Arguably, WHT may also apply to a wide range of payments including directors fees payable to non-resident directors, re-insurance contracts with foreign re-insurers and a wide array of other contracts. Finally, Free Zone companies, although income tax-exempt, will have to deal with WHT on services provided to them.

The same concept and the same tax rate will apply to interest payable to financial institutions abroad and to dividends payable to foreign shareholders in companies registered in Oman. With reference to dividends, it has been clarified that WHT applies only to dividends relating to shares in joint stock companies, and not in limited liability companies. The Arabic language, like various Romance languages, uses different words to describe shares in a joint stock company and in a limited liability company. The text of the Law clearly refers to shares in joint stock companies only.

The WHT applicable to interest and dividends applies from 27 February 2017 (and therefore does not apply to payments which are due before that date and properly documented, e.g., by invoices bearing a date). The effective date for WHT on services is not entirely clear as the relevant provisions are shown both in the clause defining “income” (which sets out 1 January 2018 as the effective date) and the clause describing the WHT (which sets out 27 February 2017 as the effective date).

The new tax provisions on WHT will need to be read in conjunction with any existing Double Tax Treaty between Oman and the country of origin of the foreign service provider.

Other notable amendments:

  1. Financial statements must comply with International Financial Reporting Standards (this requirement was previously applicable only by reference as quoted in Royal Decree 77/86); 
  2. Tax returns must be filed electronically; 
  3. New provisions have been included to deal with Islamic finance, to be treated on a par with standard financial transactions; and 
  4. Donations can now be made in kind and are allowed to be deducted on the basis of a specified value determination system. 

A separate article will deal with the stricter penalties introduced by the Law.

In conclusion, the Government of Oman is aiming to expand the pool of taxpayers, until this date very limited in comparison with the number of corporate entities registered with the Ministry of Commerce and Industry, and to increase tax revenues. Nonetheless, there is a possibility that some of the new provisions, such as the wide scope of the WHT, may lead to possibly unintended consequences such as the increase of costs for local businesses and the reduction of the returns of foreign investors in relation to investments in Oman, which may make such investments less attractive.

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