Wednesday, June 25, 2008

The Oman Law Digest 2009 - FOREIGN CAPITAL INVESTMENT

In order to do business in Oman, it is necessary for a foreign natural or juridical person to comply with laws governing foreign business activity, which includes Foreign Capital Investment Law [RD 102/94] (“FCIL”), Commercial Register Law [RD 3/74 as amended], Commercial Agencies Law [RD 26/77 as amended], Commercial Companies Law [RD 4/74 as amended] and Law of Commerce [RD 55/90].

According to FCIL, foreign companies seeking to do business in Oman are required to form a locally registered company with local equity participation of at least 55%. A foreign capital investment licence is granted by MCI to foreign entities upon satisfying capital and other requirements. The licence permits a foreign company to have shareholding in a local registered company.

Although FCIL restricts foreign ownership in Omani companies to 45%, pursuant to Oman’s accession to WTO in 2002, foreign shareholding up to 70% in all sectors is permitted without need for approval from the cabinet or the Council of Ministers. Foreign ownership of 100% is permitted for certain types of businesses in Oman such as brokerage services and for projects which are deemed by the Council of Ministers to contribute to the development of the national economy. The minimum capital requirement for such companies is RO 500,000.

Minimum capital requirements for different types of companies with foreign equity participation are: (i) limited liability companies, RO 150,000 although Oman had committed to abolish this requirement as of January 2001; (ii) closed joint stock company, RO 500,000; and (iii) public joint stock company, RO 2,000,000.

There is no restriction on repatriation of foreign funds. There are no foreign exchange controls. The Omani Rial is pegged to the US Dollar at a fixed rate of US $2.59/RO 1.

BRANCH OFFICE
A foreign company may establish a branch office for the purpose of performing a government or quasi-government (including partly owned government companies) contract. Tenure of a branch office is restricted to the terms of the contract and may be extended for additional terms if the contract is extended for further periods or there is another government or quasi-government contract for longer duration. The branch cannot do business other than the performance of the contract for which it is established. Branches are subject to a high rate of taxation starting from 30% on taxable income of over RO 30,000.

REPRESENTATIVE OFFICE
A foreign company may form a representative office for the limited purpose of marketing and promotion of products. It is prohibited from directly engaging in sale or doing any other activity deemed to be commercial activity. It is authorised to recruit employees.

Pursuant to the Free Trade Agreement between Oman and the US effective 1 January 2009 (“FTA”), American investors will be accorded preferential treatment in business. US companies seeking to conduct business in Oman will get an unprecedented level of openness and access to the Omani services market. The FTA guarantees national and most favoured nation treatment for services including production, distribution, marketing and sale of services and includes benefits for service providers across a range of fields, including banking, insurance, securities, and asset management. The FTA also offers a comprehensive dispute resolution mechanism. The MCI has issued MD 102/08 on registration of branches of American establishments and companies. Similarly, Omani companies seeking to do business with the US will now have open access to the world’s largest economy. Details of how it will work in practice are still emerging. It remains to be seen how current Omani procedures will adapt to the provisions of the FTA, but it is clear that the FTA will encourage strong economic relations between the US and Oman.

Additional provisions provide for state-of-the-art protection of intellectual property, as well as protections for the environment and domestic labour laws. The US has a FTA with only one other GCC country (Bahrain), although more are expected in upcoming years.