Thursday, January 29, 2009

Focus on: Recent Amendment to the Tenancy Law

In response to rapidly rising rents, the Law Regulating the Tenancy of Residential, Commercial & Industrial Premises issued by Royal Decree 6/89 was recently amended by Royal Decree 72/08. Some of the significant features of the amended law are as follows:

  • Landlords may not increase rents for three years from the date of commencement of the lease or from the date of the last rental increase;
  • Thereafter, rent increases are capped at 7% per year;
  • If the landlord performs any improvements of the leased premises at the tenant’s request, then a commensurate increase in rent is permitted;
  • The landlord may not evict the tenant without a valid legal ground for four years for residential premises and for seven years for commercial/industrial premises from the date of the tenancy agreement; and
  • The lease will be deemed renewed during the period when a tenant cannot be evicted even if the landlord does not renew the registration;

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Thursday, January 22, 2009

Doing business in Oman: FAQs on Formation of LLCs

Can pre-incorporation expenses – specifically, the expenses incurred by the shareholders in forming a limited liability company (“LLC”) – be reimbursed by the LLC?

Shareholders may seek reimbursement from the LLC once it is formed for the reasonable expenses they incur during the incorporation process. These expenses may be subject to the approval of the shareholders.

Is the LLC required to have a board of directors or a board of mangers?

As LLCs are a less formal corporate structure than public companies, they are not required to have a board of managers or directors but theymust have at least one manager who may be nominated by one or more shareholders. However, depending on the activities of the company and the preferences of the shareholders, many LLCs do have a board of managers or directors. The constitutive contract and shareholders agreement will specify the powers and responsibilities of the board, as well as the number of board members.

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Thursday, January 15, 2009

Dispute Resolution: What is the best way to resolve a dispute in Oman?

Companies entering into agreements in Oman may wonder what the best mechanism is for resolving disputes. Companies have two options for dispute resolution: they may either resolve the matter in courts or provide for arbitration in their agreement. There are advantages and disadvantages for both options, and the needs and priorities of each company will dictate which option is most attractive.

In some cases, local companies may favor Omani courts as the dispute resolution forum because the Omani company may be more familiar with Omani procedural rules and practice. Similarly, foreign companies doing business in Oman may prefer arbitration because they are not familiar with Omani procedural rules and practice.

If the parties elect to resolve disputes through arbitration in their agreement, this is sufficient to remove the matter from the Omani courts. In the arbitration clause of the agreement, the parties must specify the following:

  1. Location of the arbitration: This can be any location agreed to between the parties, and is usually a matter of convenience. Considerations should include the pro-arbitration attitude of the courts of the place of arbitration since they will have jurisdiction over a possible request for annulment of the award, and the ability of the parties to reach the location and the availability of arbitration facilities.
  2. Language of the arbitration: The parties must be specify the official language of the arbitration. The arbitration will be conducted in this language and the decision of the arbitrators will be issued in this language.
  3. Applicable law: The parties must specify the substantive law that the arbitrator applies in issuing the decision. The applicable law should be well developed in relation to the subject matter of the agreement.
  4. Arbitration rules: The parties must specify the applicable rules that govern the procedures of the arbitration. This should not be confused with the substantive law that will be applied to resolve the dispute. Example rules include the UNCITRAL Model Law on International Commercial Arbitration in the case of ad hoc arbitration, i.e., without the auspices of an institution; and in the case of institutional arbitration, i.e., within the auspices of an institution, the Rules of Conciliation and Arbitration of the International Chamber of Commerce and the DIFC Rules of Arbitration.
  5. Number of Arbitrators: Usually it is either one arbitrator or a panel of three arbitrators. Electing for a single arbitrator can reduce costs.
  6. Finality: Language should be included in the arbitration clause stating that the decision of the arbitrator(s) shall be final and binding upon the parties. This ensures that neither party may try to circumvent or avoid the decision of the arbitrator. It is advisable to use the model clauses proposed by the institution corresponding to the chosen set of arbitration rules, e.g. the ICC model clause for an ICC arbitration, and to seek specialized professional advice for the drafting of arbitration clauses.

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Thursday, January 8, 2009

U.S. - Oman Free Trade Agreement

As of January 1 of this year, the U.S.-Oman Free Trade Agreement is now in effect and will mean increased business between the two countries. All consumer and industrial products traded between the U.S. and Oman will now be tax free. As a result, residents in Oman can expect lower prices on U.S. consumer and industrial products. Similarly, Omani companies seeking to do business with the U.S. will now have open access to the world’s largest economy.

U.S. companies seeking to do business in Oman will also enjoy an unprecedented level of openness and access to the Omani services market. The FTA includes benefits for service providers across a range of fields, including banking, insurance, securities, and asset management, among others. Additional provisions provide for state of the art protection of intellectual property, as well as protections for the environment and domestic labor laws.

The FTA comes at a time when other nations such as Indonesia, Russia, France, Argentina, and Brazil are seeking to tighten trade controls, and reflects the strength and resilience of the Omani economy. The U.S. has a FTA with only one other GCC country (Bahrain), although more are expected in upcoming years. As the FTA has been in effect for only a short time, the 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 U.S. and Oman.

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Thursday, January 1, 2009

Oman Budget 2009

Oman recently approved a US$ 16. 42 billion budget for the year 2009 which is drawn up on the basis of oil price averaging at US$ 45 per barrel. The government expects the oil price to stabilize at US$ 60-65 but plans to address a decrease in the average price below US$45 by reassessing its priorities in the budget outlay.

The predicted budget deficit of US$ 2.1 billion correlates to 5% of the GDP and 14% of the total revenue, and is therefore considered “reasonable and acceptable” by the government. If the crude price remains below US$45, the government plans to meet the deficit by withdrawals from the State General Reserve Fund. Over 2007, exports grew by 41% and tourism registered a growth of 22%, enhancing the balance of payment position. The budget projects revenue from income tax to increase 35% (based on last year’s encouraging collections), as well as a 50% increase from customs duties.

In the outlay, oil and gas production accounts for 21%, education and health care for 36% and 12% respectively, and the remaining 31% is distributed over a variety of other sectors. Allocation for ongoing and new development projects has been increased by 10% over 2008.

The budget for the government’s participation in domestic, regional and international institutions has been increased by 43% which would include financing projects undertaken by government owned companies such as Oman Oil Company, and OMRAN. This may also result in financial support for existing industries hit by the global downturn. The outlay also provides for subsidizing development and housing loans in the face of the slump in the real estate sector.

Enhanced project outlay is lauded as auguring well for Oman’s economic outlook and for attracting investment as many countries face recession. Oman has consistently won plaudits for channeling investment to sustainable areas of the economy such as infrastructure industries and tourism. Financial experts view the budget as reflecting the government’s optimism in not expecting any significant downturn in economic activities and paving the way for development projects. However, financial experts still sound a note of caution for companies in Oman to focus more on cash generation to meet existing commitments than on profit margin.

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