As the free zones/special economic zones in Oman continue to grow and attract foreign as well as local investors, we thought of doing an overview of the free zones – their incentives and limitations.
The Free Zones Law promulgated by Royal Decree 56/2002 (the “FZ Law”) is the law enabling establishment of free zones in Oman. The FZ Law specifies that each of the free zones shall be established by a Royal Decree which will specify its location, boundaries and the incentives and privileges granted to the operator of such free zones and the operating companies. The free zones are primarily established by the State to boost foreign investment by making it business-friendly.
The Sultanate of Oman presently has four free zones namely, Salalah Free Zone, Sohar Free Zone, Al Mazunah Free Zone and Al Duqm Free Zone. All these free zones are established pursuant to Royal Decrees and are operated in accordance with the relevant executive regulations approved by the Free Zones Committee.
In addition to providing certain privileges and incentives to the free zone companies, the companies operating free zones (the “FZ Operators”) are also obliged to provide the requisite infrastructural facilities conducive to the contemplated business operations in the free zones.
Operations in Free Zones
Whilst considering setting up an entity, it is important for a foreign/local entity to consider the permitted business activities in the particular free zone. The free zones generally allow establishment of industrial and processing units, manufacturing and assembling facilities, logistics and distribution centres and services providers which can service the entities established within the free zone. Further, each of the free zones specifies the form of entities that can be registered within that free zone.
Setting up an entity within a free zone is far more attractive, easier and quicker for the following reasons:
- A dedicated “one-stop shop” to provide required government permits, land pursuant to lease agreements, consents and approvals (e.g., health, safety and environment) to the companies incorporated with the free zone;
- 100% foreign ownership;
- No minimum capital requirement;
- Exemption from restriction on provision, circulation and transfer of foreign currency;
- Exemption from the application of the provisions of the Commercial Agency Law;
- Corporate tax holiday for a certain number of years;
- No custom duties for the goods imported into or exported from the free zones;
- Lower Omanisation requirements as compared to an entity registered in ‘onshore’ Oman;
- Convenient access to transportation infrastructure through the highways and sea ports (out of the four free zones, three are established next to the major seaports in Oman);
- Utility connections (e.g., electricity, water and gas) with tariffs that are often pre-arranged;
- Visas and residency permits to non-Omanis working in the free zones; and
- Allows establishment of representative offices within Oman’s custom territory.
Although the incentives outnumber the limitations of registering a company in a free zone, it is important to point out a few limitations which an investor may come across:
- The permitted activities within the free zone are limited those specified in the relevant Royal Decrees and Executive Regulations establishing each of the free zones;
- Although importation into the free zone itself is duty free, the normal 5% customs duty is payable on any products sold by a free zone into the customs territory of Oman; and
- FZ Operators often have the right to change the utility tariffs.