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.

Read More...



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.

Read More...



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.

Read More...



Monday, April 3, 2017

Navigating Team Hires - Key Considerations for Companies

In a team move, one or more employees leave an employer to join a competitor or set up a new enterprise in the same field. For new employers, lateral hires of multiple individuals already working together is an immediate way to boost revenue and secure market share. Multiple lateral hires of experienced employees can also rapidly increase an employer’s core capabilities and add strength in the targeted market. In direct contrast, the impact on the old employer can be commercially significant and can weaken its position in the market. These considerations are important in the current economic climate, which is likely to see increased prevalence of team moves in Oman and across the GCC.

A typical team move scenario involves a small team at different levels of seniority, for example in a company in the financial services sector selling a product or services to an established customer base. The targeted team members will have worked together closely for a number of years, and the most senior person in the team will invariably have some influence over the more junior members of the team. Typically, one person will resign first, usually the most senior person on the team. Other team members will announce their staggered departures shortly afterwards.

Team moves nearly always involve breaches by employees of the terms of their employment. In any team move, there is by necessity a degree of contact and planning that takes place between the new company and the targeted employees. In this process, it is common that a certain amount of confidential information is disclosed to the potential new employer either voluntarily or at the request of the new employer. It is important therefore for the new employer to understand any post-termination restrictions in the existing employment contracts of the targeted employees. This situation alone raises key legal issues for the new employer, the old company and the employees.

Applicable Omani laws 

In Oman, most employment contracts contain a clause pertaining to the treatment of confidential information and its disclosure. In addition, employment agreements governed by Omani law invariably include a restrictive covenant upon the employee to protect the goodwill, trade secrets and market share of the employer. Such clauses are commonly referred to as non-compete clauses. The Omani Civil Transactions Law, issued under Sultani Decree 29/2013, provides that such clauses are valid in order to protect the legitimate interests of the employer. More specifically, “… if an employee has knowledge of secrets of his employer in terms of how the entity conducts business or is familiar with the employer’s clients, then the employment contract may contain a clause to prevent the employee from (i) gaining employment with a competitor of the employer or (ii) participating in competitive work.” Under the Omani Civil Code (Article 661), in order to be enforceable all non-compete clauses must be reasonable in terms of duration, type of work and applicable territory.

Under Article 27 of the Oman Labour Law, employees are obliged to maintain the secrets of the employer. Additionally, under Article 40 an employer may dismiss an employee without notice and without payment of the end of service gratuity if inter alia he discloses confidential information about the employer to a third party. Such disclosures of confidential information or trade secrets are considered to be gross violations of the labour law which justify the remedy of instant dismissal without end of service or other payments ordinarily due to the employee.

Team moves in Oman must be viewed in the context of the existing two-year expatriate visa ban. Put simply, the ban imposed by Sultani Decree 16/1995 restricts expatriates from seeking employment with a new employer in Oman for a period of two years after the termination of their current employment. The expatriate is however eligible to join another company if he can obtain a no objection certificate (NOC) from his current employer. The ban and NOC system currently in place has put a pall on team moves in Oman, but not entirely. There have been recent reports in the Omani press and statements by The Royal Oman Police and other Government officials indicating that the ban and NOC system may be abolished soon. If so, management in both targeted and hiring companies in Oman should be aware of the legal constraints, risks and remedies associated with multiple lateral hires.

Remedies following team moves 

Along with most team moves, there will be a threatened or actual application to the court for damages resulting from a breach of contract. The resulting litigation may prevent employees from taking advantage of any unfair head-start obtained through their unlawful activity. Seeking a ‘springboard injunction’ as a short-term remedy in any impending team move is a useful litigation tool to prevent the employees from departing for the new company. The principles behind the ‘springboard injunction’ were summarised in the QBE v. Dymoke case (QBE Management Services (Ltd) v Dymoke & Ros [2012] EWHC 80 (QB)) as follows:


  • “…where a person has obtained a ‘head start’ as a result of unlawful acts, the Court has the power to grant an injunction which restrains the wrongdoer, so as to deprive him of the fruits of his unlawful acts. This is often known as ‘springboard’ relief.”


In the Dubai International Financial Centre (DIFC) and in the courts of England and Wales, such an interim remedy would be possible. The Omani courts are, however, unlikely to entertain any injunctive relief applications in such a scenario. Instead, the targeted company would have to bring a claim for breach of contract or use other applicable laws and would need to prove financial loss caused by the actions of the departing employees. In this situation, employers often assert that there has been unlawful collusion between team members and that losses are greater because the departing team is irreplaceable as a whole. In any team move, however, it will be difficult to prove which financial losses are directly caused by breaches of contract. More often than not, these cases are resolved when the new company gives suitable undertakings, for example by agreeing to place the team in an area of the business that does not compete with the old employer for an agreed period of time, or agreeing that key personnel will not work for certain clients.

Conclusion 

Whether you are considering hiring a team from a competitor or are faced with losing one, management on either side can consider several steps. The new company can consider (i) undertaking a review of all existing employment agreements to better understand the duties and obligations on both sides; (ii) engaging a recruitment company to ensure an arm’s-length hiring process; (iii) refusing to request or receive any trade secrets or confidential information from the lateral employee; (iv) avoiding any misconduct, evidence of which could be used in any subsequent court proceedings; and (v) approaching targeted employees separately and not in groups. By contrast, some considerations for the old company include (i) undertaking an immediate IT investigation to determine if any communications between the employees and the new employer remain on the company server; (ii) not disclosing details about other persons approached during the investigation; (iii) understanding that time is of the essence, especially if litigation is being considered; (iv) interviewing the concerned employees separately; and (v) trying to understand the reasons for departure to determine the possibility of persuading any key employees to remain. Undertaking a team move successfully without triggering breaches of contract is difficult for a poaching employer to accomplish. From a legal and practical perspective, a team move raises issues that tend to be more complicated than the departure of a single employee. Warning signals are often visible to the old employer, but are mostly ignored until it is too late. In any subsequent litigation, carefully planned strategies are key to improving the positions of both a poaching employer and targeted employers faced with a departing team.

Read More...



Tuesday, March 21, 2017

Curtis welcomes Ali Arshad to its Middle East team

In March we welcomed  Ali Naveed Arshad to our Middle East team.  Ali is well known in the Omani market, having worked in Muscat for six years.  Based in Dubai, he will service both Oman and UAE based clients.

Ali is recommended by leading guide Chambers Global as an “Up and Coming” lawyer. The 2017 edition praises him as a “great lawyer” and notes "He is helpful, practical and commercially keen."

You can contact Ali in our Dubai office.

Read More...



Monday, March 20, 2017

The Laws Regarding Penalties, the Grievances System, and Labour Disputes in Oman

General Overview of the Grievance System in Oman

The Omani Labour Law (promulgated by Royal Decree 35 of 2003, as amended) (the “OLL”) is the primary law regulating the private sector employer-employee relationship and the rights and obligations of employees.  Additionally, Ministerial Decision 129 of 2005 contains the penalty code and conditions for implementing it on private sector employees (“2005 MD”).  The 2005 MD provides that an employer may add offences to the penalty code that are not included in the specimen penalty code, if the nature and type of the business of the organization require this.

The rights and obligations with respect to employer and employees have been set out in the OLL.  This article will discuss the rights of employers and employees respectively.

Employer’s Rights

The circumstances in which an employer may dismiss a worker

Although the OLL states that either the employer or the employee may terminate the employment relationship upon 30 days’ notice (or such longer notice period that the labour contract may state), this does not negate the ability of the employee to receive compensation.  In other words, the use by an employer of a notice provision to terminate an employee will normally be seen by the Omani Courts to be a “termination for convenience”, thereby requiring the employer to pay compensation to the employee.  The Omani courts only rule out the requirement to pay compensation when they believe that the termination was due to what they see as a “valid reason”.  It is not possible to list specifically and comprehensively all of the acts or circumstances that could constitute a “valid reason” for termination, as these are normally decided on a case-by-case basis by the Omani courts and subject to the relevant evidence on hand.

Under Article 40 of the OLL, an employer has the right to terminate its contract with an employee without prior notice, or paying any end-of-service benefit, where the employee has committed an act of gross misconduct, for example, where the employee:

a) assumes a false identity;
b) makes a mistake that results in a material financial loss to the employer;
c) is away from work for more than 10 consecutive days without reasonable cause;
d) discloses confidential information of the employer;
e) receives a final judgment against it for an offence or felony for breach of honour or trust; or
f) is in a state of drunkenness or under the influence of an intoxicating drug or mental stimulants whilst at work or during work hours.

What is the employer’s role and rights as far as the Grievance System is concerned? 

According to Article 106 of the OLL, the employer is required to display in a conspicuous place the procedure for complaints and grievances.  The procedure will provide the employee the right to submit his complaint or grievance to the employer or his representative.  Further, it is important to note that the Company is obliged under the OLL to obtain an approval on the procedures for complaints and grievances from the MOM prior to displaying it at the workplace.  Moreover, Article 106 of the OLL further provides that the employee has a time limit of fifteen days from the date on which he was dismissed by the Company, to apply to the MOM, for annulment of the dismissal decision.

Employees’ Rights

The circumstances in which an employee may abandon the work prior to the termination of the contract 

Under Article 41 of the OLL, an employee has the right to abandon work prior to the termination of his contract (after giving written notice to the employer) where there has been gross misconduct on the part of the employer, for example:

a) where the employer has defrauded the employee;
b) the employer commits an immoral act toward the employee;
c) the employer assaults the employee; or
d) the employer is aware of a danger that threatens the health or safety of the employees and does nothing to rectify the danger.

For matters other than Article 41 of the OLL, the employee will need to comply with Article 107 of OLL if they have any complaint at the workplace.

What are the employees’ rights regarding the Grievance System? 

Article 107 of OLL provides that if an employee has a complaint he shall first follow the procedures laid down by the employer and if such procedure does not exist or does not address the employee’s grievance, the employee is authorized to apply to MOM in order to endeavour to reach a settlement for the dispute.  The first step to settling a labour dispute is obviously to try to resolve the issue internally between the parties.  If the parties failed to resolve their differences or if the procedure does not exist, the parties are authorized to apply to the MOM in order to try to reach a settlement, failing which, the employee may proceed in filing a claim in the Primary Court.


Read More...



Monday, March 13, 2017

Takaful

Takaful originates from the Arabic word Kafalah, which means ‘guaranteeing each other’.  It is the Islamic counterpart of conventional insurance.

The concept of takaful is based on the principles of mutual cooperation and the separation between the takaful fund and the operations of its shareholders, covering the elements of shared responsibility, joint indemnity, common interest and solidarity.

In a takaful company, the policyholders are the joint investors with the takaful operator.  The profits or losses of the investment pool are shared amongst the policyholders according to a pre-determined ratio.

Takaful works with all the participants guaranteeing each other and making contributions to a mutual fund, as opposed to paying premiums.  The amount that each participant contributes is dependent upon the type of cover required and his/her personal circumstances.

A takaful operator manages and administers the takaful fund on behalf of the policyholders and is paid a fee for miscellaneous expenses such as the costs of sales and marketing, underwriting, and claims management etc.

From an operational perspective, a takaful company must maintain two funds, a policyholders’ fund and a shareholders’ fund.  The two funds cannot be mixed with each other.  The funds are invested on a profit and loss sharing basis, as approved by the takaful company’s Sharia Supervisory Board (“SSB”).

The policyholders’ fund is comprised of amounts corresponding to the insurance premiums received, re-insurer’s claims, investment profits, salvages and recoveries.  The said fund is utilized towards paying claims to the policyholders, reinsurance and administrative costs and technical reserves (but excluding the investment department expenses).

Any surplus amount after the aforesaid utilization is allocated to the policyholders’ special reserves and distributed amongst them.  In the event the policyholders’ fund is deficient to meet their expenses, the shortfall amount is funded from the shareholders’ fund.  The shareholders also guarantee to discharge all liabilities of the policyholders’ fund, proportionate to their respective shareholding in the takaful company.

The shareholders’ fund, on the other hand, consists of the paid-up capital and shareholders’ reserves, capital investment profit and subsequent equity injections.  The investment department’s administrative expenses are deducted from the said fund.  Any surplus amount is distributed amongst the shareholders on a pro-rata basis.

A takaful can be structured based on the nature of the relationship between the company and the participants.  Three kinds of structures are most widely used, namely, Wakalah, Mudarabah and a combination of the two.

Under the Wakalah structure, the takaful operator works as an agent on behalf of the participants.  The takaful operator manages the fund and receives a management fee (i.e., a Wakalah fee).  An incentive fee can also be charged by the takaful operator to manage the fund in the best way possible.  The fee is fixed in advance after consultation with the SSB.  Any surplus generated by the takaful fund or the investments goes to the policyholders.

Under the Mudarabah structure, the policyholders are the investing partner (i.e., the Rab-ul-Mal) and the takaful operator is the working partner (i.e., the Mudarib).  The policyholders put in their respective participations in the takaful fund and the takaful operator uses its expertise and knowledge to manage the said fund.  Profits are shared according to an agreed ratio whereas losses are borne by the policyholders only.

The third type of structure, namely, the Wakalah-cum-Mudarabah structure, is commonly used in the takaful industry.  This structure uses a hybrid of Wakalah and Mudarabah contracts.  Under the Wakalah contract, the takaful company is appointed as the agent for managing the fund and is given a fee for underwriting the fund.  Under the Mudarabah contract, the takaful company is appointed to act as the fund manager and shares any profit resulting from the investment of the fund.

Read More...



Monday, March 6, 2017

Sole Proprietorship and Conversion to a Limited Liability Company

General Overview of Sole Proprietorship

A sole proprietorship is a form of business available only to Omani or GCC nationals.  The minimum capital requirement for a sole proprietorship is relatively low, being OMR 3,000.  A sole proprietorship does not require the participation of other partners or stakeholders and the sole proprietor can undertake the business in his own name.

One of the main drawbacks of establishing a sole proprietorship is that the sole proprietor is considered to be the legal holder of the license.  Consequently, the sole proprietorship concern will not act as a separate legal entity whereby the partners or stakeholders are protected under its corporate veil.  The proprietor is therefore, personally liable for debts incurred by the sole proprietorship entity.

In Oman, it is common for Omani individuals to initially establish a sole proprietorship and later convert the business into a limited liability company (“LLC”), as the incorporation process of the sole proprietorship is swift and easy when compared to that of an LLC.  A sole proprietorship requires only one individual and the capital contribution is relatively less when compared to a limited liability company, which requires a minimum capital of OMR 20,000.

For the registration purposes, the individual would require to liaise with the Ministry of Commerce and Industry (“MOCI”).  The applicant is required to submit the MOCI standard form for registration of sole proprietorship, along with the individual’s identity card and the ROP good standing certificate. The name of the establishment will be the same as that of the sole proprietor (i.e., the owner).

The Conversion of Sole Proprietorship to a Limited Liability Company 

According to Article 13 Bis 1 of the Sultani Decree 4 of 1974 Commercial Companies Law (“CCL”) it is permissible to convert a company from one status to another by a decision issued in accordance with the rules made for amending the memorandum of incorporation of an existing company or its articles of association, in compliance with the procedures and conditions of the company of which conversion takes place.

Article 13 Bis 2 further sets out certain limitation to conversion. According to Article 13 Bis 2 conversion of the company shall not result in the creation of a new juristic person, and the company, after conversion, shall retain all its previous rights and liabilities that preceded such conversion.  The conversion shall not release members from their joint liability with respect to the company preceding the conversion unless the creditors agree to such release.  Therefore, according to CCL, it is permissible for a sole proprietorship to convert to a limited liability company, provided that the applicant complies with the provisions of the CCL.

The procedures for conversion of a sole proprietorship company into a limited liability company are as follows:

1. The applicant is required to liaise with the MOCI and submit a contract of sale of percentage.  The contract for the sale of percentage is basically a share transfer process whereby the current owner sells a portion of his stake in the sole proprietorship concern to another Omani or a foreign partner. The contract for the sale of percentage will be executed and signed at the MOCI. All parties (sellers and buyers) are required to be present at the MOCI. If any of the parties are not able to attend the signing at the MOCI, such party will need to issue a power of attorney authorizing the power of attorney holder to sign on his behalf.

2. Once the sale of percentage is executed, the applicant is required to submit the following documents to the MOCI:

Name reservation: As an initial step, the applicant is required to reserve a name of the company. The proposed name of the company has to be reserved to reflect the words “LLC”;

a) Constitutive contract: The constitutive contract of the LLC will set out the Company’s activities, amount of capital, number of shares, the members’ nationalities, their respective shareholdings, their voting rights, partners’ meetings, etc.  This document is required to be prepared in Arabic and signed by the all the shareholders, including the sole proprietor;

b) Certificate of good standing: If the incoming partner is an individual, the new incoming partner(s) will also require to produce a certificate of good standing from their country of origin;

c) Constitutional documents and resolution of partner: in the event the partner is a corporate entity, it will need to provide its constitutional documents, i.e. certificate of incorporation, memorandum and articles of association, etc.  and a resolution approving its participation in the LLC;

d) Original copies of the commercial registration certificate, computer printout, and a Oman Chamber of Commerce certificate/card of the existing sole proprietorship; and

e) Copies of the ID card(s) for the local Omani partner and passport copy for the foreign partner.

Once all the above documents are submitted to the MOCI for conversion of the sole proprietorship to an LLC, the MOCI will review and assess the application and after approval, issue the new commercial registration documents in the name of the LLC.  The MOCI will also issue a letter confirming the conversion, based on which the LLC will be permitted to amend its name at the relevant ministries, banks and any other government bodies.  


Read More...



Wednesday, March 1, 2017

Effective Non-Competition Clauses

There are a number of reasons that an employer may wish to include a non-compete clause (otherwise known as a restrictive covenant) in an employment contract with an employee, for example, to protect goodwill and trade secrets.  Such provisions have been contemplated in the Civil Transactions Law issued by Sultani Decree 29/2013 (the “Civil Code”).  Under the Civil Code, if an employee has knowledge of the “secrets” of his/her employer in terms of how the entity conducts its business, or if the employer is familiar with the employer’s clients, the employment contract may contain a clause to prevent the employee from doing the following after termination of the employment contract:

• gaining employment at a competitor of the employer; or

• participating in competitive work.

However, it is important to note that a restrictive covenant, such as a non-compete clause (in accordance with Article 661) will only be effective if it is reasonable, such that it is “restricted in time, place and type of work to the extent necessary for the protection of the legitimate interests of the employer”.

How to draft non-compete clauses?

Omani court judgement (Case No. 426/2014) considered the issue of the validity of non-compete clauses.  In this case, the contract of employment stipulated that the employee (i.e., the defendant) would not assume any similar position in the Sultanate for 12 months after the termination of his service with the employer (i.e., the plaintiff).  It further stipulated that the employee would maintain the confidentiality of business secrets and the data/information related to the employer.  The plaintiff submitted that the defendant joined another firm (the second litigant) prior to the end of the 12 month term and disclosed such business secrets to that litigant.  Subsequently, the plaintiff sought to:

a) revoke the contract of employment between the defendant and the litigant and thereby revoke the residence visa of the defendant; and

b) obligate the defendant and the litigant to together pay the plaintiff compensation in damages incurred as a result of the alleged illegal competition.

With regard to whether the defendant had breached the relevant clause of his employment contract, the courts held that he had not.  The contract between the plaintiff and the defendant provided that the defendant could not accept any job or connect with any business activities inside the Sultanate that was similar to, or competitive with, any of the operations conducted by the plaintiff.  The non-compete provisions in the Civil Code can prevent a contracting party from undertaking a specific type of work within a certain period or area, however, such restriction should not be so broad as to include all types of work in every place and time.  Any provision aiming to do such a thing, would violate the principal of the freedom to work.  Accordingly, the court in this instance found the non-compete clause between employee and employer to be invalid, since the condition violated the public order of the principal of freedom to work.

Whether a non-compete clause is valid or not is up to the assessment of the judiciary.  What counts as a reasonable restrictive covenant is therefore likely to depend on the nature of an employer’s business and the level of restriction imposed on an employee as set out above.  As general guidance, the following points should be considered:

Time: As to the length of time, a non-compete clause is likely to be acceptable if it restricts an employee for working for a competitor for a defined period of time, although the acceptable period of time would likely be considered on the basis of the employee’s role and level of seniority.  A non-compete clause that sets out a prolonged period or for an indefinite period of time is likely to be invalid.

Place: As to geographical location preventing a former employee from working for a competitor, what is deemed acceptable will likely depend on whether the employer’s business is situated in one location, or multiple locations and/or regions. A non-compete clause restricting an individual from working for any competitor within the whole of the GCC region will likely be unenforceable if the said business is situated in Oman for example with no dealings in the GCC region.

• Type of work: As to type of work, a non-compete clause attempting to restrict an employee from working in the same industry which would prevent an employee from attaining a different role and function entirely; a role which could not possibly cause damage to the former employer’s business (e.g., by sharing secrets, business know-how, client information etc.) may be considered unreasonable.

A non-compete clause should be drafted so as to protect the legitimate interests of the employer.  The provisions should strike a balance between protecting the legitimate interests of the employer while permitting an employee to work and earn a living at another company.

Non-compete clauses and the expatriate visa ban

Given the Civil Code says that a non-compete clause must be proportionate to protect the legitimate interests of the employer it will be interesting to see how the Courts view what is and is not an acceptable restrictive covenant in light of the two year expatriate visa ban (the “Ban”).

By way of overview, the Ban, which was imposed by the Expatriate Residency Law (issued by Sultani Decree 16 of 1995 (as amended)) and reinforced by the Ministry of Manpower (“MOM”) in July 2014, effectively restricts expatriates from obtaining employment with a new employer in the Sultanate for a period of two years after termination of employment with their current employer in Oman. An expatriate is only eligible to join another company in the Sultanate prior to the expiry of two years from the date of termination of employment if he or she can obtain a Non Objection Certificate (“NOC”) from his or her current employer.

The Ban was part of the MOM’s objective to regulate the labour market.  For those employers willing to give an NOC, it is important therefore, to consider a carefully worded non-compete clause in this instance.

How a non-compete clause could be invalid?

An employer cannot seek to enforce a non-compete clause in an employment contract if the employee’s employment was terminated by the employer without just cause.  In addition, a restrictive covenant shall be deemed invalid if the employer commits an act that justifies the termination of the contract by the employee.

Pursuant to Article 662 of the Civil Code, in the event a former employee violates the terms of its non-compete provision, compensation may be payable to the employer for breach. However, where the compensation amount as set out in the non-compete clause is excessive and intended to force employees to remain employed by the employer, the said non-compete clause shall be void.


Read More...



Monday, February 20, 2017

Judicial Confession, Taping and Recorded Tapes

Anyone involved in a public prosecution or a commercial investigation should be aware of their rights (and the law) with regard to giving a confession.
Confessions in civil cases
Article 57 of the new Evidence Law defines “confession” as the admission by a person of [committing] a legal fact to another person, with the purpose of proving his commission of that fact by such person and such admission may be judicial or non-judicial.  Accordingly, a judicial confession is conclusive and absolute evidence against the confessor, confined to him, and binding to a court.  The confession may not be divisible, unless it has been made in respect of a number of events, and the existence of one of these events does not necessarily mean, or prove, the existence of the others.  Properly obtained judicial confessions are evidence against the confessor, and the confessor may not retract such a confession.
Confessions in criminal cases
Article 190 provides that if at any time the accused admits that he is guilty, the court shall hear his statements in detail and cross-examine him.  If it is satisfied that the confession is sound and sufficient, it may abandon the remaining proceedings, or some of them, and decide the case.  That is, the Supreme Court has confirmed that a confession in a criminal case may have a conclusive role in that case.  However, such evidence shall be subject to an assessment by the subject matter court, with no control or influence from the Supreme Court. The subject matter court may accept the confession of the accused following its investigations.  In respect of a confession, the subject matter court will seek to understand the motivation and grounds behind the giving of the confession, and assess whether or not it has been given based on evidence, liberty, perception and understanding, or, has been given subject to coercion. 
How is improperly obtained evidence treated?  Can such evidence be admissible?
A confession may be inadmissible if it was obtained illegally; however, any material evidence that is discovered as a result of such confession may still be admissible.  An accused may not avoid punishment simply for reasons of evidence having been obtained illegally.
A confession made under coercion is inadmissible, even if there is evidence confirming its accuracy.  If an accused maintained his confession after the coercion ceased to exist, it would be treated as a new confession.  In order to establish that a confession was obtained under coercion, the burden of proof lies with the claimant (i.e., the claimant must prove that his confession was obtained through coercion such as being tied up, restrained, arrested or guarded).  
Confessor’s retraction
A confession may, in certain circumstances, be retracted.  The retraction of a confession may be overlooked if the crime can be established with sufficient evidence supporting the confession.  It has been argued that with regard to major crimes, the retraction of a confession does not cancel the confession, but other evidence is required, even circumstantial evidence, in this regard.
Call recording and tapping and recorded tapes as evidence
Article 90 of the Criminal Procedures law states that Correspondence and cables may not be confiscated or perused, newspapers, publications and parcels may not be confiscated, conversation taking place at a private place may not be recorded, the telephone may not be tapped and the dialogue may not be recorded without the permission of the Public Prosecutor.  The permission specified in article 90 of this Law shall be issued if the Public Prosecutor is of the view that it would be useful evidence where there is a suspected offence or misdemeanor that would be punishable by imprisonment for a period exceeding three months.  The permission shall be substantiated and its period shall not exceed 30 days subject to renewal for similar periods, if required.
Moreover, article 30 of the Basic Law states that the freedom of correspondence by post, telegraph, telephone, or other means of communication is protected and its confidentiality guaranteed.  Hence it is unlawful to monitor, search, disclose the confidentiality, delay or confiscate the same except in cases specified by the law and in accordance with the procedures prescribed therein.
Any person involved in a public prosecution or commercial investigation should consult with a lawyer as soon as possible and, in any event, before giving a confession.

Read More...



Monday, February 13, 2017

Environmental Law in Oman

The desire for a green and pollution-free environment in Oman grows every year, as the world seeks to tackle the ill effects of global warming and other environmental concerns.  As the world gears up to combat this threat, the Sultanate of Oman has put a series of laws in place to protect its land and territorial waters against pollution.  Protection of habitats has been achieved through the environmental permit system implemented under Sultani Decree 10/82 (now replaced by Sultani Decree 114/01).  The Sultanate has always sought to strike a balance between the needs of development and the environment.  Industrial construction projects must be reviewed and certified by the Ministry of Environment and Climate Affairs (the “MOECA”) before commencement.  When reviewing a proposed construction project, the MOECA examines the possibility of damage to the environment and ensures that all measures have been taken to minimise pollution from waste products prior to giving its approval.
Legislation for wildlife protection and nature conservation is mainly in the form of Sultani Decrees and Ministerial Decisions.  The management and action plans for all protected areas are strictly implemented.  Sultani Decree 34/74, issuing the Marine Pollution Control Law, seeks to ensure the safety of the marine environment.  Sultani Decree 68/79, establishing the Council for Conservation of Environment and Prevention of Pollution, was followed by Sultani Decree 10/82 (replaced by Sultani Decree 114/01), issuing the Law on Conservation of the Environment and Prevention of Pollution, which laid the practical and scientific basis for private and public practices in environmental fields.  This was further strengthened by the issue of Sultani Decree 45/84 establishing the Ministry of Regional Municipalities, Environment and Water Resources as the first ministry of its kind in the Arab world.
Marine pollution
One of the most significant laws concerning the protection of the environment in Oman is the law on the Control of Marine Pollution (Sultani Decree 34/74).  Under this law, no person has the right to discharge any pollutant in the pollution-free zone from a ship, shore location or oil transport facility.  
Moreover, no ship has the right to discharge any pollutant in the pollution-free zone and each day of a violation is considered as a separate violation.  No ship owner or any owner or operator of a shore location or oil transport facility has the right to disregard any of its obligations under the law.  Any owner or operator of the shore location or oil transport facility violating the law subsequent to a third offence may be liable to be deprived, either temporarily or permanently, of any or all of the rights granted by the Government.  The pollution control officer, or any other person appointed by the MOECA in charge of implementing this law, is empowered to arrest any person who has committed an offence punishable with imprisonment in accordance with this law, and to detain such person until the issue is resolved; the officer may also detain and seize any ship in violation of the law.  If a pollutant has been discharged in the pollution-free zone, the owner of that ship or the owner or operator of that shore location or oil transport facility, as the case may be, will be liable for, inter alia, costs borne by the Government in order to mitigate or eliminate the pollution, and the damages suffered by the Government and/or any other person.
Solid non-hazardous waste
The Regulations for the Management of Solid Non-Hazardous Waste (MD 17/93) deal with solid non-hazardous waste, including any solid or semi-solid material, which does not pose any danger to the environment or to the human health, if it is dealt with in a safe scientific way.  Household waste and solid materials from commercial and industrial establishments are included in non-hazardous waste.  The occupants of premises which are used for commercial or industrial purposes are required to store and dispose of solid non-hazardous waste in accordance with the provisions of these regulations, so that there is no nuisance or hazard to public health.
The user of a commercial or industrial site which produces solid non-hazardous waste is obliged to collect the waste and transport it in a safe manner to a site designated by the relevant authority for the purpose.  The law does not permit any person to dispose of solid non-hazardous waste in places other than designated places.  No solid non-hazardous waste should be mixed with any category of hazardous waste at any time.  Various authorities responsible for the day-to-day operation and management of the collection and disposal of solid non-hazardous waste need to obtain permits and licenses from the MOECA.
Hazardous waste
The Regulations for the Management of Hazardous Waste (MD 18/93) deal with hazardous waste, including any waste arising from commercial, industrial or any other activities, which due to its nature, composition, quantity or for any other reason is hazardous or threatens to be hazardous to the environment.  Any storage facility for hazardous waste must be duly licensed by the MOECA.  This law requires all hazardous waste to be labeled and packed according to the provisions stipulated in this respect.  Every hazardous waste generator should store the hazardous waste in approved storage facilities on its land, or at its premises, until it is removed in accordance with the terms of the license issued by the MOECA.  Hazardous waste must be transported by vehicles licensed by the MOECA to collect, handle, store and dispose of hazardous waste outside the waste generator’s premises. 
Waste water re-use and discharge
The Regulations for Wastewater Re-Use and Discharge were promulgated through MD 145/93 and provide that the discharge of any wastewater or sludge into the environment, in whatever form or conditions, is prohibited without a permit to discharge from the MOECA.  Further, this law provides for the regulation of the quality of wastewater and its re-use.  Before re-use, the wastewater or sludge is tested to determine the quantity of various metals in it and its pH value.  Those with high concentrations of metals must be disposed of in sanitary landfills with the prior approval of the MOECA.  Wastewater must be discharged only where re-use is not possible.  The MOECA may supervise the samples of wastewater at any place at any time.
Whilst there are many other laws that have been issued to ensure the safekeeping of the environment, the above laws are some of the most important in relation to wastewater, management of waste and marine pollution.

Read More...



Monday, February 6, 2017

The Right to Bring a Commercial Claim against a Non-Contractual Party under Omani Law

Similar to what is commonly referred to as a “tort” claim in many common law jurisdictions, Omani law principally recognises a party’s right to bring a commercial claim against a non-contracting party.
Specifically, it is an established principle in Omani law to allow a party to pursue a claim against a non-contracting party when an exchange or incident, and the resultant claim, involves only two entities.  However, in scenarios involving three parties, a party’s right to bring a claim against its non-contracting party may differ, particularly in construction contracts. 
This article will explore the circumstances under which a party is legally permitted to bring a claim against a non-contracting party.  It will also explore the circumstances in which it is impermissible for a party to bring a claim against a party with whom its relationship is not rooted in contract.
The right to file suit against a non-contractual party in a two-party transaction
The right to sue a non-contracting party, in scenarios involving two parties, was confirmed by the Supreme Court in its judgment number 160/2008.  In this case the Supreme Court held that a party may bring a claim against a non-contracting party seeking recompense for actual and reasonably foreseeable losses when its losses arise from a “wrongful act” or “harmful act. The Supreme Court further explained that “the basic rule followed in law is that anything done or said which causes harm to any other person is deemed to constitute a failure to observe the legal obligation incumbent upon all men not to inflict harm on any other person without lawful cause.
Naturally, the Supreme Court’s position is consistent with what was established by the Omani legislature in 2013 in the Omani Civil Code (“Civil Code”), promulgated by Royal Decree 29/2013.  Article 176 of the Civil Code, which is located under the chapter titled Harmful Acts, provides that a party shall be liable for “any harm to others” – that is, irrespective of whether the two parties have a contractual relationship.
Very importantly, the facts presented before the Supreme Court in Case No 160/2008 involved only two parties.  As we discuss below, the right to sue a non-contractual party in scenarios involving three parties may be different under Omani law.
The right to a sue a non-contracting party in scenarios involving three parties
Under Omani law, a party may be precluded from bringing a claim against a non-contracting party, specifically in commercial transactions involving three parties.  A common example in which this scenario arises is with construction-related contracts – such as when an employer (or project owner) has a contractual relationship with only a main contractor, and a sub-contractor also only has contractual relationship with the same main contractor.  Thus, although the employer and sub-contractor are both involved on the same transaction, they do not have a contractual relationship with one another; rather, both the employer and sub-contractor have mutually exclusive contracts with a third-party intermediary, the main contractor.
In the event that a sub-contractor believes that an employer’s conduct has caused the sub-contractor to sustain damages, the sub-contractor does not have the legal right to bring a claim against the employer under Omani law.  Again, this is irrespective of whether the sub-contractor considers the employer’s ‘harmful’ or ‘wrongful’ acts to be a direct cause for it having sustained losses.  The sub-contractor’s only right of recourse will be against its own contractual counterparty, the main contractor; not the employer.
This principle has been established by case law, most notably by the Supreme Court in Case No 364/1994.  Therein, the Supreme Court stated that the “general principles of independence of privity” precluded a sub-contractor from bringing a direct claim against the employer.  In other words, the lack of a contract between the employer and the sub-contractor meant that the sub-contractor could not bring a direct claim against the employer.
The Supreme Court’s position set out in its 364/1994 decision has also been confirmed by the Civil Code.  Article 645 of the Civil Code provides that “a sub-contractor shall have no claim against the employer for anything due to him from the first contractor…. Thus, a sub-contractor’s right for recourse is limited to claims only against its contractual counterparty, the main contractor.
Recoverable damages against non-contracting third parties
As discussed above, a party will be generally precluded from seeking recompense from a non-contracting party in commercial transactions involving three parties.  However, a party may be able to recover damages from a non-contracting party in scenarios or transactions involving only two parties.
Notwithstanding this, the amount of recoverable damages will be limited to actual, provable losses sustained, together with reasonably foreseeable losses.  Further, a claimant must demonstrate a direct, provable nexus between the losses incurred and the amount of compensation in which he seeks.
In its 65/2003 decision, the Supreme Court stated that all recoverable losses must be ‘direct’ and ‘natural’ arising from the alleged harmful or unlawful act.  Further, Article 181 of the Civil Code states that a party’s compensation for losses arising from a harmful act “shall be assessed on the basis the amount of harm suffered by the aggrieved, together with loss of profit, provided that that is a natural result of the harmful act.

Read More...



Tuesday, January 31, 2017

Tanfeedh

At the beginning of January 2016, Sultani Decree 1/2016 was issued approving the Ninth Five-Year Plan (2016-2020), i.e., the last of the Five-Year Plans included in the Government policy named Vision for Oman’s Economy (Oman 2020), which, in due course, will be followed by Vision Oman 2040.

Due to the economic and financial challenges caused by oil price volatility, the National Program for Enhancing Economic Diversification (“Tanfeedh”) was announced as one of the fundamental elements in the Ninth Five-Year Plan. Tanfeedh is an Arabic word that can be translated into English as “execution” (referring to execution of a project or of a plan). The aim of the programme is to accelerate diversification and reduce dependence on the oil and gas sector, both by developing a series of projects in five crucial business sectors and by reforming some aspects of the local legal framework in order to facilitate the establishment and operation of businesses in the private sector.

The five business sectors the Sultanate elected to focus on are manufacturing, transportation and logistics, tourism, fisheries and mining. The two parallel “community and sustainability enablers,” aimed at improving the ease of doing business, relate to finance and the labour market. The Tanfeedh initiatives will initially focus on three of the five business sectors, namely manufacturing, transportation and logistics and tourism, with fisheries and mining projects to be developed at a later stage due also to the need of suitable logistics and transport facilities, particularly in connection with large mining projects.

A comprehensive list of the main projects proposed in the three initial business sectors is available in the official Tanfeedh website at the following link: http://tanfeedh.gov.om/en/overview.php. This article will not focus on the specific projects being implemented but on the proposed changes in the legal framework which should enable the implementation of these and other projects and generally encourage private-sector initiative and foreign investments. The information utilised derives from the documentation outlining the outcome of the Tanfeedh labs, discussion ‘labs’ which formed part of the Tanfeedh process and were attended by approximately two hundred decision-makers from the public and private sectors. The Tanfeedh labs represented the second of the eight steps of the process and were followed by open days, during which the general public was invited to express its opinion on the Tanfeedh proposals.

The two main issues addressed by the research relating to the finance sector were: (a) the need to increase the participation of the private sector in funding large projects; and (b) the best way to improve the business environment and attract investors. In 2016, the Sultanate ranked 70th overall in the Ease of Doing Business Index (The World Bank – Doing Business Report 2016) and such ranking must improve in order to attract foreign investors. The initiatives envisaged in this respect include new legislation on foreign investments, the integration of all Government entities in the ‘Invest Easy Platform’ and the unification of the national investment promotion efforts.

In particular, the new Foreign Capital Investment Law, which, in accordance with the Tanfeedh recommendations, should be issued during the course of 2017, should allow for 100% foreign ownership of companies in Oman, subject to the power of the Ministry of Commerce and Industry to restrict certain business sectors by reasons of national interest.  This, once implemented, will represent a radical change in the Omani business environment. Other measures include the establishment of a Credit Bureau and the integration of all Government entities in one tendering platform, which will allow a full overview of all aspects of public procurement, the latter to be coupled with more incisive intervention in order to increase accountability and transparency.  In this respect, it has been proposed that all Government-owned companies will be subject to the Code of Corporate Governance (the “Code”) issued in 2016.  The Code, for the time being, applies only to publicly listed companies. Finally, Tanfeedh proposes that a number of Government-owned enterprises be privatised and listed on the stock market.

With reference to the labour market and generally to employment, Tanfeedh includes various strategies to create employment opportunities in the private sector and, in particular, the manufacturing, logistics and tourism sectors.  The Tanfeedh reports quote restrictive labour regulations and low productivity of the labour force as two key areas that require improvement.  The keyword appears to be flexibility: part-time work, temporary work and flexible movement of employees (in particular between companies belonging to the same group) are some of the proposed new initiatives.

From an educational point of view, the Government wishes to form a closer relationship between the business environment and the education providers and to improve the quality of the training programmes proposed to the Omani youth.  At the same time, measures shall be taken to attract young Omanis to seek employment in the private sector and to encourage the establishment and operation of small and medium enterprises.

The following has been proposed to assist entrepreneurs and employees alike and to encourage employers, inter alia, to invest on the local workforce:

  • The creation of a specialised and dedicated Labour Court, which should assist in reducing the duration of lengthy and expensive court proceedings.

  • One-window process for obtaining Labour clearances, i.e., the permission to employ a foreign employee in a specified position.  This bureaucratic process involves different Government authorities and can be extremely time-consuming; the proposed new process is aimed at reducing the total time required to five working days.

  • Dedicated Labour Solution Packages for specific sectors such as the construction sector.
The proposed measures arising from the Tanfeedh process do not have force of law; however, many appear to be on track for swift implementation as shown, for instance, by recent articles appearing in the media on the establishment of a dedicated Labour Court.  Certainly, entrepreneurs and investors are looking with great interest at the developments which have the potential to change to a great extent the Omani business environment.

We will provide further updates as to any changes of law or proposals that are implemented throughout the year.


Read More...



Monday, January 16, 2017

A Ceiling on the Charging of Interest?


Charging interest on a commercial loan or debt is an important part of any contractual bargain.  For the creditor, the interest charged on a debt encourages quicker repayment by the debtor, and represents the price at which the creditor is willing to lend.  For the debtor, interest charged is important as it is the amount for which he will be liable, in addition to the principal debt.

Omani courts have consistently upheld the payment of interest in commercial cases.  Article 80 of Oman’s Commercial Code (issued by Royal Decree 55/1990) states:

“A creditor shall be entitled to levy interest in consideration of the debtor obtaining a commercial loan or debt.  The interest shall be determined by the agreement of the two parties within such limits as the Ministry of Commerce & Industry shall set in agreement with the Oman Chamber of Commerce & Industry each year, having due regard to the term of the loan, the purposes thereof, and the risks attendant thereon. If the debtor is late in making payment on the due date, the creditor shall be entitled to claim the agreed interest in respect of the period in arrears.”

The Ministry of Commerce and Industry (the “MOCI”) periodically issues a decision on the maximum interest rate chargeable for commercial loans.

Starting from 2001, the limit on the rate of interest set by the MOCI was 10%; thereafter it has been tapered, whereby in 2006 it was set at 9%, in 2008 it was set at 8% and by 2015 it was set at 6.5%.

Ministerial Decision 172/2016 is the most recent decision issued by the MOCI in respect of the maximum interest that can be charged on a commercial debt or commercial loan given by a company that is neither a bank nor a finance and asset-leasing company licensed by the Central Bank of Oman. MD 172/2016 set the maximum interest rate chargeable on commercial loan or debt at 6.5% for a period of one year starting from 20 July 2016.

Thus, as the interest rate in Oman for commercial debts is currently set at 6.5%, any final arbitral award or court decision will likewise apply this rate.

The parties entering into a contract normally agree to a rate of interest chargeable in case of default or delay in payment by one party to the other party as per the contractual terms.

What happens if the contract is silent in respect of the interest rates?

In the event that a contract is silent as to the applicable interest rate regarding a commercial debt or commercial loan, the Omani courts may still award the claim of interest based on the applicable interest rate which is set out by the MOCI’s most recent and applicable Ministerial Decision.  The Omani courts are generally of the view that a claim for interest cannot be denied on the ground that a contract is silent on the subject.

What happens if the parties agree to a higher rate of interest than the rate specified by the Ministerial Decision?

While entering into construction contracts, the parties usually adopt an edition of the Sultanate of Oman’s Standard Conditions. The Standard Documents for Building and Civil Engineering Works – Fourth Edition 1999 sets the rate of interest at 7%.  In general, the Omani courts, or the arbitral tribunal, would award interest at 7% as stipulated in the Standard Documents referred to above (although it is higher than the rate set by the MOCI), unless the parties raise a dispute about the rate of interest in the contract being higher than the rate of interest set by the MOCI.
In the event that litigation is pursued in respect of the rate of interest in a contract being higher than the rate set by the MOCI, the Omani courts would generally uphold those contractual terms each party had agreed to, including the rate of interest.  However, the Omani courts’ interpretation of the issue of the contractual interest rate being higher than the interest rate set by the MOCI is still not clear and will depend on the merits of each case.

Read More...



Wednesday, January 11, 2017

An Overview of the Land Transport Law


Overview of Land Transport Law in Oman

Oman has recently taken a very active approach in promoting and boosting transportation services throughout the region.  As part of this vision, the Ministry of Transportation and Communication (the “MOTC”) plans to introduce a road management system whereby it will promote efficiency and maintain clear guidelines on the operation of public transport.  The MOTC has recently issued Ministerial Decision 10/2016 (the “Land Transport Law”).  The Land Transport Law was published in the Official Gazette on 6 March 2016 and it will come into effect on 6 March 2017.

The rules governing the Land Transport Law apply to all transport activities, except those activities where it has clearly been established by particular Sultani Decree or Ministerial Decision.  The Land Transport Law obliges the party seeking to conduct transport activities to obtain an authorization from MOTC.

The main governmental body that is in charge of facilitating and ensuring that companies are in compliance with the Land Transport Law is MOTC.  As part of its objectives, the MOTC is responsible for preparing a comprehensive strategy for land transport services in Wilayat and the Governorates. The MOTC is also responsible for determining the locations of the facilities and their technical conditions and specifications.  The MOTC is also in charge of setting and implementing the transportation fees. 

Goods transport contracts

The carrier may inspect the goods to be transferred to check their condition and the accuracy of the data provided to him by the shipper.  If it turns out that the condition of the goods does not allow transferring without damaging them, the carrier may refuse to transport them unless the shipper approves in writing his knowledge about it and he approves the goods to be transported.  The carrier is responsible for the safety of the goods.  He is also responsible for loss, or damage or delay in delivering the goods. The carrier will not be liable to the extent of any error from the shipper or receiver or any hidden defects in the goods.

Commission agent

The commission agent of transport is responsible for the safety of the passengers and goods and cannot contract out of this liability.  Article 47 provides that “Any condition that requires the full or partial exemption of the commission agent of transport’s liability of whatever physical damage that occurs to the passenger shall be considered null and void.

Compensation grounds

If it is proven that the carrier is responsible for the delay in the delivery of the goods, his liability will be within the range of what is equal to half or double of the transportation fees, and shall not exceed the total value of goods transportation fees.

Penalties
Any person contravening the provisions of this law shall be punished by imprisonment for a term not less than one month and not more than six months and a fine not less than OMR 100 and not more than OMR 500, or either of these punishments. The punishment is doubled for repeat offences.

Read More...