Monday, March 22, 2010

Prescription under Omani Law

For persons debating whether to bring a claim under Omani law, it is important to know that, for some matters, Courts will not permit the claim if too much time has elapsed since the event giving rise to the claim occurred. Similarly, companies that are concerned about potential litigation over an event may wonder at what point they can finally lay the matter to rest and be certain that no litigation will ensue.

The legal concept dealing with when a claim must be brought is known as “prescription” in civil law jurisdictions such as Oman. Prescription sets forth a maximum period of time after an offense occurs within which legal proceedings may be initiated. If the claim is not brought within the prescription period, the Court is unlikely to accept the case regardless of how strong it may be. This concept also is recognized in common law jurisdictions such as England and the United States under the term “statute of limitations”.

Prescription periods vary from case to case based on several factors such as the severity of the alleged offence. For example, in severe criminal matters there often is no prescription period and a person may be prosecuted no matter how much time has elapsed since the crime occurred. In contrast, for simple commercial matters the prescription period may be much shorter. In a commercial context, short prescription periods encourage parties to raise complaints in a timely fashion, which promotes certainty in commercial dealings.

Some typical examples of prescription in Omani law include:

  • Article 7 of the Oman Labor Law states that employee rights shall lapse after one year of becoming due. The Courts, however, have ruled that such rights shall lapse after one year of the termination date of the employment relationship.

  • Article 11 of the Consumer Protection Law states that consumers shall have the right within a period of ten days from the date of purchase of any commodity to have the commodity replaced or returned or to recover its value if it is defective.

  • Article 16 of the Law Regulating Engineering Consultancy Offices states that the owner of a consultancy office shall be jointly responsible with the contractor for the faults and flaws that may occur in the project designed by or executed under the supervision of his office for ten years from the date of the handing over of such installations.

  • Article 16 of the Law Regulating Engineering Consultancy Offices also states that claims filed after the lapse of three years from the date of discovering the fault or flaw without instituting an action within the aforesaid period shall not be considered by the Courts. This is an interesting example of prescription in which it is the discovery of a condition on which one wishes to initiate a legal claim, rather than a particular event, that starts the prescription clock ticking.


Tuesday, March 16, 2010

Withholding Tax on Management Fees

The Omani Tax Law (Royal Decree 28 of 2009) provides that companies earning income from management fees that do not have a permanent establishment in Oman are subject to withholding tax. Companies that plan to earn income from management fees that have not formed a permanent establishment, such as a limited liability company (LLC) or branch in Oman, need to examine their transactions carefully to determine whether they will be subject to this 10% withholding tax.

The Tax Law does not provide a definition for "management fees" as they relate to withholding tax. Particularly, the law does not specify whether management fees include remote management, which would occur from outside Oman, or management that occurs directly within Oman. Generally, the accepted practice is that management fees, whether the management occurs directly in Oman or remotely, will be subject to withholding tax if the management company does not have a permanent establishment in Oman.

In light of the withholding tax structure, companies should consider whether they prefer to form a permanent establishment in Oman. Forming a permanent establishment in Oman means the income from the management fees would not be subject to the 10% withholding tax. However, the local commercial entity would be subject to a 12% taxation rate on taxable income after allowable deductions.

Companies without a permanent establishment in Oman that earn income from management fees also should be aware of the restrictions laid down in the Foreign Capital Investment Law. Generally, foreign companies are not permitted to do business in Oman without forming a legal entity such as a branch or LLC. If the company providing the management services that are the subject of the management fees is doing business in Oman illegally, then payment of withholding tax on the income earned from the management fees would not excuse the company from any penalties resulting from the Foreign Capital Investment Law or other applicable Omani laws.


Tuesday, March 9, 2010

Joint Ventures in Oman - March 2010

It is very common for two or more companies to submit a joint tender in Oman. A joint tender consists of two companies cooperating together to submit a single tender for a project, in which each company will execute separate parts of the project. In this situation, the parties need to determine how to structure their relationship during the tender stage. A common arrangement in such cases is that of a "joint venture", but there is often confusion about what this means in Oman. In practice, companies in Oman frequently use the term “joint venture” interchangeably with “LLC”, or limited liability company. However, companies that are operating only at the tender stage may refer to the term "joint venture" to mean a more flexible structure. In Oman, companies jointly bidding without yet forming an LLC oftentimes call themselves members of a "consortium". Ultimately, the vocabulary used to describe the relationship is less important than the actual structure adopted by the parties. What is important is including language in the bid submission to confirm to the Tender Board or the client that the parties are committed to adopting an appropriate structure for servicing the contract. Particularly, foreign companies without a permanent presence in Oman and participating in a joint bid submission should include language confirming that they intend to form an entity in Oman if the contract is awarded. This is important because of the restrictions on foreign companies doing business in Oman without adopting the proper structure. The language may be generic to allow the foreign company flexibility in what structure is later adopted (for example, a branch, LLC, or FTA company, if applicable).


Wednesday, March 3, 2010

Evidence Law for Civil and Commercial Transactions

A new evidence law for civil and commercial court cases was issued in Royal Decree 68 of 2008 (the "New Evidence Law"). Prior to the issuance of the New Evidence Law, there was no formal law governing the rules of evidence in civil and commercial court cases in Oman. The rules of evidence in such cases were developed by practice and heavily influenced by the Egyptian Civil Code.

The New Evidence Law lays out a comprehensive framework for which types of evidence may be admitted, the role of the judge in the process, privileges, and expert witnesses. Some highlights of the law include:

  • The Court may require a party to a case to submit a document under the following circumstances: (1) if the law requires disclosure of the document; (2) if the document is joint or common amongst the parties to the case; or (3) if a party has used the document at any stage during the case.
  • It is permissible for witnesses to provide evidence. The Court must approve the witness. It is also permissible for the Court to call witnesses.
  • Witnesses must have capacity to testify. Witnesses must be at least 15 years old. If the witness is under 15 years, he may be permitted to testify but will not be required to swear an oath regarding his testimony.
  • One cannot be required to testify against one’s spouse, unless one spouse has lodged a case against the other.
  • The Court may appoint an expert to provide input on technical (but not legal) matters, such as engineering, accounting, etc.
  • The parties to a case may question the expert report or ask that it be disregarded.
Another aspect of the Evidence Law that is being applied more frequently in recent years is the principle of "Al Yameen", or solemn oath. Al Yameen is a specific oath made by the defendant in a case swearing the truthfulness of his statement.

The New Evidence Law provides a clearer framework for proving matters in civil and commercial court cases in Oman. Companies or individuals which find themselves in litigation can rely upon this framework in determining which evidence will be admitted and how it will be treated by the Courts.


Tuesday, March 2, 2010

Nuclear Energy Development

When a nation such as Oman decides to develop a peaceful nuclear energy program, the first step in essence will decide the political and economic consequences of the entire process. This first step is to become a party to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT). That step is important because nations that lack the domestic capacity to develop nuclear energy will require technological support from other nations. In order to obtain this technological support, the country seeking to develop nuclear energy will need to join the NPT and fulfill a number of political obligations and related criteria.

Joining the Non-Proliferation Treaty
The NPT came into force on 5 March 1970 and includes 189 signatory nations, including Oman. Oman ratified the NPT in 1997 and therefore already fulfills this basic fundamental criteria. The NPT includes three basic "pillars": non-proliferation, disarmament, and the right to peacefully use nuclear technology. The provisions on peaceful use of nuclear technology are most important for Oman’s current plans, and are addressed in Article 4 of the NPT.

Article 4 of the NPT gives a county seeking to embark on a nuclear energy program the inalienable right to use nuclear energy for peaceful purposes within the parameters laid down by the obligations in the treaty.

A country such as Oman, which lacks the domestic technical resources and capacity for nuclear energy development, may seek to avail itself of Article 4(2) of the treaty. Article 4(2) deals with the exchange of equipment, materials and scientific technical information for the peaceful use of nuclear energy between member states. Article 4(2) also sets out the non-binding moral obligations of member states to support the responsible spread of the use of peaceful nuclear technology.

In practice, Article 4(2) is monitored by a group of forty six nuclear supplier states, including China, Russia and the U.S., that have voluntarily agreed to coordinate their export controls governing transfers of civilian nuclear material and technology to non-nuclear weapon states. This group is known as the Nuclear Suppliers Group (NSG), and was created in 1975 after an incident involving India’s explosion of a nuclear device. This incident demonstrated that nuclear technology transferred for peaceful purposes can be misused. The objective of the NSG is to prevent nuclear exports for commercial and peaceful purposes from being used to make nuclear weapons. Under the NSG structure, members are obligated to refrain from nuclear trade with governments that do not subject themselves to international inspections of their nuclear imports. The inspections are designed to provide confidence that their nuclear imports are not being used to develop a nuclear arsenal.

As Oman will require technical support from the international community in developing a nuclear program, it is important to instill confidence in the International Atomic Energy Agency (IAEA) and the NSG to ensure that the international community understands that Oman’s intentions are NPT compliant. Specifically, a nation in this situation should show its adherence to international instruments and inspections.

Developing Effective Legislation
A country seeking to develop a nuclear program will require legislation to move the process forward. Specifically, nuclear legislation should:

  • Ensure control over nuclear materials, facilities and any other radioactive material.
  • Ensure that nuclear energy and its applications are used exclusively for peaceful purposes.
  • Ensure that nuclear facilities, nuclear materials and any other radioactive material are handled and operated safely and securely through a system of regulatory control.
  • Ensure that compensation mechanisms are in place in case of nuclear damage.