Tuesday, August 14, 2012

Agency Disputes

It is often thought that an agency relationship is the best way for a foreign entity to do business in Oman.

However, this is incorrect.

Under Omani law, the purpose of an agency is for a foreign entity’s goods to be promoted and/or sold in Oman. An agency is not supposed to involve the physical presence in Oman of the foreign entity. The expectation of the legislator is that the Omani agent will import the goods into Oman and sell them within Oman, without personnel of the foreign entity physically being in Oman.

In reality, there are many instances in which a foreign principal wants its representatives to be in Oman, based on an agency relationship.

This normally means that the Omani agent becomes the sponsor and employer of the individuals sent to Oman by the foreign principal. This can cause problems for both parties. For instance, the agent may terminate the worker given that the worker, whilst in Oman, is a bona fide employee of the agent, rather than of the principal.

Alternatively, the foreign principal may instruct the Omani agent to dismiss the worker. The agent then complies with this directive, only to be hit with an unfair dismissal claim by the worker. This may cause difficulties if the foreign principal is unwilling to fund a lawyer to defend the agent in the Omani courts. The agent also may face problems if the foreign principal refuses to provide the funds necessary to satisfy any final, non-appealable Omani court judgment made against the agent in its role as Omani employer.

There also have been instances in which agents have filed spurious criminal complaints in Oman against the workers sent by the foreign principal, in a bid to gain leverage in any dispute with the foreign principal.

Another aspect to consider is tax. The Tax Authority may take the view that the presence of the foreign principal’s representatives in Oman is sufficient to deem that the foreign entity has set up a permanent establishment in Oman from the tax perspective. However, if the foreign entity refuses to pay Omani income tax, there is a possibility that the Tax Authority may pursue the Omani agent for that tax.

In conclusion, any situation which involves workers of a foreign entity being sponsored in Oman by a local entity can cause problems. Omani legal advice should be sought before entering into any such arrangement.