Thursday, November 29, 2012

Customs Duty Issues for Businesses

With a flat corporate income tax rate of 12% on annual profits above RO 30,000, and no personal income tax, Oman has a well-deserved reputation as a business-friendly jurisdiction from a tax perspective. Nevertheless, there are a number of tax-related issues that businesses in Oman would do well to heed carefully. Most such tax issues are, of course, best addressed by accountants; however in this month’s client alert we wanted to highlight one tax issue that we sometimes encounter in our legal work: customs duty. 

In Oman, customs duty is normally a flat 5% of the value of the goods being imported. For businesses that import significant quantities of goods or high-value goods into Oman, customs duty could add up to a high operational cost and could significantly reduce profit margins. Many companies thus look for ways to reduce their exposure to customs duties. There are three possible ways that companies can do so, which we briefly discuss below.

The first – and often best – way for a company to reduce its exposure to customs duty is to arrange, by contract, for its customers to reimburse the company for the Omani customs duty it pays to bring in the goods or equipment necessary to carry out the work for the customer. For example, an oil services company that will provide drilling services for an oilfield customer in Oman, which will require the use of high-value machinery which must be imported into the Sultanate from abroad, could provide in the oil services contract that the customer must reimburse the service provider for any Omani customs duties that the service provider incurs importing the equipment and supplies that are required to carry out the work for the customer.

The second way that a company could reduce its customs duty exposure is to secure a temporary duty-free importation permission from the Royal Oman Police Directorate General for Customs. This is a limited category of exemption – it applies only to machinery and heavy equipment to be used for Government or investment projects, it is granted at the discretion of the Royal Oman Police, and most importantly it is valid only for a temporary period (six months at a time, renewable consecutively for a total period up to three years). However, temporary importation can be an attractive option for companies that seek to import high-value equipment into Oman for a brief period of time to carry out a Government or investment project, and will then re-export the equipment out of Oman.

The third route that companies could pursue to reduce their Omani customs duty exposure is to apply for a customs duty exemption pursuant to the Foreign Capital Investment Law. This exemption, which is granted at the discretion of the Ministry of Commerce & Industry and the Ministry of Finance, is not an easy one to secure – it tends to be granted only for key industrial and infrastructure projects for national economic development – however it is an option that companies can pursue. The process to seek this exemption is to first apply to the Ministry of Commerce & Industry, and if the Minister of Commerce approves the application he will forward the application to the Ministry of Finance, which would study the application and make the final determination of whether to grant the customs duty exemption.


Tuesday, November 27, 2012

Curtis signs Memorandum of Understanding with Oxford Business Group

Curtis, Mallet-Prevost, Colt and Mosle has signed a Memorandum of Understanding (MOU) with the global publishing, research and consultancy firm Oxford Business Group (OBG) on research facilities to allow OBG access to the firm’s research resources and expertise. Through this partnership, Curtis will provide OBG with the knowledge necessary to complete the legal chapter within The Report: 2013. The Report: Oman 2013 is an in-depth analysis of the changes in Oman’s legal framework, which are pieces of a grander project to attract investors, support the younger generation by creating jobs, and diversify Oman’s economy. The publication, which will be available both online and in print, will be a guide to potential investors and include interviews with economic and business leaders such as Hamood Sangour bin Hashim Al Zadjali, the executive president of the Central Bank of Oman, and Yahya bin Said Al Jabri, chaiman of the Special Economic Zone Authority at Duqm (SEZAD).

The full article covering the MOU can be found in the Times of Oman here:


Monday, November 26, 2012

Judicial Review of the Status of a Project

A tool which perhaps should be used more often in Omani litigation is the right to have the status of a project viewed by a judge, so there cannot be a later dispute about the status of, say, a construction project at that specific moment in time.  

The court may decide of its own volition, or based on a request from one of the litigants, to inspect the disputed item/project.  

If the court decides to inspect, it will determine the date in this regard, and the court can appoint an expert to assist with the inspection and to write a report.  

The court can also delegate the expert to hear witnesses and the court can fix a session to hear the observations of the litigants upon the expert’s report.

The above mechanism has particular importance in construction matters.


Friday, November 16, 2012

Non-Competition Clauses in Employment Contracts

Employment contracts often contain a non-compete clause which purports to restrict an employee’s future conduct. Historically, non-compete covenants have been regarded as unlawful restraints on trade and, hence, were unenforceable in most jurisdictions. However, increasingly the need to protect the employer’s legitimate business interests is being widely recognized.

Partial Restraint May Be Valid

While a clause constituting a blanket bar on the employee from joining any other employer would still be an unlawful restraint, a partial restraint genuinely aimed at protecting the employer’s legitimate business interests would be considered valid in some jurisdictions. The covenant must balance the protection of the employer's business interests against the employee's right to earn a living.

A partial restriction could be better justified by an employer if its scope is limited and satisfies the following criteria:
  • it is aimed at protecting the assets, information, or skills acquired by the employee during the course of employment (e.g., a high premium intellectual property, customer list, source code etc.); 
  • it is applicable only for a clearly defined and limited period (rarely exceeding three years);
  • its applicability is narrowed down to certain geographical locations; and
  • it is made industry-specific.
In other words, the restriction on the employee’s right to compete should be no greater than what is necessary and lawful to protect the employer’s business interests.

Measures to Address the Breach of Covenant

A breach of the covenant can be contractually addressed by explicitly stating that the employer has the right to sue the breaching employee for compensatory damages (including loss of profit). In some jurisdictions, it is possible to seek an injunction from the court to restrain the employee from joining a competitor pursuant to a non-compete clause in the employment contract.

Under Omani law, Article 50 of the Commercial Code states that a merchant, X:

(a) cannot induce the workers of merchant Y to assist X in enticing clients away from Y; and
(b) cannot induce the workers of merchant Y to leave Y’s employment and enter into X’s employment and disclose to X the secrets of Y.

The law regards these acts as unlawful trade practices warranting compensation. Although this legal provision is intended to address a business to business scenario and not an employer-employee relationship, an aggrieved employer could attempt to seek recourse in the Courts based on this provision.

To conclude, the validity of a non-compete clause is not addressed by the Omani labour law. However, we believe that the Courts in Oman may, in future, be willing to find in favour of employers who rely on non-compete clauses.


Monday, November 12, 2012

US-Oman Free Trade Agreement Implementation Update

In a piece of good news for American businesses, the U.S. Embassy in Muscat recently announced that it has held successful talks with high-level officials at the Omani Ministry of Commerce & Industry regarding the ongoing implementation of the US-Oman Free Trade Agreement. The Ministry officials affirmed their commitment to extend ‘local’ Omani treatment to American companies as stipulated in the FTA, together with their commitment to monitor application of the FTA vigorously to ensure that such benefits are granted only to bona fide American companies and not to third-party nationals with no substantial business activities the United States.

In our experience, despite occasional implementation issues during these first few years of the US-Oman FTA’s existence, the FTA has already proven to be a significant boon for American clients doing business in Oman, by allowing them 100% ownership of an Omani limited liability company and lower minimum share capital requirements. The continued signs of high-level, bilateral commitment to the FTA are excellent news for American companies already doing business in the Sultanate and for those who are looking to do so in the future.


Tuesday, November 6, 2012

Islamic Banking — Bay Bithamin Ajil (“BBA”) and Istisna’a Structures

This is the fourth and final post in the series of articles addressing Shari`ah-compliant home financing products. It considers bay bithamin ajil (“BBA”) and istisna’a structures. Thereafter, it provides a few observations on the structures that are likely to be used in the Sultanate of Oman in light of the current draft of the proposed Islamic banking rules. BBA structures are used in Malaysia, Indonesia and Brunei, but are not encountered in the Middle East, the United States, Canada, the United Kingdom or Australia. Istisna’a structures (including istisna’a – parallel istisna’a structures), or construction financing structures, are used throughout the world.

Bay’u Bithamin Ajil Definition and Principles

The bay’u bithamin ajil or BBA contract is a contract of sale, utilizing deferred payment concepts. Importantly, it is not a separate kind of sale under the Shari’ah[1]. The payment of the price is deferred and is payable at a particular time in the future, usually on an instalment basis. Elements of sale that have been previously discussed in these Client Alerts are applicable and must be satisfied. For example, the sale and purchase price must be agreed and fixed at the inception of the transaction – at the time the contract is made. Thus, the profit rate for a BBA transaction is fixed at the inception of the transaction for the entire period of the transaction.

The fixed rate nature of the BBA contractual transaction has led to various criticisms pertaining to its competitiveness and appropriateness as a banking tool. Addressing some of those criticisms, Bank Negara Malaysia introduced a rebate (ibra’) mechanism that use variable rate financing techniques.[2] Using this mechanism, the sales price bears a fixed profit rate that is designated as the ‘ceiling profit rate’. The ceiling profit rate is set at a rate that is greater than the actual variable rate that will be charged to the home purchaser (which is referred to as the ‘effective rate’). The difference between the payment calculated at the ceiling profit rate and the payment calculated at the effective rate is the amount of the rebate to the home purchaser for the relevant period.

Different types of sale arrangements may be embedded in the BBA transaction. In Malaysia, Indonesia and Brunei, the bay’ al-‘inah (sale and buy-back) structure is frequently used. This type of structure is not used with any frequency outside Malaysia, Indonsesia and Brunei. Figure 1 provides a graphic depiction of a BBA transaction using this mechanism.

In this transaction, the Customer identifies the property that the Customer desires to acquire (say, from a developer), enters into a Property Purchase and Sale Agreement (step 1) and pays a Deposit amount to the Property Seller (step 2).

As a result of paying the Deposit amount to the Property Seller, the Purchaser is deemed to have become the beneficial owner of the property. The Purchaser then approaches the Bank to seek financing for the acquisition of the property in an amount equal to the balance of the purchase price over the amount of the Deposit (the “Financing Amount”). That is, the property purchase price is equal to the sum of the Deposit and the Financing Amount.

Upon arranging that financing, the Purchaser enters into a Property Sale Agreement (step 3) and sells the property to the Bank for an amount equal to the Financing Amount (step 4). The Bank will consummate the purchase of the property by making payment of the Financing Amount, which is usually disbursed directly to the Seller as shown in step 5.

Thereafter, pursuant to the Property Purchase Agreement (step 6), the Bank sells the property to the Purchaser at an amount equal to the sum of (a) the Financing Amount plus (b) a profit amount on the Financing Amount, which may be determined using either a fixed or floating rate (the “Total Purchase Amount”) (step 7). The Purchaser then makes installment payments of the Total Purchase Amount to the Bank, as illustrated in step 9. The obligation of the Purchaser to make the installment payments of the Total Purchase Amount will often be secured by a rahn (mortgage) on the property from the Purchaser to the Bank, as illustrated in step 8.

Istisna’a – Parallel Istisna’a Home Construction Financings  

The term “istisna’a” (or ‘istisnā’) means requesting a san’ah, which is the work of a small or large scale manufacturing worker. In jurisprudence and the modern Islamic finance and investment industry, the term is used to refer to a type of forward sale contract involving the request to manufacture (or construct) a specific item in a specific form for a specific price. The commission to manufacture contract is thus a contract to purchase the item to be manufactured by the worker, where the worker provides both the raw materials and the labor to produce the final product.[3] Historically, the istisna’a contract is derived from situations in which the custom production was required or desired, although it now refers more broadly to both manufacturing and construction undertakings. The sāni’ or sane is the seller, the mustasni’ or mustasne is the purchaser, and the masnū’ or masnou is the object of the sale transaction.

The istisna’a is similar to the forward sale contract (salam) in that it involves the future delivery of a traded item, it is a sale of an object that is not existent at the time of the consummation of the sale and purchase contract, and the object of the sale is a liability of the seller. In the istisna’a contract, the sales price need not be paid immediately at the time of entering into the contract, in contrast to the salam contract.[4]

The nature of the istisna’a contact in a situation where a purchaser desires to have a house constructed is seemingly straightforward. The purchaser/mustasne commissions the seller/sane to build a house (masnou) and sell it to the purchaser upon completion of construction, whereupon the purchaser will make payment in full. In the normal course, and classically, this arrangement does not involve instalment payments of the purchase price by the purchaser. The seller would have to be qualified to construct the house, or at least to cause the construction of the house (or the acquisition of the masnou in the markets).

The pure istisna’a contract does not seem well suited to situations in which the purchaser of the house is in need of financing to effect the purchase and the payment of the house purchase price. Additionally, the pure istisna’a does not seem well suited to situations in which the purchaser desires to make instalment payments of the purchase price, particularly instalment payments over an extended period of time. And construction contractors and manufacturers are not well positioned to provide long-term financing of house acquisitions. With respect to each of these matters, the introduction of banks and/or financial institutions into the equation seems both appropriate and beneficial.

This line of thought leads to the contemporary istisna’a – parallel istisna’a transactional form. This form involves two istisna’a contracts, one between the house purchaser as the mustasne (the “end mustanse”) and the bank as the sane, and one between the bank as the mustasne and the constructor as the sane (the “end sane”). Figure 2, overleaf, provides a graphic depiction of the overall transaction involving both istisna’a contracts.

The “First Contract” is comprised of the Istisna’a Agreement (step 1) between the Customer (Home Purchaser) as the End Mustasne and the Bank as the Sane. The Bank agrees to construct the House (Masnou) (which will be delivered in step 5) in accordance with the plans and specifications set forth in, and otherwise as agreed in, the Istisna’a Agreement and for a price (the “Istisna’a Amount”) set forth in the Istisna’a Agreement (which will be paid in instalment payments in step 6). The Istisna’a Amount is equal to the sum of (a) the cost to construct the House, which is the “Total Istisna’a Amount” referred to in step 4, plus (b) the financing costs to be paid to the Bank. Those financing costs may be calculated using either a fixed or a floating rate. The Bank is obligated to the Customer (Home Purchaser) in respect of the construction of the House. The Customer (Home Purchaser) agrees to purchase the House for the Istisna’a Amount on the instalment payment terms set forth in the Istisna’a Agreement.

Of course the Bank is not in the business of constructing houses. Thus, the Bank, as Mustasne, arranges for the “Second Contract”, being the “Parallel Istisna’a Agreement” (step 2), with the Construction Contractor as sane (or “End Sane” because it is the ultimate sane in the overall istisna’a – parallel istisna’a arrangement). Pursuant to the Parallel Istisna’a Agreement, the Construction Contractor agrees to the construct the House and deliver it to the Bank (step 3), which will make payment to the Construction Contractor in one or more spot market payments (step 4) during or at the end of the construction period. All construction terms pertaining to the House to be constructed pursuant to the Parallel Istisna’a Agreement (e.g., the plans and specifications) are identical to the construction terms set forth in the Istisna’a Agreement between the Customer (Home Purchaser) and the Bank. That is, the two contracts are “parallel” in all regards other than the price and the timing of the payment of the price. The price to be paid to the Construction Contractor under the Parallel Istisna’a Agreement is the “Total Istisna’a Cost” (step 4). It is the cost to construct the House without regard to any financing costs that are included in the Istisna’a Amount.

It is to be noted that the Istisna’a Agreement and the Parallel Istisna’a Agreement are, and must remain, totally independent obligations and arrangements, rather than interdependent obligations and arrangements. Thus, for example, pursuant to the Parallel Istisna’a Agreement, the Construction Contractor is obligated to the Bank, but not the Customer (Home Purchaser), in respect of the construction and delivery of the House. Pursuant to the Istisna’a Agreement, the Bank is separately and independently obligated to the Customer (Home Purchaser) in respect of the construction and delivery of the House. These obligations are independent and unrelated. Failure by the Construction Contractor to construct and deliver the House in accordance with the plans and specifications will not relieve the Bank of its obligation to the Customer (Home Purchaser) to deliver the House in accordance with the plans and specifications; the Bank will continue to be liable to the Customer (Home Purchaser).

Home Purchase Financings in the Sultanate of Oman

The four-part survey of Shari`ah-compliant home purchase financing products has considered a range of different structures and techniques for financing home purchases. These have included (i) the lease (ijara), which is discussed in Islamic Banking: Home Purchase Financings I: The Lease, (ii) the musharaka mutanaqisa (diminishing partnership), which is discussed in Islamic Banking: Home Purchase Financings II: Musharaka Mutanaqisa, (iii) the murabaha (cost-plus sale involving a commodity), which is discussed in Islamic Banking: Home Purchase Financings III: Murabaha and Tawarruq, (iv) the tawarruq (seeking of cash through the use of a murabaha in which the commodity purchased by the party needing financing is immediately sold by that party for cash), which is discussed in Islamic Banking: Home Purchase Financings III: Murabaha and Tawarruq, (v) the bay’u bithamin ajil or BBA contract, which is discussed in this client alert, and (vi) the istisna’a – parallel istisna’a, which is also discussed in this client alert. Each of these is discussed at

While these discussions are indicative of the range of possibilities from a global perspective, it is clear that only a subset of these structures will be offered by Islamic banks or Islamic windows of conventional banks in the Sultanate of Oman. The current drafts of the proposed Islamic banking regulations for the Sultanate of Oman require that products be in accord with the standards and guidelines of the Accounting and Auditing Organization for Islamic Financial Institutions (“AAOIFI”). Thus, certain types of tawarruq structures (i.e., organized tawarruq) will not be permitted in Oman, as was discussed in Islamic Banking: Home Purchase Financings III: Murabaha and Tawarruq. In addition, BBA structures will not be permissible in Oman.

The structures that will be available for home financing products in the Sultanate of Oman are likely to be the ijara (lease) and the musharaka mutanaqisa (diminishing partnership). Generic transactions using these structures were discussed in Islamic Banking: Home Purchase Financings I: The Lease, and Islamic Banking: Home Purchase Financings II: Musharaka Mutanaqisa, respectively.

As the Sultanate of Oman prepares to roll out its new legal and regulatory framework for Islamic banking in the coming months, we continue to cover Islamic banking in the Client Alert as it is an important and growing field. This article is the fourth in a series by Curtis partner Michael J.T. McMillen, an Islamic finance specialist based in our New York office who provides support to our Islamic banking practice in Oman and throughout the Middle East region.

1This type of contract is also knows as a bay muajjal in Southeast Asia and is commonly referred to as a bay murabaha in the Middle East.

2See Introduction of Islamic Variable Rate Mechanism, in The Islamic Financial System, 187-89 (2003), BANK NEGARA MALAYSIA, available at

3If the raw materials were provided by the purchaser, the contract would be one of employment of the labour of the worker.

4See Wahbah Al-Zuhayli, Al-Fiqh Ali-lslami wa-Adillatuh (Islamic Jurisprudence and its Proofs), Financial Transactions in Islamic Jurisprudence, Mahmoud A. El-Gamal, translator (2002), at 267-79, for discussions of the jurisprudential positions regarding whether the istisna’a is a contract of sale or a promise to sell or a form of employment of the manufacturer, of appended conditions, of the legal status of the contract, and of legal characteristics of the contract, and for a detailed comparison of the istisna’a and the salam contracts.


Monday, November 5, 2012

Taimur Malik Joins Curtis as Counsel in Oman

Muscat, Oman, November 1, 2012 - Curtis, Mallet-Prevost, Colt & Mosle LLP has announced that Taimur Malik has joined the international law firm as Counsel in its Corporate and Infrastructure Development groups. He will be based in Curtis’ Muscat office.

Mr. Malik moves to Curtis from Vale, the world’s second largest mining and metals group, where he was Head of Legal for the Middle East as well as responsible for providing support to the group’s business development, project and exploration work in Central Asia and South Asia. Prior to Vale, he worked at leading law firms in Oman and Pakistan.

He has counseled clients on a wide range of corporate transactions and projects, including government concessions, M&A and joint ventures in countries across Asia, the Middle East, Europe and Africa. He advised clients in matters involving Power, Water, and Infrastructure Projects, Commercial Agencies and Insolvency, Banking and Finance, Real Estate, Mining, Oil & Gas and Petrochemicals.

“We are delighted to welcome Taimur Malik to Curtis,” said Bruce Palmer, managing partner of Curtis in Oman. “He brings a wealth of international experience from the private sector in a wide range of matters that will help Curtis continue to expand both in Oman and around the world.”

In Oman, Mr. Malik has been actively involved in the development, project and operations phases of many of the largest government financed projects (such as the country’s first multi-billion dollar dry dock in Duqm) as well as foreign investment based projects (including Oman’s first multi-billion dollar iron ore pelletizing plant and distribution center in Sohar). He has also advised numerous Fortune 500 companies, leading Omani business groups and governmental entities on a broad range of legal matters related to doing business in Oman.

Mr. Malik has been recognized by several leading legal industry directories, including the Legal 500 and the IFLR 1000. The International Financing Review declared one of his deals as “Latin America Loan of the Year 2011.”

Mr. Malik regularly conducts international law training and capacity building sessions for public sector officials. His articles on legal issues appear regularly in leading publications and he has also contributed to books on joint ventures and mergers and acquisitions in the Middle East. He has also been a Research Scholar (International Commercial Contracts) at UNDROIT in Rome and a Visiting Fellow (WTO Dispute Resolution) at South Center in Geneva.

Mr. Malik was called to the Bar by the Honourable Society of Lincoln’s Inn, UK. He was educated at the University of London, University of Heidelberg, Hague Academy of International Law, Boston University School of Law, University of Dundee and the London School of Economics. He has also received a general management certificate of achievement from Judge Business School, University of Cambridge and is an Associate Member of the Chartered Institute of Arbitrators.

Curtis, Mallet-Prevost, Colt & Mosle LLP is a leading international law firm providing a broad range of services to clients around the world. Curtis has 16 offices in the United States, Latin America, Europe, the Middle East and Central Asia. The firm’s international orientation has been a hallmark of its practice for nearly two centuries. For more information about Curtis, please visit or follow Curtis on Twitter ( and Facebook (