Monday, February 2, 2015

The Residency Requirement of Authorised Managers and Signatories in Oman

The Ministry of Commerce & Industry (“MOCI”) has recently been requiring that all authorised managers and signatories (“AMS”) of newly formed limited liability companies become full-time residents in Oman (the “Residency Requirement”). As part of the registration process, the Ministry now requires that the resident cards of AMS be submitted. This is a significant change of policy which will have far-reaching implications for foreign investors in Omani companies.

The Residency Requirement has raised many questions, some of which we have provided answers to in this post.

What is the definition of AMS? Does it mean only the day-to-day general manager of the company, or all authorised signatories of the company?

The term AMS means all authorised managers listed on the specimen signature form and in the company registration documents.

What is the impact of the Residency Requirement on Omanisation requirements of the newly formed company?

The Residency Requirement applies to existing companies only. The newly formed companies still can appoint a non-Omani resident until 1 January 2016; after this date a new system will be put in place which will require all companies to obtain all required licences/visas/clearance etc., prior to the company formation.

Is there a timeframe for existing companies to comply with the Residency Requirement?

An existing company must comply with the Residency Requirement when they renew their Commercial Registration, or change their authorised signatories.

Must the authorised manager submit a lease/rental agreement registered with the Municipality as part of the LLC registration process?

The MOCI requires a resident card to be issued by the Ministry of Manpower only.

What is the legal basis for the new residency requirement?

It is an internal instruction, issued by the Director General of Commerce.

What is the policy basis for this shift in thinking?

The basis of the new requirement is twofold in that its purpose serves to: (1) increase Omanisation; and (2) improve the management of a company by easing a company’s procedural requirements in Oman.

Currently there appears to be no written basis for the new requirement and foreign investors are only learning about it when they submit supporting documents to the Ministry to establish the company. Other questions, such as the cost implications of the new residency requirement, remain unanswered and require further clarity from the Ministry.

The general practice in Oman for foreign shareholders in Omani LLCs has, until the Residency Requirement, been to hire one expatriate familiar with company’s products and services and make him General Manager or CEO of the newly formed entity. By contrast, the ‘authorised signatories’ of the company are listed in an official form which is required to be on file with the Ministry. The overwhelming practice of foreign investors is to have several (3-5) persons designated as authorised signatories who are able to commit the company with or without stated monetary limits. Most of these individuals are expatriate employees of the foreign shareholder and not all of these individuals are resident in Oman. It is common for the foreign investor to appoint a regional manager (say based in Abu Dhabi) to have the power to commit the Omani LLC unconditionally. If the new ruling means that offshore personnel are banned from being authorised signatories, it will be an unwelcome change to the current practice routinely followed by foreign investors and one with significant cost implications.