Monday, August 8, 2016

The Establishment of US Companies and Branches Under the Oman/United States Free Trade Agreement

The Free Trade Agreement (the “FTA”) between the Sultanate of Oman and the United States (the “US”) and entered into force on 1 January 2009 governs, inter alia, the establishment of legal entities in Oman by entities incorporated in the United States and vice versa.
In a previous article, we discussed the early stages of implementation of the FTA. The first meeting of the FTA Joint Committee, chaired jointly by the MOCI and the Office of US Trade Representative, took place in February 2010. Since then, officials of the two governments have been meeting on a regular basis within that framework to discuss various issues arising pursuant to the implementation of the FTA.
Below is an outline of three key issues that have been addressed concerning the establishment of companies and branches of companies in Oman.
Under the FTA, only 100% US-owned entities are permitted to establish a company in Oman without the need for an Omani partner. However, the strict interpretation of this rule affected large US corporations, including the ones listed on the stock market, which, having a wide shareholder base that includes some non-US citizens, would not qualify. Accordingly, the MOCI has taken the view that, provided that the company which is seeking registration in Oman is a qualitatively “American” entity, there should be no problems registering it under the US FTA in Oman. The MOCI reviews whether a company should be considered as qualitatively “American” on case-by-case basis, looking at a variety of factors such as the activities and history of the company. In some cases, the MOCI will not delve into the nationalities of its shareholders.
The minimum capital requirement for a 100% US-owned entity to become established in Oman is OMR 20,000 as opposed to other foreign-owned companies, where the minimum share capital requirement is OMR 150,000. The registration process for a US-owned entity in Oman is straightforward and has been streamlined.
Equal treatment
One of the benefits for US companies under the FTA rule is that US companies shall be granted the same treatment in Oman as a wholly owned Omani company. However, there is an important exception to this rule. That is, an established US company is not permitted to act as the “local partner” of another foreign company wishing to set up a presence in Oman, i.e., a US company cannot be used to satisfy the minimum 30% local ownership requirement for a foreign company looking to establish in Oman. This requirement can only be satisfied by an Omani national or a 100% Omani-owned company.
Registration of a branch
As a general rule, a foreign company can only establish a branch office in Oman for the purpose of performing a contract with the Omani Government (including contracts with companies partly owned by the Omani Government).
However, a US company may register a branch office in Oman pursuant to Ministerial Decision 102/2008 and in accordance with the FTA prior to obtaining or entering into any contract with the Omani Government (including contracts with companies partly owned by the Omani government).
Benefits for US FTA companies operating in Oman
Further to the above, US companies established in Oman under the FTA have a number of other significant benefits for example, benefits regarding tariffs for importing and exporting, and in the way that US companies established in Oman are granted non-discriminatory rights to bid on contracts to supply Omani Government entities and Omani Government purchasers.