Thursday, September 29, 2016

Regulations for Working in the Sohar Free Zone

In recent years, the Sultanate of Oman has established a number of free zones, predominantly to boost foreign investment as part of its wider diversification plan for the country.  The focus of this article is the Sohar Free Zone (“SFZ”), in particular, the regulations applicable to companies operating within the SFZ.

Earlier  this  year,  the  Ministry  of  Commerce  and  Industry  (“MOCI”)  issued  Ministerial Decision 35/2016, on the Governing Regulations for Operation of SFZ (“MD 35/2016”), which came into force on 8 February 2016.  MD 35/2016 is to be read in conjunction with the Establishment of the Sohar Free Zone Law issued by Royal Decree 123/2010 (“Sohar Free Zone Law”) and was implemented in order to set out how companies (or rather “Working Companies,” a term defined by MD 35/2016) are able to operate.  Such detail includes:

  • how to acquire licenses;
  • benefits and incentives for operating in the SFZ;
  • tax exemptions available in the SFZ;
  • rules governing the import and export of goods;
  • rules of responsibility relevant to Working Companies; and
  • incorporation fees (including license, permit and service fees) for setting up within the SFZ.


There are two categories of licenses for operators within the SFZ; the Working Company License and a Service Provider’s License.  Each license shall specify the activity permitted to be conducted by the licensee and, in the event that the licensee wishes to add activities, it must obtain an additional license for each additional activity.   Each license application must be submitted to the Operating Authority (the “Sohar Free Zone LLC” or “OA”) who is responsible for the management and development of SFZ.

If a license application is refused by the OA, a party may re-apply six months later.  However, there is an option to appeal against refusal within a period of 60 days from the date of notification or from the date that the Working Company first became aware of the refusal decision, whichever is earlier.

Benefits and incentives of the Working Company

Further to the incentives available under the Sohar Free Zone Law and the tax incentives below, provided certain measures are adhered to, the Working Company is permitted to sub-let plots of land by virtue of a sub-lease agreement. Measures include but are not limited to obtaining the OA’s written approval of the sub-lease, registering the tenant as a Working Company, and providing a written undertaking evidencing the responsibility of the Working Company jointly with the tenant for any liabilities to the OA.

Tax exemption

Working Companies are exempt from taxes for a period of ten years, provided they register within the SFZ,  obtain  a  license  (in  accordance  with  the  above  heading),  enter  into  a  lease  agreement  or investment agreement with the OA, conduct business within the SFZ, and have not less than 15% Omanisation of its total workforce.  In order to benefit from tax exemption after the first ten years, the following Omanisation percentages must be met:

  • 25% for years 11 to 15;
  • 35% for years 16 to 20; and
  • 50% for years 21 to 25.
To qualify for the tax exemption status, under Chapter 4 of MD 35/2016, each Working Company is required to present a tax statement at the end of each year, including a list of its employees and the achieved level of Omanisation to date.  In a situation where the Working Company has not achieved the required Omanisation percentages described above for any given year: (1) it shall not be permitted to extend the period of exemption for that year; (2) any profit mentioned during that tax year should be subject to the applicable income tax; (3) it shall not be possible to transfer any accumulated losses in the annual profit and loss statement; and (4) the tax exemption shall not be effective unless the OA has otherwise issued a tax exemption certificate.

Import and export of goods

Chapter 5 of MD 35/2016 describes the arrangement of the import and export of goods into and out of the  SFZ.    For  example,  goods  shall  freely  enter  into  the  SFZ  (and may  remain  for  an  unlimited duration) and goods exported out of Oman or to another free zone are not subject to customs duty.

Certain goods, however, are prohibited from entering the SFZ including but not limited to, narcotics, arms and ammunitions and explosives, chemical materials or radioactive substances, toxic waste that is harmful  to  the  environment  and  any  goods  which  shall  violate  the  laws  protecting  intellectual property, commercial, industrial, literary and artistic property rights.

Procedures must be adhered to for importing and exporting goods into the SFZ, for instance:

 Goods imported into the SFZ from outside of Oman

a)   Customs officers shall prepare a statement of transit addressed to the SFZ at the border crossing point (i.e., the point of entry where the goods enter the SFZ). The goods are treated as goods passing the “Customs Territory” (defined by MD 35/2016 as any territory within Oman) provided that the owner of the goods submits a guarantee equal to the value of customs taxes, in accordance with the Unified Customs Law.

b)  Customs officers in the SFZ shall verify the statement of transit and record the detail in the relevant register.

c)   The OA or the Working Company shall take delivery of the goods, after a preliminary inspection of the goods has been carried out by customs and the inspection form is duly completed.

Foreign goods that are imported from the Customs Territory must enter the SFZ through customs by virtue of a certificate of origin and a bill from the exporter together with an export or re-export customs statement.

Goods exported out of the SFZ

a)   The owner of goods shall submit an application to the OA together with payment of any fees and relevant invoice.

b)  Upon the request of customs in the SFZ, the owner of the goods shall arrange for the goods’

c)   A customs statement shall be prepared by the owner of the goods. d)  The OA’s approval must be acquired before goods can be exported.

Any goods taken out of the SFZ and into the Customs Territory are treated as foreign goods, regardless of whether the goods contain domestic primary materials.  Any goods manufactured or assembled within  the  SFZ  shall  be  treated  as  goods  of domestic  origin  with  the  purpose  of being  exported overseas.


In addition, Chapter 7 of MD 35/2016 sets out the penalties that may apply to Working Companies where the OA may withdraw a license or terminate a lease if any of the following circumstances apply:

a)   failure to start building, construct works and prepare the site within six months from the issuance of a license without a justifiable reason;

b)   failure to carry out the activity provided for in the license for six months from the date of issuance without a justifiable reason;

c)   if the licensed activity is suspended for six months;

d)   if rent is delayed by a period of six months from its due date;

e)   bringing prohibited goods into the SFZ; and

f)   a violation of the provisions of MD 35/2016.

Penalties  for  non-compliance  with  MD  35/2016  and  the  Sohar  Free  Zone  Law  include  written
warnings, fines amounting to no more than 5,000 Omani Rials, prohibition from entering the SFZ for a period of one year, suspension from working for a period of three months, or prevention from conducting business within the SFZ, including being prevented from removing goods out of the SFZ until such violation is rectified.