Monday, July 15, 2019

What are the Likely Consequences of GDPR for Companies in Oman?

The EU’s General Data Protection Regulation (“GDPR”) replaces the Data Protection Directive 95/46/EC and is designed to safeguard people’s personal information by harmonising data privacy laws across the EU.

As of 25 May 2018, individuals now have the right to demand that a company reveals or deletes personal data that the company holds about them.  Regulators now have powers to enforce their decisions with penalties.

The GDPR also addresses the export of personal data outside the EU.  Even entities operating beyond the EU, such as those in Oman, could be affected.

The GDPR applies to personal data, including names, addresses, emails, etc. and also IP addresses.  Most companies of whatever description are likely to have databases of personal information relating to clients, employees, and suppliers - all of which information will potentially be covered by the GDPR.

The GDPR would apply to a company operating in Oman if the company:

(a) has a branch, subsidiary or any representative in the EU;

(b) offers any goods or services to persons located in the EU; and/or

(c) monitors the online behaviour of persons located in the EU.

The GDPR sets out how companies must deal with the data they collect.  Breaches of data confidentiality must be disclosed within 72 hours of discovery of the breach.  Sensitive data cannot be used by organisations when deciding on a course of action.  Sending out mass marketing emails to people that have not actively subscribed to receive them is also not permitted.

An organisation that violates the rules could face fines of up to 4% of their global annual revenue or €20 million (approximately OMR 8.77 million), whichever is greater.

Companies that may fall within the ambit of the GDPR should review their policies in relation to:

(a) protecting and managing personal data;

(b) reporting breach incidents within 72 hours; and

(c) determining who will take the lead role in data protection and privacy - the executive
management, the board, the chief information security officer or a data protection officer.

Companies that might be affected should:

(a) establish transparent and easily accessible privacy and data protection policies and procedures;

(b) review and update all existing contracts with data processors and customers to provide for more stringent data protection and consent clauses;

(c) create a framework for accountability by monitoring, reviewing and assessing data processing activities;

(d) evaluate insurance policies to ensure the company is adequately protected in the event of a data breach;

(e) conduct internal training sessions to ensure employee compliance with the new data protection obligations; and

(f) consider whether the employment of a data protection officer is required.

It will be important for businesses in Oman to assess all personal data processing activities.  This should include an audit of any activities likely to involve the processing of personal data relating to individuals in the EU, including information that indirectly identifies such individuals (such as IP addresses or customer reference numbers).


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Monday, July 8, 2019

Establishment of Companies by Sultani Decree

Typically, commercial companies in Oman are incorporated in accordance with, and governed by, the provisions of Sultani Decree 18/2019, promulgating the Commercial Companies Law (the “CCL”).

However, under the provisions of Sultani Decree 33/1974 concerning Companies Established by Sultani Decree, companies may be established by a Sultani Decree.  Establishing a company by Sultani Decree is most often required when a company is established by a governmental body to acquire public or exclusive functions.  These functions typically relate to a specific activity or economic/business sector and, up to the establishment of the company, form part of the competences of a ministry or other government entity.  Usually, a simultaneous and separate Sultani Decree is issued amending the list of competences of such ministry or public authority by deleting the matters delegated to the new company.  An outline of the main provisions in respect of the establishment of a company by Sultani Decree is set out below:


  • The entity proposing the establishment of the company must submit to His Majesty a written statement setting out the reasons preventing the new company’s incorporation in accordance with the CCL.
  • His Majesty shall then rule as to whether such reasons are sufficient for the situation to be considered exceptional.
  • If the company is set up and no explanatory statement has been submitted; or such statement contains material misrepresentations; or such statement omits material facts whose inclusion is necessary to prevent the statement from being misleading, the company shall be deemed void ab initio.  Any persons conducting activities in the name of the company shall be considered personally liable for the obligations arising out of such activities.
  • The new company must take one of the forms of company provided for in the CCL.  However, in practice, a company formed by Sultani Decree tends to take the form of a closed joint stock company.
  • The new company’s constitutive documents or regulations, its governing rules, and its activities must comply with the provisions of the CCL within one year of the issuance of the Sultani Decree establishing the company.
  • Failure to comply with the above shall render the new company void at the end of this period.  Any persons conducting activities in the name of the company thereafter shall be personally liable for the obligations arising out of such activities.
  • The new company must comply with the Commercial Registration Law.
  • The company must be managed in accordance with the provisions of the CCL.  Traditionally, government-owned companies formed by Sultani Decree have employed at the outset governmental staff drawn from the promoting ministry or government unit.  This is usually provided for in the relevant Sultani Decree.

Notable examples of government-owned companies established by Sultani Decree include Oman Post, Oman Fisheries, Oman Oil and Oman Aviation Services.

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Monday, July 1, 2019

In the Pipeline

Oman is to take measures in line with standards set by the European Union (“EU”) and the Organisation for Economic Co-operation and Development in order to tackle tax evasion.  It is currently drafting regulations governing the automatic exchange of information through Common Reporting Standards (“CRS”).  CRS is a global version of the Foreign Account Tax Compliance Act, which was introduced by the U.S. Congress to prevent offshore tax abuse.  The measures should pave the way for Oman’s removal from the EU tax blacklist, to which it was added in March 2019.

A new Bankruptcy and Insolvency Law is currently under consideration at the State Council.  The law is part of a suite of new statutes planned by the Government to boost investment in the Sultanate and improve the Sultanate’s ranking in the World Bank’s ‘Ease of Doing Business’ Index.  The proposed statute will set out the rights and responsibilities of an insolvent company’s creditors and the sequence of the settlement process to be followed.  It will also define the roles of the various parties involved in the process.  The law is expected to be enacted later in 2019.

Please contact us if you would like more detailed advice on the above.


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Monday, June 17, 2019

Access to Company Documents under the Old CCL and the New CCL

Introduction

Shareholders in a company do not always have automatic right of access to the company’s books and accounts.  This article compares the rights of shareholders in a limited liability company to inspect company documents under the old and new Commercial Companies Law.

The Old CCL 

The old law placed restrictions on the rights of minority shareholders’ access to company documents.  Article 160 of the Old CCL states:

“The managers shall send a copy of the company’s balance sheet, profit and loss statement and the reports of the managers and auditors, if any, concerning the expired financial year, together with a notice of a members’ meeting for the approval of these documents and the allocation of net profits, if any, to each member of the company within six months after the end of the company’s financial year.  The originals of these documents shall be available for inspection by the members of the company during business hours at the principal place of business of the company during a period of at least two weeks immediately preceding the date set for the members’ meeting for the approval of these documents.”

In addition, each member of the company had the right to inspect the original balance sheets, profit and loss statement, reports of the managers and auditors, if any, relating to the last five financial years of the company at any time during business hours at the principal place of business of the company.

The New CCL

However, under the New CCL, shareholders have been granted access to a wider range of company documents, and to documents going back twice as long.

Article 277 of the New CCL provides:

“Every partner may request – whenever he wishes – to inspect records and documents relating to business conducted in the previous ten (10) years, and any provision in the Constitutive Documents or any subsequent agreement that is inconsistent with the provisions of this article shall be void.”

Furthermore, article 270 of the New CCL states:

“Any partner who is not a manager may request, at any time, any information about the company and may examine, either by himself or with the help of a specialist expert appointed by him, the company’s books, records, accounts and other documents.” 

Conclusion

Investors in small corporations generally seek access to a company’s books and accounting records as a way of determining the value of their investments or because they suspect mismanagement.
By granting shareholders full access to all the company’s documents and records – and not just to the restricted categories set out in the Old CCL – it is hoped that the transparency of the management and operations of limited liability companies will be improved.

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Monday, June 10, 2019

The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law

Sultani Decree 18/2019 issuing the Commercial Companies Law (the “New CCL”) replaced Sultani Decree 4/74 (the “Old CCL”) and became effective on 17 April 2019.  Executive regulations will be issued within one year to provide clarifications, particularly on the provisions introduced by the New CCL (the “Executive Regulations”).

This article focuses on the changes affecting the composition, elections and functions of the board of directors.

Article 3 of the New CCL provides that:

“Commercial companies in existence on the date of enforcement of this Law shall comply with its provisions within one year of the date of its enforcement.”

Most joint stock companies will be required to amend their articles of association and, if applicable, their shareholders’ agreement before 17 April 2020 to comply with the New CCL.

Number of board members 

The New CCL provides that closed joint stock companies must have at least three directors; and listed joint stock companies at least five.  In both cases the number of directors cannot exceed eleven.  The main change is that there must be an odd number of directors.  An existing company with an even number of directors constituting its board will, in order to comply with these provisions, have to decide whether to add a new director or remove an existing one.

Board meetings

The board of directors may hold meetings by audio and video conferencing, provided that the board secretary is able to identify each of the members and record the discussion.  The number of meetings that may be held via video conference during a certain timeframe is not restricted to a certain maximum number.

Quorum and majority

Under the Old CCL, board meetings required a quorum of 50%.  Such quorum has been increased in the New CCL to two thirds.  Resolutions have to be approved by absolute majority unless the articles of association provide for a higher percentage.  This appears to imply that the majority of directors (as opposed to the majority of the directors attending the meeting) must express a positive vote.  The Executive Regulations may provide further clarifications on this.

Removal of directors

The New CCL provides that any director who does not attend three consecutive board meetings without an acceptable reason is deemed to have resigned by law.  It is interesting to note that the New CCL no longer includes provisions whereby directors appointed by the Government cannot be removed in any circumstances.

Conflict of interest

Under the Old CCL, members of the board of directors were not allowed to participate in the management of any business competitive with that of the company, except with the approval of the ordinary general meeting, with such approval to be renewed annually.  Under the New CCL, instead, a director may not participate in the management of another company engaged in similar business.  No approval can be given to authorise such participation.

In the event of violation, the director concerned will be held liable for damages incurred by the company.  Directors are forbidden from entering into related party transactions.  The Executive Regulations will define the meaning of related party and the applicable rules on recording and disclosure of such transactions.

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Thursday, June 6, 2019

In the Pipeline - June 2019

The Capital Market Authority issued a directive on 15 May 2019 suspending the 10% withholding tax that is applicable on dividends and interest, with the aim of boosting foreign investments.  The suspension period is three years and may be extended.

Following the success of compulsory medical insurance policies in other Gulf states, Oman has initiated the rollout of its own national mandate.  The Unified Health Insurance Policy (UHIP), also referred to as Dhamani, is expected to grant approximately two million workers in the private sector and their dependents access to health care.  Implementation will gradually take place in 2019 and throughout 2020.

The establishment of the Oman Credit and Financial Information Centre is promulgated by Sultani Decree 38/2019, and the Centre shall be affiliated with the Central Bank of Oman.  The Oman Credit and Financial Information Centre will enjoy administrative and financial independence in addition to acquiring its own legal identity.  The data, systems and assets shall be transferred from the Banking Credit Information Statistics Department of the Central Bank of Oman to the newly established Centre.  The Board of Governors of the Central Bank of Oman shall issue regulations regarding the enforcement of the provisions. All contravening provisions will be repealed.

The Oman-UK Joint Defence Agreement has been ratified by Sultani Decree 42/2019.  The Agreement was signed in Muscat on 21 February 2019.  It will be published in the Official Gazette and will be enforced from the date it is issued.

Sultani Decree 39/2019 promulgates the regulations enforcing the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and their Destruction.  This shall apply to the Chemical Weapons Convention and it will require the banning of the development, production, stockpiling and use of chemical weapons.  The Minister Responsible for Foreign Affairs shall issue the necessary decisions.  The new law replaces Sultani Decree 21/97 and repeals all contravening provisions.  It will be published in the Official Gazette and will be enforced 90 days from the date of publication.

Please contact us if you would like more detailed advice on the above.


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Monday, May 20, 2019

Set-off Provisions in Loan Agreements

Where two parties owe each other money, it often makes sense for one of the parties to employ the concept of ‘set-off’ to reduce or eliminate its liability to the other party.

For example, assume that Party A owes OMR 100 to Party B under a loan agreement; but that Party B also owes OMR 60 to Party A under a separate (and perhaps unrelated) arrangement.  In this scenario, Party A could in theory ‘set-off’ the OMR 60 that Party B owes to him against the OMR 100 that he owes to Party B – with the result that Party A now owes OMR 40 to Party B (original debt of OMR 100 minus set-off of OMR 60 equals remaining debt of OMR 40) and Party B no longer owes anything to Party A (original debt of OMR 60 minus set-off of OMR 60 equals zero).

Of course, for this to work in practice, Party A also must have the legal right to employ such a set-off mechanism.  Such a right can arise by force of law, or by contract.

In England and Wales, and in certain other jurisdictions, there is detailed legislation and case law specifying various types of set-off available, for example:

  • Legal set-off – a defence to a court action where more than one claim and cross-claim is being contested;
  • Banker’s set-off – where a customer has more than one account with a bank, at least one of which is in debit and one in credit;
  • Equitable set-off – available to a debtor where his cross-claim arises from the same or a closely related transaction;
  • Insolvency set-off – often triggered by a party’s entry into liquidation; and
  • Contractual set-off – where set-off is included as a provision of a contract.

In Oman, while the Law of Commerce (Sultani Decree 55/90) does contemplate the set-off concept, as a practical matter set-off rights frequently arise as contractual rights – e.g., via set-off clauses in loan agreements governed by English law, or by the laws of another foreign jurisdiction.

The contractual set-off rights often found in loan agreements typically will allow the lender to set off a matured obligation due from a borrower against any matured obligation owed by the lender to that borrower, regardless of the place of payment or currency of either obligation. If the obligations are in different currencies, the lender often may negotiate the right to convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

The result of exercising a contractual right of set-off is similar to enforcing security.  However, set-off is a personal right rather than a proprietary right; unlike a security right, it does not grant an interest in the counterparty’s property.

It should also be noted the Omani courts are unlikely to apply a set-off unless a contractual set-off scenario exists.

Finally, it is important to note that set-off provisions in loan agreements often favour the lender over the borrower.  While set-off clauses in commercial contracts often will apply symmetrically (e.g., permit or prohibit set-off altogether), in many loan agreements the right of set-off is accorded only the lender, with the borrower prohibited from setting off any amounts owed to it by the lender.

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Wednesday, May 15, 2019

Family Businesses in the GCC States

Family businesses in the Gulf Cooperation Council (“GCC”) region are profoundly aware of the dangers they face.  Most do not make it beyond the second generation.  Power battles between successors and the distribution of wealth and control commonly can lead to the fall of a dynasty.

As a family’s third generation of leaders come of age, many want to put in place rules for its interaction with business.  Many of the family businesses within the GCC are discussing options to modernise themselves by partly separating management from ownership.  A common solution is to develop a family constitution outlining the values, principles and procedures that the family agrees to follow.  Family businesses that generally thrive one generation to the next do so because they have in place a sound governance structure in the form of a family constitution or charter which provides a road map for managing wealth, business and legacy transitions over time.

Generally family constitutions are not meant to be legally binding.  Typically, a constitution will set out the family’s values and vision, criteria for selecting leaders and the rights and responsibilities for family members.  They differ in detail but are designed to ensure that the wealth and the portfolio stay together.  Families that do not have a clear mission or set of values to follow face real risks of internal conflicts and potentially damaging private and public disputes over the governance of the family wealth.  At its centre will be the mission statement for the family and a clear statement of its hopes and aspirations for future generations.  It is important, however, that families choose the forum of dispute resolution they want to use in cases of dispute and that such dispute resolution mechanism is respected and implemented in any disputes across the family’s businesses.

A business must be able to deal with sudden and unexpected events which can do damage to it, challenge management and cause uncertainty among family members who are owners of the business.  For example, a key family member may die or become incapacitated.  Similarly, a divorce or a serious dispute between family members may arise or a third party may seek to bring a substantial claim against one or more of the family-owned entities.  In such situations, it is useful to have protocols or a process in place to deal with such events such as the formation of a family committee to deal with such matters or putting restrictions on incurring any further liabilities until the issue is resolved.  Provisions along these lines can be included in the family constitution.  The constitution should govern the inevitable generational change and provide a vision to manage that change.  A provision establishing criteria for the recruitment and remuneration of family members employed in the business should be included.  Rules for the disclosure and exchange of information between family members and the confidentiality of that information are vital.  Confidentiality promotes trust and it is a key element of any family protocol.  Mention should also be made of a periodic summary of the division of assets between family members and how those assets should be shared.

It will be helpful to have provisions within the constitution which deal with issues such as dividends, the role of new generations, remuneration, ownership, succession, conflicts of interest and exit.  Other issues to address include how the owners are to be represented on the board of directors and how they will set objectives and challenge management.  Likewise, the constitution should identify the key issues on which management should consult the business’s board of directors.  Consideration should also be given to the process for share valuation and payout for all family members on exits.  Other important points to cover are the allocation and conditions for ownership and voting rights which allow the family constitution to be implemented.

Overall, a family’s philosophy and core values should be the cornerstone of the constitution.  A family must take the time to articulate its values.  The constitution is not meant to create binding rules, but rather set out a framework and guiding principles for making future decisions.  The constitution usually deals with many areas of the management structure such as an advisory board, management succession, profit distribution and the process of selling shares.  Naturally, a family constitution should be reviewed and adjusted regularly to be fit for purpose.  If it is done right, the constitution should embody the wishes of the founder of the business, the current generations of the family, the family office and the trustees.  It should then become a guide for the parties and, if required, the courts to interpret the conduct of the parties and the decisions that have been taken.


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Tuesday, May 14, 2019

In the Pipeline - May 2019

The appointment of Oman Human Rights Commission members is promulgated by Sultani Decree 29/2019.  Article 1 appoints 14 individuals including Shaikh Abdullah bin Shuwain Al Hosni as the Chairman and Dr. Sulaiman bin Hamad Al Alawi as Deputy Chairman and the remaining 12 persons as members.  The Sultani Decree is to be published in the Official Gazette and implemented from the date it is issued.

Sultani Decree 26/2019 amends provisions of The Law on Classification of State Records and Regularization of Sanctuaries which is promulgated by Sultani Decree 118/2011.  All that contradicts the new law will be repealed.  The Sultani Decree is to be published in the Official Gazette and implemented from the day following publication.

Scholarly zones and other specialised zones are promulgated under Sultani Decree 27/2019.  Scholarly zones that are affiliated to The Research Council or any scientific or specialised zone will be established upon the approval of the Council of Ministers.  The establishments that will operate in this zone shall enjoy exemptions and incentives.  All that contradicts the new law will be repealed. 
The Sultani Decree is to be published in the Official Gazette and implemented from the day following publication.

The Paris Accord has been ratified by Sultani Decree 28/2019.  It was issued in Paris in 2015 and signed by the Sultanate of Oman in 2016 after the Accord was presented to the Omani Council.  The Sultani Decree is to be published in the Official Gazette and implemented from the date it is issued.

Please contact us if you would like more detailed advice on the above.


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Monday, May 6, 2019

New Mining Law Issued - Achievement of Major Milestone in Strategic Sector

Introduction

Oman is enriched by a variety of mineral resources including metallic minerals (such as copper, gold, zinc, chromites, cobalt and iron ores) and non-metallic minerals (such as dolomite, limestone, gypsum, silica and ornamental stones).  Indeed, the National Program for Enhancing Diversification (TANFEEDH) recognises that the diversity of Oman’s natural resources “presents the Sultanate a unique competitive advantage in regional and global markets as well as an opportunity to achieve its diversification objectives.”  In addition to well-established companies, four new companies have recently been granted exploration licences for developing copper mining projects at the Al-Batinah coast.

With this in mind, it is not surprising that the mining sector is one of five economic sectors (the others being manufacturing, transport & logistics, tourism and fisheries) which are the focus and key drivers of the Sultanate’s economic diversification ambitions.  TANFEEDH also recognises the importance of local as well as foreign investment to achieve its overall objectives.

It is only a logical step on the diversification journey to assess existing legislation and pass new legislation that aims to facilitate further investment into identified priority sectors.  Accordingly, the Mineral Wealth Law promulgated by Sultani Decree 19/2019 on 13 February 2019 (“New Mining Law”) represents an achievement of a major milestone in the mining sector.  In this article we take a closer look at the New Mining Law to highlight, and provide commentary on, its key provisions.

New Mining Law – what you need to know

Whilst passed on 13 February 2019, the New Mining Law came into effect on 14 March 2019.  The New Mining Law cancelled the mining law promulgated under Sultani Decree 27/2003.

The New Mining Law recognises the Public Authority for Mining (“PAM” or “Authority”) as the competent authority for mining activities.  Article 2 of the New Mining Law states:

“Subject to the provisions of the Economic Zone of Duqm Law, the Authority shall without exception, conclude concession agreements, issue licences related to the exploration, excavation and utilization of raw materials, or carry out any activity related thereto….The Authority also regulates the process of exploration, excavation and utilization of raw materials and exercises control and supervision over everything related thereto to ensure its preservation and good utilization.…”

To perform its functions, the PAM is granted a wide range of powers under the New Mining Law which include:
  1. expropriation of property;
  2. approving exports of raw materials;
  3. inspection rights and right to access sites and obtain samples; and
  4. revocation of licences under certain circumstances such as:
    • delay in commencement of works by licensee;
    • suspension of works by licensee;
    • delay in payment of fees, etc.;
    • failure by licensee to provide reports;
    • obstruction by licensee of employees of PAM;
    • violation of terms of licence;
    • engaging in unauthorised activities;
    • not maintaining books and records by licensee; and
    • change of status of licensee (legal form, change of shareholders, merger, etc.)
Under the New Mining Law, the licence periods for exploration and excavation shall be one year, renewable but not exceeding three years, whereas the licence period for utilisation/exploitation is five years (renewable).  The period for concession agreements is between 20 and 30 years.

The New Mining Law also sets out some parameters in terms of royalty and rent payments, such as:

  1. financial guarantee of not less than 1% of the value of the cost of the project;
  2. annual rental value of not less than 5% of the total production of the raw material used by the licensee; and
  3. payment of not less than 1% of the total annual production of raw materials for the development of the local community.

Commentary & conclusions

The introduction of the New Mining Law is a very positive step and enhances legal certainty in the mining sector.  Overall the New Mining Law should encourage investments.  It also provides the PAM with significant powers to ensure that progress is being made and that licence holders carry out their obligations under their licences.  It is often difficult to create the balancing act between facilitation of investments and appropriate oversight from the relevant competent authority (in this case the PAM).  The New Mining Law also anticipates the issuance of secondary/implementing regulations and these are expected to be introduced in the coming months.  Given that the New Mining Law was only recently introduced, the effect and impact it has remains to be seen, but in our view it is a very solid step in the right direction.

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Monday, April 22, 2019

New Commercial Companies Law Permits Work and Services as Contributions in Kind to the Share Capital of Joint Stock Companies

On 13 February 2019, His Majesty Sultan Qaboos issued Sultani Decree 18/2019, promulgating a new Commercial Companies Law (the “New CCL”), which is to be published in the Official Gazette and implemented within 60 days from the date of publication.

The New CCL repeals the Commercial Companies Law promulgated by Sultani Decree 4/1974 (the “Old CCL”) and replaces it with new provisions.

The general provisions of the New CCL stipulate, in wording almost identical to that contained in the Old CCL, that capital contributions may take the form of cash, moveable or immoveable property, intangible property rights, services or labour – subject to the specific provisions governing each category of company.

In the Old CCL, the specific provisions relating to both limited liability companies and joint stock companies restricted the nature of capital contributions in such companies to cash or tangible property, explicitly proscribing contributions in the form of services or labour.  However, the New CCL contains no such restrictions in its specific provisions for joint stock companies.

It is hoped that widening the scope of permissible contributions in kind will encourage increased investment in joint stock companies.

Currently, Ministerial Decision 198/94 governs the valuation of contributions in kind, and it will continue to do so until the Minister of Commerce and the Chairman of the Public Capital Market Authority have issued any new decisions required to enforce the provisions of the New CCL.


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Monday, April 15, 2019

Income Tax Law Update

Following the extensive amendments to the Income Tax Law of 2017, the Ministry of Finance recently issued Ministerial Decision 14/2019, published in the Official Gazette of 10 February 2019, which sets out amendments to the Executive Regulations of the Income Tax Law and provides clarifications on a number of tax-related matters.  Most provisions of MD 14/2019 enter into force on the day following publication in the Official Gazette.  Please find below a summary of some of the main provisions:

Remuneration of company members

The allowed deduction for payments made to a company’s partners in a commercial company has been amended to the least of (a) actual payments made, (b) 25% of the taxable income before deduction of such payments or (c) OMR 1500 per month for each partner.  For professional/consultancy companies, items (b) and (c) are fixed at 35% and OMR 3000, respectively. 

Tax exemptions


Tax exemptions are now restricted to companies carrying out manufacturing/industrial activities.  The initial five years’ tax exemption is confirmed but the provisions in relation to further renewals of such tax exemptions have been cancelled, effectively limiting the tax exemption period to five years.  Further requirements the business must satisfy in order to obtain tax exemption are (a) a minimum investment of OMR 1 million in fixed assets and (b) compliance with applicable Omanisation quotas over the tax exemption period.

Withholding tax

The new Ministerial Decision provides for withholding tax to apply to dividends, interest (interest payable to local banks is obviously excluded) and payments made in connection with services provided by foreign companies not having a commercial registration in Oman.

Withholding tax applies only to dividends distributed to foreign investors by joint stock companies and investment funds, whilst dividends distributed by limited liability companies are exempt.  With respect to services, some categories of payments for services are not subject to withholding tax; these include, inter alia and in addition to services acquired in connection with activities carried out or properties located abroad, (a) training expenses, (b) reinsurance costs and (c) board of directors meetings. Withholding tax applies to all other services, subject to tax treaty benefits when applicable.

Bad debts 

The conditions taxpayers must comply with in order to deduct bad debts have become stricter as it is no longer sufficient to start legal proceedings.  The taxpayer must now demonstrate that it took action to recover the amount by enforcing a relevant court judgment.  This applies to bad debts of OMR 1,500 or more.

Small and medium enterprises (SMEs)

A lower tax rate of 3% applies to SMEs.  MD 14/2019 introduces a new option for SMEs to apply to the tax authorities for presumptive taxation.  It further amends some of the rules on the requirements a company must satisfy in order to qualify as a SME:  the Omani owner/partner must be actively and exclusively engaged in the business, and the business most employ at least two Omani nationals and be able to prove their employment for at least six months in the applicable tax year.

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Monday, April 8, 2019

REIFs to Provide new Source of Financing for Property Market

Real estate investment funds (“REIFs”) are one of the primary ways to invest in real estate. A REIF owns income-producing real estate in a range of property sectors and is generally seen to have a number of benefits to investors. Investment in REIFs was made possible in Oman by the Capital Markets Authority (the “CMA”) Organisational Regulation of Real Estate Investment Funds 2 of 2018 (the “REIF Regulations”) and Ministerial Decision 95/2017 issued by the Ministry of Housing (“MD 95/2017”).

The first Omani REIF is set to debut on the Muscat Securities Market (“MSM”) shortly, and it is hoped that the new form of investment vehicle will encourage new inflows of capital into Oman’s promising property sector.

REIF Regulations in the Sultanate permit institutional foreign investors, as well as expatriates resident in the Sultanate, to own units in REIFs.

Interest in real estate is not limited to commercial properties, but extends to the development of infrastructure, warehouses, factories, and projects for small and medium enterprises (“SMEs”) – all of which require some form of financing. As financing has until now been provided principally by bank lending, the CMA was very keen to see funding alternatives becoming available so as to diversify the systemic risk on banks lending into the real estate market.

Oman’s REIF Regulations incorporate best practices gleaned from other jurisdictions around the world. While most of the provisions in the Regulations are principle-based, there is a lot of flexibility – in relation to the fund structure, for example. Some jurisdictions specify the structure for Islamic REIFs. In Oman, the REIF Regulations have left this open. All that is required for an Islamic REIF is that there should be a shariah advisory board in place; the choice of structure is left to the contracting parties provided that the structure complies with the Accounting and Auditing Organisation for Islamic Financial Institutions.

Further, the REIF Regulations allow for the transfer of special purpose vehicles (“SPVs”), typically set up to hold a particular real estate asset, to a REIF. Funds may hold various assets either directly or through an SPV, and can hold any assets in Oman, not only those in integrated tourism complex projects.

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Wednesday, April 3, 2019

In the Pipeline


The Selective Tax Law is promulgated by Sultani Decree 23/2019.  This new law will repeal previous provisions and will be published in the Official Gazette 90 days from 13 March 2019.
The new law will regulate the prices of tobacco products, energy drinks, alcohol and pork products. These products will have a tax increase of 100%, while the tax on carbonated drinks will be increased by 50%.  The Governmental Communication Center said that the Selective Tax Law seeks to support a healthy lifestyle.
Sultani Decree 24/2019 promulgates the establishment of a Food and Safety and Quality Centre in the Ministry of Regional Municipalities and Water Resources.  All governmental competences relating to the quality and safety of food will be transferred to the Ministry of Regional Municipalities and Water Resources.  Employees working in departments responsible for the quality and safety of food will also be transferred, maintaining the same job status.
Following a meeting of the European Council on 12 March 2019, the United Arab Emirates and the Sultanate of Oman (in addition to eight other jurisdictions) were added to the European Union’s list of non-cooperative jurisdictions for tax purposes.  The total number of jurisdictions on the EU blacklist currently stands at 15.
Please contact us if you would like more detailed advice on the above.

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Monday, March 25, 2019

Taxable Income and Profits under Oman Law

The current Commercial Companies Law (issued pursuant to Sultani Decree 4/1974) provides for payment of net profits of companies to its shareholders as dividends.  In practice, the management or board of the company would allocate net profits that are proposed to be distributed to the shareholders as dividends after taking into consideration future cash and investment requirements of the business and subject to any statutory reserve and after making provision for tax.  The new Commercial Companies Law (issued pursuant to Sultani Decree 18/2019, but yet to come into force) contains no provisions that significantly alter the current position with regard to the above.

The Income Tax Law issued pursuant to Sultani Decree 28/2009 (as amended) (the “Income Tax Law”) provides for the preparation of financial statements of Omani companies in accordance with applicable accounting standards in Oman, such as the International Financial Reporting Standards (the “IFRS”) and the International Accounting Standards (the “IAS”).  IAS 12 provides guidance in respect of calculation of taxes under IFRS.  It recognises both the current tax consequences of transactions and events and future tax consequences of future recovery or settlement of the carrying amount of an entity’s assets and liabilities.  The auditors, while preparing the audited financial statements, will make provision for the tax liability of a company on the basis of its taxable income rather than net profits.  In order to calculate the tax liability, the auditors are required to adjust the net profits for the relevant financial year by giving due consideration to potential allowances and disallowances, including deferred tax, in accordance with the provisions of the Income Tax Law, and the executive regulations issued by Ministerial Decision 30/2012, as recently clarified by Ministerial Decision 14/2019 (the “Tax Regulations”).

The Income Tax Law has no provisions relating to the calculation of dividend and net profit of a taxpayer nor does it provide a definition of these terms.  According to the Tax Regulations, retained profits are determined according to the certified accounts and financial statements of the company including the general reserve.  The Income Tax Law sets out the method for calculating the taxable income and tax liability of a taxpayer.  Under the Income Tax Law, taxable income is equal to the gross income of the taxpayer after deducting the expenses and allowing for any deductions, set-offs or exemptions under the law.

The Income Tax Law distinguishes between categories of expenses that are deductible for the purposes of calculating the taxable income and tax liability of a taxpayer and those that are not.

Whether an expense is tax deductible or not is only relevant to calculation of the taxable income and the tax liability of the company.  The characterisation of an expense as tax deductible or non-deductible does not affect the net profit of the taxpayer in its financial statements.  According to the Tax Regulations the retained profits are determined on the basis of its taxpayer’s financial statements.  Hence, if an expense is not tax-deductible, it does not necessarily follow that the company cannot consider that expense as deductible for the purposes of calculating its net profit.


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Monday, March 18, 2019

Understanding Whistleblowing in Oman

The reporting of wrongdoing discovered in a workplace is a complex area which requires a fine balance between a variety of competing interests.  Corruption has a detrimental effect on any economy as it creates an unfavorable business environment.  Whistleblowers play a key role in revealing corruption, incorrect financial reporting and fraud.  Wrongdoing in an organisation is often discovered only if someone from the inside stands up and speaks out.

Whistleblowing, although not defined under Omani law, is generally considered to be “the disclosure of information about a perceived wrongdoing in an organization.”  The concept of anonymous disclosure is not widely accepted in the Middle East.  The reason behind this is the fear of unfounded allegations arising, and more generally, a cultural aversion to the concept of informing on a co-worker. It is therefore essential that any whistleblower policy provide effective protection against retaliation.

Many countries have ratified whistleblowing protection laws through domestic legislation and international conventions.  As a result, many employers have implemented that legislation in the form of employee codes of conduct, whistleblowing policies and anti-fraud measures.  The aim of these policies is to offer a reporting mechanism that is confidential, objective and independent, hence making the whistleblower feel confident about raising concerns.

Currently, specific whistleblowing does not exist in Oman.  Nevertheless, the Capital Market Authority (the “CMA”) has recently launched a whistleblowing window on its website.  The move aims to upgrade the capital market and insurance sectors and protect the participants from unfair and unsound practices.  “Whistle-blowing window is a communication conduit between CMA and the whistle blower as the person reports the information or violation or illegal activities or illegal acts that might cause damage to the capital market and insurance sector participants or the company or the public,” the Authority stated.  The whistleblowing window is a simple and swift channel of communication between CMA and all the entities regulated by CMA in the insurance and capital market sectors to report any unacceptable behavior such as conduct which is unethical, fraudulent, illegal or corrupt or which constitutes harassment, discrimination or bullying.

The window will serve any person who is an employee, shareholder, director, internal auditor or external auditor in addition to a supplier or client who detects or comes across such practices.  The window aims to deliver a swift system for reporting irregularities that might have detrimental impact on the company so the CMA can take timely remedial action.  The move will enhance transparency and flow of information on malpractices to the regulator, which will lessen such practices and irregularities and will enrich confidence of investors to invest in the market, besides creating a wide communication network between the regulator and whistleblowers as it will save time and ensure confidentiality regarding the identity of the whistleblower.

The lack of domestic whistleblowing legislation in Oman has resulted in the Government and private sector taking the lead in enacting internal anti-bribery and whistleblowing policies.  Omani and international companies doing business in Oman that plan on implementing anti-corruption measures will undoubtedly find it difficult to do so without also putting in place a comprehensive whistleblowing policy. 


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Monday, March 11, 2019

Enforcement of Arbitral Awards

Introduction

In order for an arbitral award to be enforced, it must first be recognised as binding.  In Oman (and in other GCC countries), after arbitration proceedings have concluded and a tribunal has rendered its award, the winning party needs to apply to the Oman courts to have the award ratified by the courts.

Ratification (also known as execution) is a process before the courts that “confirms” an arbitral award as being binding and, consequently, capable of enforcement.  A comparable process also exists for the enforcement of court judgments in Oman.

The moment that an award becomes binding on the parties is not uniform across countries.  This article will focus on when an award becomes binding on the parties, and when it becomes enforceable.

Why a binding award is so important

Recognition of an award as being binding is essential for the enforcement of the award in the country where it is rendered.  Under Article V(1)(e) of the New York Convention, an award may be refused enforcement by the courts in a foreign country if the award has not become binding on the parties.

Article V(1)(e) of the New York Convention states:

“Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:  The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”

Article V(1)(e) above indicates that courts have the discretion to refuse enforcement of an award that is not binding on the parties.  In contrast, if an award is considered binding on the parties, courts may only refuse the enforcement of a foreign award on a very limited number of grounds.  Thus, having an award recognised as “binding” is a critical first step for a party seeking to enforce an arbitral award in a foreign court under the New York Convention.

When is an award binding?

As mentioned above, the time that an arbitral award is considered binding on the parties varies from country to country.  The approach that is followed in Oman is that an award is only binding on the parties once it has been executed by the Omani courts, which in turn can only take place after the time limit to challenge an award has lapsed.

In some countries, in particular those that adopt the UNCITRAL Model Law, awards become binding on parties at the time that the award is rendered (see Article 34 of the Model Law), even though in practice awards are still ratified by a court.

Practicalities

It is worth mentioning that, even if an award has not been ratified in a country that is a signatory to the New York Convention, under limited circumstances the award may still be enforced by the courts in another jurisdiction that is a signatory to the New York Convention.

Article III of the New York Convention sets out the conditions for such ratification:

“Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon under the conditions laid down in the following articles.  There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” 

So, while the recognition and enforcement of foreign arbitral awards under the Convention must be conducted “in accordance with the rules of procedure of the territory where the award is relied upon,” the “conditions” under which recognition and enforcement of foreign awards can be granted are exclusively governed by the Convention.

National rules of procedure governing the recognition and enforcement of foreign arbitral awards in each Contracting State shall not impose substantially more onerous conditions than those imposed on the recognition or enforcement of domestic arbitral awards.

Finally, while Article III grants Contracting States the freedom to apply their own national rules of procedure at the recognition and enforcement stage, courts have applied Article III in accordance with the Convention’s policy of promoting recognition and enforcement to the greatest extent possible.

For the above reasons, it is very important that you select lawyers specialised in arbitration and enforcement of arbitral awards at the time of selecting your legal team.  Curtis has an industry-leading team of arbitration lawyers with experience in enforcement of arbitral awards before the Omani courts and most major international legal jurisdictions.

In a future issue, Part 2 of this blog post will discuss in greater detail how awards may be enforced.

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Thursday, February 21, 2019

Oman's New Commercial Companies Law

Introduction

On 13 February, 2019, His Majesty Sultan Qaboos issued Sultani Decree 18/2019, promulgating a new Commercial Companies Law (the “New CCL”), which is to be published in the Official Gazette and implemented within 60 days from the date of publication.

The New CCL repeals the Commercial Companies Law promulgated by Sultani Decree 4/1974 (the “Old CCL”) and replaces it with entirely new provisions.

The Minister of Commerce and the Chairman of the Public Capital Market Authority will issue executive regulations within a year of the New CCL’s implementation. They will also issue any decisions required to enforce the provisions of the CCL. Current decisions will remain in force until the issuance of such new decisions.

Companies governed by the Old CCL must comply with the requirements of the New CCL within one year of its implementation.

Below we set out a few of the key changes in the New CCL. Some of these will require positive action to avoid possible regulatory sanctions. For more comprehensive advice on how the New CCL may affect your company, please contact us.

Key Changes 

1. Capital contributions

Subject to the specific provisions governing each category of company, the New CCL provides (in Article 21) that capital contributions may take the form of cash, moveable or immoveable property, intangible rights, services or labour.

Article 239, however, restricts the nature of capital contributions in limited liability companies to cash or tangible property, explicitly proscribing contributions in the form of services or labour.

2. Limited liability companies

The New CCL introduces a new corporate vehicle, the sole shareholder company, which is a limited liability company with only one – either natural or juristic – shareholder. Under the Old CCL, limited liability companies had to have a minimum of two shareholders.

Article 291 provides that natural persons may not incorporate more than one sole shareholder company. A sole shareholder company may not incorporate another sole shareholder company.

For other forms of limited liability company, the maximum number of shareholders has been raised from 40 to 50, which ceiling may be raised if the minister concerned considers it to be in the public interest to do so.

The New CCL removes the minimum share capital requirement of OMR 20,000 for limited liability companies.

3. Joint stock companies

The minimum share capital requirement remains at OMR 2 million for public joint stock companies; and at OMR 500,000 for closed joint stock companies.

However, if a public joint stock company is created by converting another type of company, the limit is only OMR 1 million.

The option, available to both public and closed joint stock companies under the Old CCL, to pay half the nominal value of the issued shares on subscription, provided that the remainder is paid within three years of incorporation, is not provided for in the New CCL.

The founders of a public joint stock company may subscribe to no less than 30% of the shares of the company and no more than 60% of the shares. However, in the event a company is being converted into a public joint stock company, the maximum is 75%.

Closed joint stock companies may now offer securities – other than shares – for public subscription.

4. Holding companies

Holding companies may no longer take the form of limited liability companies. To comply with the New CCL, any holding company currently in the form of a limited liability company must be converted into a joint stock company whose object is to conduct the business of a holding company.
They must have paid up share capital of no less than OMR 2 million.

5. Corporate governance

The New CCL imposes a large number of new restrictions and responsibilities on both shareholders and boards of directors.

For example, board meetings are now only quorate with a minimum of two thirds of the board members in attendance.

Shareholders with more than 5% of the shares in a company may not act as proxies for other shareholders in general meetings.

Board directors may not stand in as proxies for shareholders in general meetings.

Many of the time limits set out in the Old CCL have been reduced significantly: e.g., where the deadline for filing the minutes of an annual general meeting used to be fifteen days, under the New CCL the deadline is now seven days.

6. Sanctions

The list of offences under the Old CCL has been expanded under the New CCL, and the sanctions that may be imposed have been significantly increased.

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Monday, February 18, 2019

Disclosure of Confidential Information by Employees

Following a previous article on the provisions applicable to termination of employees found guilty of misuse of confidential information acquired during their employment, this article will focus on the provisions applicable to the employer’s confidential information under the Omani Labour Law, the Civil Code and the Penal Code.

Article 27 of the Labour Law, which lists the employee’s main obligations, states under item (4) that the employee is obliged to keep the secrets of its work.  Furthermore, Article 40(5) permits the employer to dismiss the worker with immediate effect and without payment of end of service benefits (if applicable) if the employee discloses any confidential information in relation to the employer’s business.

In summary, the Labour Law is clear in stating that, subject to the statutory disciplinary procedures and timelines, actual disclosure by an employee of its employer’s confidential information is a legitimate reason for immediate termination of an employment contract.

The same concept is re-stated in the Oman Civil Code under Article 657 which lists the main obligations of employees, including the obligation to “keep the industrial or trade secrets of the employer, including after the termination of the contract, as required by the agreement or by custom.”  Interestingly, the access to trade secrets and the obligation of confidentiality are linked to the possibility to validly enter into a non-competition agreement.  Article 661 provides that, if the work of the employee is such as to permit him to have access to work secrets or to make acquaintance with the customers of the business, the parties (employer and employee) may agree that, after termination, it would not be permissible for the employee to compete with the employer directly or to enter into an employment relationship with a business which competes with the employer, provided that such agreement is valid unless it is limited in time, place and type of work to the extent as may be necessary to protect the lawful interests of the employer.

Finally, Article 671 specifically provides that no claims arising out of a contract of employment shall be heard after the expiration of one year from the date of the termination of the contract except for the actions pertinent to disclosing trade secrets.

In addition to the serious consequences of any such disclosure under the Labour Law and the applicable provisions of the Civil Code, Oman’s Public Prosecution, in the framework of its awareness building programme, has recently issued a note of precautionary advice addressed to the general public.  Public Prosecution underlines that breach of confidentiality in respect of work secrets and confidential information is a punishable offence under the Omani Penal Code if the person committing it is a public official.

Book 2, Chapter 3 of the Penal Code deals with a number of criminal offences that may be committed by public officials in the context of their duties.  Article 201 provides that “any person who discloses job secrets shall be punished with imprisonment for a period of not less than three months and a fine of RO 1,000.”  The employee’s retirement and the termination of the employment contract do not preclude the application of this Article.

Similar provisions are found in many jurisdictions but the definition of “Public Official” under the Penal Code is rather wide as it includes, in addition to persons holding a government office and “persons assigned to carry out specific work by a competent public authority,” employees of wholly owned government companies or of companies with government participation in excess of 40%.

Considering the large percentage of government employees among the Omani population and the structure of the local economy, where government investment is a rather common feature in a large number of major corporations, this definition applies to an arguably far larger number of employees than in most other jurisdictions.  Further, employees of government-owned or -participated companies are considered private sector employees and, as such, subject to the Labour Law, leaving open the issue of the interaction between the relevant provisions set out in the pieces of legislation considered.


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Monday, February 11, 2019

Indirect Loss under Omani Law

Common law meaning

The concept of indirect loss developed in common law jurisdictions such as England.  The common law approach generally permits recovery of two broad categories of loss caused by a breach of contract:  first, losses that are the natural consequence of the breach (for example, the direct cost of repairing or replacing damaged property); and, secondly, losses which are not a natural consequence of the breach but which were foreseeable by the parties (for example, lost profits, if both parties knew that damaged property would leave the innocent party unable to perform its obligations under other contracts).

Indirect losses are generally viewed in common law jurisdictions as the types of loss that fall into the second of these categories.  In those jurisdictions, clauses excluding indirect losses will not exclude losses arising directly and naturally from a breach of contract.

Treatment under Omani law

Whilst the Civil Transactions Law (Royal Decree 29/13) (the “Civil Code”) does allow for the recovery of indirect losses in certain circumstances, such provisions of the law are yet to be tested before the Omani courts.  In a civil jurisdiction such as Oman, the distinction between losses occurring as a natural, direct consequence of a breach and those that are foreseeable but not arising in the natural course of events does not sit comfortably with the courts, partly because the concept of foreseeability is not a relevant consideration.

Indirect or consequential damages are not, then, excluded as a matter of law but the terms have limited applicability in Oman.  First, there must be a nexus between loss suffered and damages claimed.  Secondly, there must be a degree of foreseeability, i.e., damage must not be too remote.

Common practice

In spite of the attitude of the Omani courts to the concept of indirect loss, clauses excluding indirect losses are commonly seen in Omani law-governed contracts.  Given the lack of a clear concept of indirect loss in Oman, these clauses can be ineffective unless they clearly identify the heads of loss that are meant to be excluded.

For example, there is a risk that the Omani courts would consider loss of profit to be a direct loss that is not excluded by a generally worded indirect loss exclusion clause.  If the parties do not want to be liable for loss of profit, this should be specifically mentioned.

In summary, terms such as direct, indirect and consequential, which are not legally recognised terms in Omani law, are likely to be a source of contention in the event of a dispute.  It is preferable to draft contractual provisions that state explicitly the exact heads of claim that are intended to be excluded.

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Monday, February 4, 2019

Conflicts of Interest in the Public Sector

The recognition and resolution of conflict of interest situations is vital to good corporate governance and maintaining confidence in public and private institutions. In the GCC, there are expectations that governments should deliver higher standards in the civil service, public institutions and in government-owned or -controlled corporations which are prevalent in Oman. Conflicts of interest should be a regular and important consideration of individuals who occupy a positon of trust. If conflicts of interest are not recognised and managed at the outset they have the ability to undermine the integrity of a company and its decisions.

Essentially, a conflict of interest is any situation where there is a risk that a private interest (political, business or commercial, etc.) of a director, manager, officer, agent or other representative interferes with the legitimate interest of the entity for which that individual works. In the public sector, a conflict arises when a public official has private capacity interests which could improperly influence the performance of their official duties and responsibilities. In the private sector, conflicts of interest have been identified as a major cause behind corporate governance shortcomings.

Conflicts of interest often lead to fraud and other corrupt practices which violate existing regulations. The Sultanate of Oman has, pursuant to Sultani Decree 112/2011, implemented the Law for the Protection of Public Funds and Avoidance of Conflicts of Interest (as amended) (the “Anti Corruption Law”) with which government officials must comply. A government official is defined by the Anti Corruption Law as any person holding a government position or working for the government, whether on a permanent or temporary basis and whether they are paid or not. The provisions of the Anti Corruption Law are also applicable to members of the Oman Council, the representatives of the government in companies, and employees of companies in which the government has a 40% shareholding of the company. Pursuant to the Anti Corruption Law, a government official for example:

  • Is prohibited from acting as an intermediary, an agent or a sponsor of any company or establishment whose activities are connected with the entity in which he works; and
  • Must not (and his minor children must not) have a share in any company, establishment or business for profit which is directly connected with the entity in which he works. 

Further, it is not permissible for ministers’ council, ministries, public authorities and institutions and other administrative units that derive power from the state and that are supervised by the government official to deal with any company or establishment in which it has a direct or indirect interest.

The International Chamber of Commerce (“ICC”) Guidelines on Conflicts of Interest in Enterprises identifies three types of conflicts as detailed below:

1. An actual conflict of interest, which is a current situation in which an employee or associate of the company faces a real and existing conflict of interest. Some examples are:

  • Hiring or supervising a relative. 
  • Serving on the board of a company while serving on the board of a competitor company. 
  • Purchasing goods or services from a supplier directly or directly owned by a relative. 
  • Close personal relationships influencing the decisions in a bidding process. 
  • Using assets of the company for private benefit. 
  • Trading in securities for personal benefit using non-public information. 


2. A potential conflict of interest, which does not exist yet but may occur, regarding an employee or officer of a company. Some examples are:

  • X is a board member of companies A and B which are not business related. This may develop into a conflict of interest if the two companies do business together. 
  • X is a former public official of the Capital Markets Authority of Oman (“CMA”). This could create a conflict of interest if the company becomes subject to an investigation by the CMA. 
  • X is the sibling of the CEO of the IT supplier of the company. This could become a conflict of interest if X were to become responsible for the company’s procurement process and was part of the decision-making process. 
  • X is in a position to influence a business decision of a third party where he has direct or indirect influence of a relative to the benefit of the company. 

3. A perceived conflict of interest, which is a situation where a director, officer, manager, employee, agent or representative of a company appears to have a conflict of interest, even if this is not true. For example:

  • X is a senior director at company A and accepts a board membership at company B with which company A does a lot of business. If X is appointed with the full support and approval of the board of company A this merely creates the appearance of a conflict. 
  • Company A hires a new employee who has the same name as the CEO, but they are not relatives. 

The Organisation for Economic Co-Operation and Development (“OECD”) Tool Kit on Managing Conflicts of Interest [1]  has identified a number of commonly repeated ‘at risk’ conflicts of interest areas which directors and managers should make themselves aware of, including:

  • Inside Information – is there a policy and administrative procedure in place for ensuring that inside information obtained in confidence is kept secure and is not misused by directors or staff of the company? Is the policy being enforced? 
  • Ancillary Employment – does the company have a published policy and procedure for approval of additional/ancillary employment? 
  • Contracts – does the company ensure that any employee who is involved in the preparation, negotiation, management and enforcement of a contract involving the company has notified the company of any private interest in relation to the contract? 
  • Gifts or other Benefits – does the company policy deal with conflicts of interest arising from traditional and new forms of gifts or benefits? 
  • Nepotism – it is the practice of giving favours to relatives and close friends, often by hiring them? 
  • Self Dealing – is there a situation in which someone in a position of responsibility in a company has outside conflicting interests and acts in their own interest rather than that of the company? 

To the extent that a company has not already implemented a policy to deal with the conduct of its employees, we recommend that all Omani government-owned companies (LLCs or SAOGs) put in place a specific policy to treat conflicts of interest between individual directors and the company. The policy should identify processes for dealing with actual, potential and perceived conflicts of interest, such as misappropriation of assets, related transactions, insider trading and more. It should be reviewed and signed by each director when appointed as a director and be reviewed and updated regularly.

Although a conflict of interest is not corruption on its own, it does hold the potential for a breach of trust and fraudulent behaviour to follow. Conflicts of interest must therefore be promptly identified and managed. Left unresolved, a conflict of interest can result in unlawful actions and lead to unhealthy mistrust and suspicion of both private and public companies.

Endnotes
[1]Managing Conflicts of Interest in the Public Sector – A Tool Kit, ISBN 92-64-01822, OECD, 2015

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Monday, January 21, 2019

Procedure for Setting up a Holding Company in Oman

Under the Commercial Companies Law of Oman (“CCL”), a holding company may be formed either as a joint stock company or a limited liability company.  The minimum capital requirement of a holding company is RO 2,000,000.  Such capital may either be paid up upon incorporation of the holding company in full or in part to the extent of 50% in the case of a joint stock company.  In case of the issued share capital being partly paid up then the remaining balance will need to be paid up within three years from the date of incorporation of the holding company.

The objectives of the holding company must be as follows:

(a) the management of subsidiary companies or participation in the management of other companies in  which the holding company owns shares;

(b) the investment of its funds in shares, bonds and securities;

(c) the granting of loans, guarantees and finance to its subsidiaries; and

(d) the acquisition of patent rights, trade marks, concessions and the other intangible rights for the exploitation by the company or lease to its subsidiaries or to other companies.

A holding company cannot own interests in a general or limited partnership and it is prohibited from owning shares in any other holding company.

Minimum capital

The minimum capital requirement of a holding company will be RO 2,000,000.  As set out above, 50% of the issued share capital may be paid at the time of incorporation of the holding company with the remaining balance will need to be paid up within three years from the date of incorporation of the holding company.

Duration for setting up a holding company

In the case of limited liability companies, the holding company may be registered within 15 days from the date of receipt of all documents from the intending shareholders.  In the case of joint stock companies, it may take approximately 45 days, for the reasons set out above.  However, please note that the entire capital of RO 2,000,000 must be paid up at the time of incorporation.

Number of directors

In the case of joint stock companies, there must be no fewer than three directors, and the maximum number of directors may not exceed twelve.  Limited liability companies do not have a board of directors.

Article 128 of the CCL provides:

“The board of directors of the holding company may invite the chairman of the board of directors of any of the subsidiary companies to attend the meetings of the board of directors of the holding company when considering any matter relating to the affiliate company, so as to enable him to make any remarks, express his opinion or give explanations or statements requested by the board on certain issues.  He may participate in the discussions without having the right to vote.”

Expatriate director

There are no restrictions on the number of expatriate directors on the board of the holding company.

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Monday, January 14, 2019

Formation of an LLC in Oman

The limited liability company (“LLC”) form is the form most commonly chosen by foreign investors owing to the speed with which it may be established and it being inexpensive in comparison to the establishment and operation of joint stock companies.  LLCs are not required to be listed on the Muscat Securities Market in Oman (“MSM”).  Therefore, all listing and other fees payable to the MSM or the Capital Market Authority of Oman can be avoided in this manner.
An LLC is formed by at least two and no more than 40 natural or juristic persons.  Companies in Oman may be incorporated with different grades.  These being:


Capital (RO)
Grade
250,000 and above
Excellent
100,000 to 249,999
First
50,000 to 99,999
Second
25,000 to 49,999
Third
Up to 24,999
Fourth

A company with an excellent grade would be included with a list of companies given preference over companies with lower grades when bidding for Government contracts pursuant to the tenders floated by the Government.

Minimum capital requirement

The minimum capital of an LLC is RO 20,000 in the case of companies wholly owned by either Omani, GCC or United States nationals.  Please note that an Omani, GCC or US entity that intends to establish a new company (“NewCo”) must itself be wholly owned by GCC or US citizens; otherwise, it will be deemed to be a foreign company. 
An LLC which has foreign participation, i.e., non-Omani/GCC/US citizens, must have a minimum paid-up share capital of RO 150,000.  The foreign investor may own up to 70% of the company’s equity whilst the remaining 30% must be retained by a local shareholder. 

The foreign investor’s equity participation in the LLC may be increased from 70% to 100% provided (i) that the foreign investor who proposes to invest in an LLC can demonstrate that such entity is in need of foreign technical know-how or expertise which is not readily available in Oman; or (ii) that the foreign investor is participating in developing the national economy and is investing substantial capital in the country.  Where a foreign investor intends to retain equity in an LLC in excess of 70% and up to 100%, an application will need to be filed with the Minister of the Ministry of Commerce and Industry (the “MOCI”) on whose recommendation the Council of Ministers will be required to grant their approval.  

Documents and information required from the shareholders

Generally the documentation required to be provided by the shareholders are as follows:
The foreign/non-Omani juristic shareholders will need to provide:

(1) the foreign shareholders’ board resolutions (if corporate entity/entities) resolving to participate in the new company.  The resolution will need to confirm the proposed names of the new company, the capital of the company, the extent of foreign shareholders’ participation in its capital, the names of the person(s) authorised to sign all company formation documents on behalf of the foreign shareholders for registration of the company and its management thereafter;

(2) memorandum and articles of association of the foreign juristic shareholder and other related registration certificates issued by the concerned authorities from the country of such shareholders’ incorporation; 

(3) duly audited accounts to evidence that at least three years have lapsed from the registration of the establishment of the company; and

(4) copies of passports of the authorised individuals to act on behalf of the foreign shareholders for the purposes of (1) above, if the intention is to have individuals nominated by foreign shareholders to act as authorised signatories for the purpose of managing the new limited liability company, with their names listed in the resolutions referred to above.

Items (1) and (2) need to be notarised by the notary public; legalised by the Ministry of Foreign Affairs; and consularised by the Omani Consulate in the foreign shareholder’s country of incorporation (“Duly Authenticated”).

Under the new apostille procedure, the documents need only one single formality if the country of incorporation of the foreign partner is an apostille country under the Hague Convention 1961.  In this case, the documents will only need to be apostilled by the competent authority in the country of incorporation. 

The foreign/non-Omani shareholders (natural persons) will need to provide: 

(i) copy of passport; 
(ii) certificate of good conduct issued by the concerned body in the country of origin evidencing that the partner has never been involved in any crime; and
(iii) six months’ bank statements showing a balance sufficient to fund the foreign partner’s share of NewCo’s capital. 

In respect of the local shareholders, if necessary, they will be required to provide the following:

(1) copies of their constitutive documents (where the investment is being made in the name of a corporate entity) comprising the articles of association and commercial registration certificate;

(2) confirmation of the authorised signatories empowered to act on behalf of the local shareholders;

(3) statement of account from a bank (for a period of three months) evidencing the financial solvency of the local partner or a statement of shares or funds owned by such partner in an Omani establishment or companies; and

(4) if the local shareholder is an individual, the statement as mentioned in item (3) above and copies of his/her ID card or passport will need to be provided.

In respect of the NewCo, the shareholders will need to confirm and/or provide:

(i) the proposed name of the NewCo;

(ii) the proposed activities of the NewCo; and

(iii) list of the authorised signatories to be registered as managers of the NewCo.

Due to a recent amendment in the law, the capital contribution certificate evidencing the minimum capital of the NewCo is no longer necessary.  The shareholders have one financial year from the incorporation of the NewCo to evidence the company’s capital through the audited accounts to be filed with the MOCI. 

Procedures for setting up an LLC

In order to set up NewCo, the foreign investor would need to first identify an Omani national, if Omani shareholding is necessary, to be its second member and then to check the availability of the proposed name of NewCo.  The name of NewCo may include the foreign investor’s name but the MOCI does not permit any LLC to include the word “Oman” in its name.  In the event that the shareholders of the NewCo will be either wholly owned by, or individuals who are, Omani, GCC or United States citizens, an Omani partner will not be required.

The MOCI has prescribed the standard form of constitutive contract (being the contract of incorporation and the articles of association) for LLCs in Arabic which may be used or, alternatively, the shareholders are at liberty to have a constitutive contract of NewCo (preferably bilingual) to be put in place setting out the objectives of NewCo, amount of capital, number of shares, the shareholders’ nationalities, their respective shareholdings, their voting rights, membership meetings, etc.  Such document may provide for any restrictions or limitations on the rights of the members to participate in the management of the company and/or in the distribution of profits and losses between the parties.

All shareholders will be required to sign the company’s constitutive contract for the company and to deposit with the MOCI the LLC formation documents.  Details of the company will then be entered in the Commercial Register at the MOCI at which point the company will be deemed established but not operational.

Generally, for registration of the NewCo, the LLC formation documents to be submitted to the MOCI are as follows:

(i) constitutive contract, in original, signed by all the shareholders;

(ii) copies of all documents (listed above) of the foreign shareholder; and

(iii) copies of all documents (listed above) of the local Omani shareholder.

Once the MOCI has approved the constitutive contract and the documentation granting the authority to set up and to manage the NewCo, the NewCo will be registered in the Commercial Register at the MOCI.  NewCo will be allocated a Commercial Register Number to be used on all its stationery, nameplates, etc. and will receive an official Registration Certificate.

After the formation, a bank certificate issued by the bank in Oman confirming that the shareholders have deposited their full contributions of the share capital into the designated bank account or the duly audited accounts evidencing the capital contribution must be submitted to the MOCI within a period of four months from the close of the first financial year.  Additionally, the Municipality license must be obtained from the relevant Municipality which will only be granted after a lease agreement for office premises is submitted to the Municipality.  The lease can be entered into after the formation of NewCo but before it is operational.  The Municipality license must also be submitted to the MOCI.  After both the bank certificate and the Municipality license are submitted to the MOCI, the NewCo will be fully established and ready to operate and carry out any of its listed activities.

Time frame

Once NewCo’s proposed names have been checked and all the necessary documentation duly attested have been received, the formation of NewCo and the completion of all the registration formalities should not take more than two weeks following submission of the documents to the MOCI.

Official costs

The likely costs for registration of NewCo (with a minimum capital of RO 150,000) would be as follows:


Name of the concerned ministry
Fees
1.
Ministry of Commerce and Industry
RO 100 plus a fee for each registered activity (fees vary)
2.
Oman Chamber of Commerce and Industry
RO 225
3.
Municipality charges
RO 50 (minimum)

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