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.


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. 


Monday, March 11, 2019

Enforcement of Arbitral Awards


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.


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.