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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