With a flat corporate income tax rate of 12% on annual profits above RO 30,000, and no personal income tax, Oman has a well-deserved reputation as a business-friendly jurisdiction from a tax perspective. Nevertheless, there are a number of tax-related issues that businesses in Oman would do well to heed carefully. Most such tax issues are, of course, best addressed by accountants; however in this month’s client alert we wanted to highlight one tax issue that we sometimes encounter in our legal work: customs duty.
In Oman, customs duty is normally a flat 5% of the value of the goods being imported. For businesses that import significant quantities of goods or high-value goods into Oman, customs duty could add up to a high operational cost and could significantly reduce profit margins. Many companies thus look for ways to reduce their exposure to customs duties. There are three possible ways that companies can do so, which we briefly discuss below.
The first – and often best – way for a company to reduce its exposure to customs duty is to arrange, by contract, for its customers to reimburse the company for the Omani customs duty it pays to bring in the goods or equipment necessary to carry out the work for the customer. For example, an oil services company that will provide drilling services for an oilfield customer in Oman, which will require the use of high-value machinery which must be imported into the Sultanate from abroad, could provide in the oil services contract that the customer must reimburse the service provider for any Omani customs duties that the service provider incurs importing the equipment and supplies that are required to carry out the work for the customer.
The second way that a company could reduce its customs duty exposure is to secure a temporary duty-free importation permission from the Royal Oman Police Directorate General for Customs. This is a limited category of exemption – it applies only to machinery and heavy equipment to be used for Government or investment projects, it is granted at the discretion of the Royal Oman Police, and most importantly it is valid only for a temporary period (six months at a time, renewable consecutively for a total period up to three years). However, temporary importation can be an attractive option for companies that seek to import high-value equipment into Oman for a brief period of time to carry out a Government or investment project, and will then re-export the equipment out of Oman.
The third route that companies could pursue to reduce their Omani customs duty exposure is to apply for a customs duty exemption pursuant to the Foreign Capital Investment Law. This exemption, which is granted at the discretion of the Ministry of Commerce & Industry and the Ministry of Finance, is not an easy one to secure – it tends to be granted only for key industrial and infrastructure projects for national economic development – however it is an option that companies can pursue. The process to seek this exemption is to first apply to the Ministry of Commerce & Industry, and if the Minister of Commerce approves the application he will forward the application to the Ministry of Finance, which would study the application and make the final determination of whether to grant the customs duty exemption.
Thursday, November 29, 2012
Customs Duty Issues for Businesses
Tuesday, January 3, 2012
Oman’s Law of Engineering Consultancies – Part II
In a previous post, we provided an overview of the role that engineering consultancies play in Oman’s many large-scale construction projects, as well as the Omani statute which governs the profession, the Law Regulating the Work of Engineering Consultancies (Royal Decree 120/94, as amended) (the “Engineering Consultancy Law”). This month, we discuss special requirements under the Engineering Consultancy Law that apply to foreign engineering consultancies.
While the Engineering Consultancy Law exempts foreign engineering consultancies from certain provisions of the Foreign Capital Investment Law, it stipulates several onerous conditions for foreign engineering consultancies.
Experience Requirements for Foreign Engineering Consultants
Foreign consultancy companies seeking to form an engineering consultancy in Oman are required to have at least ten years of experience in engineering consulting projects. This condition can pose difficulties for newer engineering consultancy companies, particularly those in cutting-edge sub-fields of engineering where length or experience is unavailable and expertise is in any case more crucial. As a practical matter, this condition can potentially restrict a newer foreign engineering consultancy’s ability to work for private-sector clients in Oman.
Setting up an Engineering Consultancy
The registration and licensing process for foreign engineering consultancy companies in Oman is often lengthy. Pursuant to the Engineering Consultancy Law, such registration and licensing must be approved by a committee headed by the Director-General of Commerce and comprised of representatives from nine distinct government departments. While this committee structure may provide the benefit of bringing together a broad base of expertise to decide on license applications, it often comes at the logistical cost that the time required to constitute the committee can lengthen the period necessary to establish the branch.
Although it theoretically may be possible for foreign entities with government or quasi-government contracts to bypass all or part of the above-described registration process based on protections implied in the Foreign Capital Investment Law, our recent experience suggests that a foreign engineering consultancy which has contracted with the government is also required to go through the licensing process in order to form a branch.
Omani Shareholding Requirement
Finally, we note that, for foreign engineering consultancies formed as companies (e.g., limited liability company or joint-stock company, as opposed to branches), at least 35% of the shares must be held by an Omani national authorized to carry on a similar type of engineering consultancy. Also, an Omani national cannot partner with more than one foreign consultant partner to form a local consultancy.
Tuesday, March 16, 2010
Withholding Tax on Management Fees
The Omani Tax Law (Royal Decree 28 of 2009) provides that companies earning income from management fees that do not have a permanent establishment in Oman are subject to withholding tax. Companies that plan to earn income from management fees that have not formed a permanent establishment, such as a limited liability company (LLC) or branch in Oman, need to examine their transactions carefully to determine whether they will be subject to this 10% withholding tax.
The Tax Law does not provide a definition for "management fees" as they relate to withholding tax. Particularly, the law does not specify whether management fees include remote management, which would occur from outside Oman, or management that occurs directly within Oman. Generally, the accepted practice is that management fees, whether the management occurs directly in Oman or remotely, will be subject to withholding tax if the management company does not have a permanent establishment in Oman.
In light of the withholding tax structure, companies should consider whether they prefer to form a permanent establishment in Oman. Forming a permanent establishment in Oman means the income from the management fees would not be subject to the 10% withholding tax. However, the local commercial entity would be subject to a 12% taxation rate on taxable income after allowable deductions.
Companies without a permanent establishment in Oman that earn income from management fees also should be aware of the restrictions laid down in the Foreign Capital Investment Law. Generally, foreign companies are not permitted to do business in Oman without forming a legal entity such as a branch or LLC. If the company providing the management services that are the subject of the management fees is doing business in Oman illegally, then payment of withholding tax on the income earned from the management fees would not excuse the company from any penalties resulting from the Foreign Capital Investment Law or other applicable Omani laws.
Monday, November 30, 2009
Tendering in Oman: Practical Issues
Foreign companies wishing to tender in Oman need to understand a wide range of matters such as legal procedures, applicable government policies, the procurement guidelines, approvals required, and the implications of policy and law changes.
In this article, we highlight some issues which may impact on tendering in Oman.
Friday, May 22, 2009
Doing Business in Oman FAQ: Local Partners
Can a company, as opposed to an individual, satisfy the minimum 30% local shareholding requirement for an Omani limited liability companies (LLC)? This question arises when a foreign company wishes to establish an LLC in Oman, but must find a local partner in order to fulfill legal and procedural requirements.
Under the Foreign Capital Investment Law (Royal Decree 102/94) (the “FCIL”), there is a mandatory requirement that at least 51% of the shares of a limited liability or joint stock company be held by an Omani natural or juridical person. Although this provision of the FCIL has never been amended, pursuant to Oman’s WTO obligations, companies with only 30% Omani shareholdings are allowed to incorporate without the need for any special approval.
Typically, the 30% requirement is satisfied by an individual Omani owner, often one who offers local expertise to the new LLC.
The answer to whether a corporate entity could satisfy the requirement depends on whether the Omani company is 100% Omani owned or whether it has some non-Omani owners If the Omani company is 100% Omani owned, then it can satisfy the minimum 30% Omani shareholding requirement for the LLC. If it has a single non-Omani owner,
however, it cannot.
This answer may be different if the foreign shareholder is from a country that has a free trade agreement with Oman (such as the U.S. and Singapore). In that case, the result depends on the industry in which the company operates and other factors.
