The development of free trade zones across Oman has been a centerpiece of the Sultanate’s plans to diversify the national economy beyond the oil sector by spurring the growth of value-added, export-focused industries such as refining, manufacturing, shipping and logistics. Free zones serve as catalysts for this growth by providing infrastructure (e.g., roads and ports), a streamlined regulatory framework (e.g., fewer visa and entry/exit restrictions) and financial incentives (e.g., income tax and customs duty waivers) that encourage high-end foreign and domestic companies to set up operations. By attracting these companies to Oman and locating them together in a concentrated, business-focused environment, the free zones aim to build an industrial and trade base that will help bring the Sultanate new technology, jobs and sustainable economic growth in higher value-added fields.
The large free zones in Salalah and Sohar are now well-known features of the Omani economic landscape. However, it is a smaller, lesser known free zone that has recently been capturing headlines: the Al Mazunah Free Zone, located in the Dhofar region near the Oman-Yemen border.
The Omani government recently signed an agreement with a Kuwaiti-based company, Golden Hala Trading, to develop the infrastructure for the Al Mazunah Free Zone. Golden Hala, a part of Kuwaiti development conglomerate Jawaharat al Fanar Group, has pledged to invest an estimated 680 million Omani Rials in the project over the next five years, and has already launched an intensive marketing campaign to lure companies to the free zone. Among the generous incentives that the free zone offers companies are a 30-year exemption from income tax, the right to import commodities duty-free, and the allowance of 100 percent foreign ownership. Golden Hala has cited the processing, storage and shipment of produce from the Dhofari agricultural heartland, along with the automobile and industrial vehicle trade, as potential focus areas for the free zone’s growth plans.
With Al Mazunah thus gearing up to take its place alongside Salalah and Sohar as a major industrial hub, Oman’s free zones appear poised to play an increasingly important role in the Sultanate’s economic future and are a sector to watch closely for companies that already do business in Oman and those that seek to do so in the future.
Monday, August 2, 2010
In the News: Al Mazunah Free Zone
Friday, July 30, 2010
Key Issues in Omani Tenancy Law
One of the most fundamental administrative priorities for a company operating in Oman is securing and maintaining local business premises. As many companies, particularly foreign companies, rent their business premises, it is important to be aware of the legal provisions governing the landlord-tenant relationship. This article summarizes some of the key features of Omani tenancy law that are most relevant to companies.
The landlord-tenant relationship in Oman is governed by Royal Decree 6/89 (as amended), the Law Regulating the Tenancy of Residential, Commercial and Industrial Premises (the “Tenancy Law”).
The Tenancy Law requires that the landlord-tenant relationship, as with other business relationships (e.g., commercial agency relationships), be recorded in a lease contract that is registered with the government. The statutory default rule is that the landlord must register the lease contract with the relevant municipality and pay the attendant registration charges. However, the parties may agree to shift this responsibility to the tenant, and the tenant in any case has the right to register the lease if the landlord fails to do so. As the Tenancy Law provides important protections to tenants, particularly in the form of rent controls and protections against eviction (see below), even when the duty to register the lease contract falls on the landlord, it usually behooves the tenant to ensure that this contract is duly registered with the municipal authorities.
One of the main focuses of the Tenancy Law is limitations on rent increases. Rent controls were featured in the Tenancy Law as originally promulgated in 1989 and were strengthened significantly by an amendment to the Tenancy Law issued in 2008 in response to sharp inflation in the Omani real estate market. Under the current Tenancy Law, landlords are not allowed to increase rent during the first three years of the lease, and rent increases thereafter may not exceed 7 percent per annum. As an exception to this general rule, the landlord may increase the rent at any time commensurate with the cost of any improvements that the landlord makes to the property at the tenant’s request.
The other key focus of the Tenancy Law relates to the term of the lease, in particular protections for the tenant against eviction. Like rent control, this featured in the original Tenancy Law but was bolstered significantly by the 2008 amendments. Under the current Tenancy Law, during the first 7 years of a business tenant’s lease (i.e., a lease for commercial, professional or industrial purposes), the lease is subject to consecutive automatic renewals unless the tenant gives the landlord notice of his intention to vacate at least three months prior to the end of the original term or the relevant renewal term. Subject to limited exceptions (e.g., misuse of the premises by the tenant or a municipal demolition order), the landlord may not terminate the lease contract or evict the tenant during this initial 7-year period.
Tuesday, July 20, 2010
Fast-Tracking of Omani Court Proceedings
In a country as well managed as Oman, it should come as no surprise to see court cases resolved quickly. But even we have been surprised at how swiftly some Omani court proceedings are being resolved these days as a result of strengthened efforts by the court system to fast-track proceedings. For example, in a recent Primary Court labour case, the Judge allowed two submissions only: a statement of claim by the Claimant, which was filed at the first hearing; and our written response on behalf of the Defendant employer, filed at the second hearing, which took place just 14 days after the first hearing. The Court then pronounced its judgment at the third hearing, which took place 20 days after the second hearing. From start to finish, the entire Primary Court proceeding took only 34 days. Traditionally, labour cases may have taken up to 12 months in the Primary Court before receiving a judgment. Happily, our client won and the Claimant's case was rejected. Our recent experience indicates that this case was not an exception, but rather part of a growing trend of Omani courts taking a fast-track approach to many proceedings. This trend has important implications: lawyers must be increasingly swift and responsive in their handling of disputes, and their business clients must also be prepared to take part in a fast-moving process. Legal strategies will need to become more forward-thinking and preemptive. For example, as many readers know, all exhibits to an Omani court filing must be presented to the Omani Court in Arabic (and must also bear the stamp of a certified translator). In defending the case cited above, one key to our success was having translated many key emails into Arabic before the proceedings began – so that they were immediately available when we needed them for exhibits. It will be interesting to monitor the fast-tracking in the Omani court system as this trend continues. Of particular note will be the extent to which this expedited approach extends upward through the ranks of the court system. While fast-tracking is clearly on the rise in the Primary Courts, we shall have to watch closely to see whether the same will occur in the Appeals Court, and finally in the Supreme Court.
Tuesday, July 13, 2010
Ministerial Decision Clarifies Telecom Dispute Procedure
For telecommunications companies that have grappled with uncertainty over the handling of disputes between licensees, a recent Ministerial Decision provides some welcome clarity. Ministerial Decision No. 44/2010, issued by the Omani Telecommunications Regulatory Authority (“TRA”), has set out clearly the procedures for the resolution of such disputes, as well as the process whereby Licensees can appeal TRA decisions. Preliminary Settlement Attempt Required Prior to filing any case, a petitioning licensee must serve a notice on the other licensee. Within 14 days of this notice, senior executives of the respective licensees are required to meet and attempt to reach a settlement. If a settlement cannot be agreed, the matter must be escalated to the respective chairmen of the two licensees within 20 days of the original notice, and the two chairmen must attempt to reach a settlement within 30 days of the original notice (although the chairmen may agree to extend the settlement period). Minutes must be recorded for all meetings, but non-compliance by one licensee will not delay any of the procedures. TRA Disputes Hearings: Key Features If the settlement attempts described above have taken place and have failed to resolve the dispute, the petitioning licensee may file a claim with the TRA. Within 15 days of this filing, the TRA will perform preliminary scrutiny of the case and decide whether, prima facie, the dispute falls within the TRA's purview. If the TRA deems that it does, it will constitute a panel to hear the dispute. Perhaps the most important thing for companies to understand from the outset about the TRA dispute hearing process is that Ministerial Decision No. 44/2010 grants these panels very extensive powers, such as the discretion to: (i) introduce additional parties to the dispute; (ii) appoint an expert to provide an opinion; (iii) require any party to take measures or refrain from any action until the end of the dispute; or (iv) issue orders for interim or precautionary measures. Another noteworthy feature of TRA dispute resolution hearings is that the proceedings are required to take place in Arabic, although the chairman of the panel may at his discretion approve the use of a foreign language for all or part of the proceedings. Regardless of the languages used in the proceedings, the final decision will be rendered in Arabic (although if some of the proceedings have taken place in another language, there may be limited use of that foreign language in the decision). Panel Proceedings Once the TRA has constituted a panel to hear the dispute, the chairman of the panel will provide the defendant licensee with a copy of the petitioner licensee’s statement of claim, together with any decision the chairman has made concerning the language of the proceedings. The chairman shall grant the defendant licensee a period of at least 15 days to file a reply, and once the chairman receives this reply he shall provide a copy of it to the petitioner licensee. If either party requests a quasi-court hearing based on grounds deemed acceptable by the panel, then the panel must convene such a hearing, and the chairman of the panel will be responsible for the conduct of the hearing. The panel may also convene a quasi-court hearing on its own initiative, if it deems this necessary. When the panel has concluded its deliberations, the parties will be notified that the matter is reserved for a decision, which will be rendered within two weeks of such notice. This notice marks the cut-off point beyond which neither party may submit any further documentation. The panel’s decision will be given in writing and signed by the chairman. Appealing the Panel’s Decision Either party may appeal the panel’s decision by filing an appeal with the TRA within 30 days of being notified of the decision. Although the filing of an appeal does not automatically suspend the enforcement of the decision, enforcement may be suspended if deemed necessary by the TRA. Within 30 days of the appeal being filed, the TRA will issue a judgment to (i) uphold the decision, (ii) amend/revoke the decision or (iii) refer the dispute, or any part of it, back to the original panel, or to another panel, for resolution. Article 35(4) of Ministerial Decision No. 44/2010 states that the ultimate judgment on the appeal will be final and binding. In summary, this new Ministerial Decision promulgated by the TRA provides a helpful measure of clarity for understanding the dispute process for the telecommunications sector, yet it also prescribes a very lengthy and detailed set of rules to which the parties must adhere. We therefore suggest that companies consult legal advisors as early as possible in the process when a dispute arises.
Thursday, July 8, 2010
Judge's Verdict: Landlords & Tenants
This article was written by Curtis partner James Harbridge of the firm’s Muscat office. It originally appeared in the Muscat Daily and is republished here with permission.
Landlord/ tenant disputes are sometimes quite prevalent. Furthermore, on some occasions, the outcome at court may differ from what one would have expected.
The facts that led to Supreme Court case 273/06 were as follows:
A property owner rented out a property to the tenant, who planned to use the premises as an educational establishment. However, when the tenant stopped paying the rent, the owner of the building filed a case in the Primary Court. The tenant was ordered to pay RO12,000 in accrued rentals to the owner. This sounds fairly routine, but in fact it was a judgment that surprised the tenant, for reasons explained below.
The tenant, meanwhile, filed an appeal to the Appeal Court, stating that the two parties had never actually signed a lease. He also relied on the resultant fact that there was no tenancy agreement registered with the relevant municipality. Accordingly, the tenant reasoned, the Court should disregard the case as it is a statutory requirement in Oman that a building lease must be registered.
However, the Appeal Court ruled against the tenant, and upheld the RO12,000 judgement in favour of the landlord.
In consequence, the tenant appealed to the Supreme Court. He relied upon four lines of appeal:
On November 8, 2006, the Supreme Court gave its ruling. They adjudged that the lower courts in Muscat had been right to hear the dispute, as although the building was outside Muscat, the two parties had met and negotiated the lease in Muscat. Moreover, it was held that a dispute regarding an unregistered lease could be heard, as, in the particular circumstances of this case, the tenant had admitted there was a lease contract in place. Indeed, it seems that the fact that the tenant stated he had made some rental payments by cheque was evidence in itself from the tenant that a landlord-tenant relationship existed and that the monthly amounts paid were connected to the lease arrangements.
The judges, moreover, sated that it was not the fault of the landlord that the tenant failed to obtain the necessary licence from the Ministry of Education. Finally, the Supreme Court state that it could only hear legal arguments, and not factual disputes, meaning that the fourth ground of appeal lacked credibility.
In this way, the Supreme Court upheld the lower courts' judgements that the tenant must pay RO12,000 to the landlord.
The lack of signature on the contract was deemed not to be a problem, as the parties had formed the contract by a combination of writing it and then acting in accordance with what it stated.
Wednesday, June 30, 2010
Increased Capitalization Requirements and Rights Offerings
Omani Law Compliance Reminder
In response to the global financial crisis of 2008, the Central Bank of Oman issued a circular in June 2008 requiring Omani financing and leasing companies to comply with the following capitalization requirements:- By June 2009, each Omani financing and leasing company must have increased its capital reserves to at least OMR 10 million and maintain such minimum reserve amount at all times going forward; and
- By June 30, 2012, each Omani financing and leasing company must have increased its capital reserves to at least OMR 20 million, and maintain such minimum reserve amount at all times going forward.
Thursday, June 24, 2010
Potential Advantages of a Specialized Real Estate Regulator
Focus on Real Estate Series
Oman’s prudent approach to real estate development has been well rewarded over the few past years, as the Sultanate’s selective focus on sustainable, mainly high-end projects has enabled Oman’s real estate and tourism sectors to thrive while other countries in the region have struggled. As the Sultanate continues to develop its real estate sector, one possible future addition to consider would be a specialized regulatory authority for the real estate sector. Properly structured, a specialized regulator could further increase coordination, efficiency, and responsive oversight across the sector. Generally, a real estate authority is a specialized body that is actively involved in all aspects of the real estate sector and has close working relationships with both higher governmental officials on the one hand, and private participants in the real estate sector (e.g., developers, landlords and tenants) on the other hand. Functions that a real estate regulatory authority may perform include:- drafting regulations in accordance with the broader laws (e.g., Royal Decrees) that carry out the government’s objectives while also being attuned to issues facing market participants “on the ground”;
- certifying and licensing property developers to help maintain the integrity of the sector;
- adopting streamlined, unified processes that make the sector more user-friendly to all market participants and provide comfort to investors;
- coordinating and providing centralized access to real estate records and data; and
- helping to promote housing quality standards and carry out other governmental objectives, such as access to affordable housing.
Tuesday, June 15, 2010
Focus on Labour Law: Mediation Hearings
In Oman, as in other jurisdictions, labour disputes are a common occurrence. A key, but often overlooked, part of any labour dispute is the mediation process.
Under Omani law, labour disputes are first referred to mediation with a mediator from the Ministry of Manpower. The dispute may proceed only to the court system once the mediator takes the view that irreconcilable differences exist between the employer and the employee.
The mediator’s role is to facilitate discussion and negotiation between the employer and the employee. He or she may encourage the parties to try to resolve their differences and may even express views regarding who is in the right and who is in the wrong. The mediator has no power to force a party to change its position or to bind the parties to a resolution of the dispute. However, it is important to bear in mind that the mediator wields influence by means of its reporting role. At the end of the mediation process, the mediator writes a private report to the Primary Court explaining what the dispute is about and what both parties' respective positions are, and may state who the mediator feels is the culpable party.
Accordingly, any company involved in a labour dispute would be well advised to take the mediation process seriously and to come to the mediation sessions well prepared, even if the company is convinced that mediation will not resolve the dispute. Ideally, both an HR staff member and a lawyer should be present to represent the company at the mediation sessions. Before the first session, the company should collate all paperwork relating to the employee and the dispute so that the company’s HR staff member and the lawyer can carefully analyze these materials, discuss the case in depth, and formulate their strategy for the mediation hearings.
Another reason for companies to approach the mediation process seriously and preparedly is that while the mediation will not necessarily be dispositive of the suit, it may raise information and lines of argument and defense that can carry through to and ultimately affect any subsequent court proceedings.
For example, one difficulty a company may have to contend with is when the employee fails to properly articulate his claim during the mediation process. In this event, the company generally should refrain from offering a detailed defense to the employee’s anticipated claim. Such a course of action may commit the company to a fact pattern or line of defense it may wish to avoid during any subsequent court proceedings. In other words, at the mediation stage, the company generally should respond only to the information presented by the employee and the mediator, and not go into further detail than necessary. The general principle to bear in mind is that a court will look unfavorably upon, and will be much more likely to find against, an employer that has set forth inconsistent information and defense arguments during the court proceedings compared with during the mediation process.
In sum, the mediation process in a labour dispute is an important step that a company must handle attentively and skillfully in order to best protect its interests. Companies involved in a labour dispute would be well advised to consult with a lawyer to help them navigate this process.
Thursday, June 10, 2010
Doing Business in Oman – The Three Business Structures Foreign Companies Can Use
Oman’s combination of a growing, affluent population and a modern, open economy offers an abundance of business opportunities and attracts companies from around the world keen to take advantage of those opportunities.
For any foreign company looking to enter the Omani market, one of the first steps is to consider which business structure to use. Under Omani law, it is mandatory for any company doing business in the Sultanate to have a “legal presence” in Oman. Foreign companies must form and register an Omani legal entity that can do business in the Sultanate. There are three options available for foreign companies to establish a legal presence: (i) form an Omani company with a local partner; (ii) engage a local agent; or (iii) establish a branch in Oman.
Choosing the business structure most appropriate for the foreign company’s needs is often one of the keys to doing business in Oman successfully. This article provides an overview of the three options, including some of the important features of each.
Option One: Form an Omani Company with a Local Partner
There are two kinds of Omani companies that a foreign company may form with its local partner: a limited liability company (LLC) or a joint-stock company. Although joint-stock companies are required by law for some fields of business (e.g., insurance or investment companies), most foreign companies seeking to do business in Oman choose to form an LLC, as there are far fewer procedural, disclosure and corporate governance requirements for LLCs than for joint-stock companies.
The main advantages of an LLC are that it may continue to exist indefinitely, it may service both private and government clients, and it limits the foreign parent company’s liability to the amount of its capital contribution.
Among the requirements for forming an LLC are a capital contribution of 150,000 Omani Rials and a minimum of 30 percent shareholding by the Omani partner, although the allocation of the capital contribution and the distribution of profits may be however the shareholders agree, and need not correspond to shareholding percentages. LLC taxable income over 30,000 Omani Rials is taxed at a rate of 12 percent.
Option Two: Engage a Local Agent
Foreign companies typically enter into an agency agreement with a local Omani agent for purposes of selling and distributing their products in Oman. Under an agency relationship, all business done in Oman must be performed by the local agent; the foreign company principal may not, for example, sell its products directly in Oman. (We note that in special cases, such as defense-related products, foreign companies may sell directly in Oman without an agent, and indeed may be encouraged or required by the buyer not to use an agent.) Income derived from agency arrangements is taxed at a rate of 12 percent.
Engaging a local agent is a quick and simple process: all that is required is a signed agency agreement between the parties, which is almost always registered by the agent with the Omani Ministry of Commerce and Industry. However, it is important to bear in mind that terminating an agency relationship is significantly more difficult than forming one, as Omani courts tend to be highly protective of local agents and may award terminated agents generous compensatory damages. Foreign companies considering entering into an agency agreement therefore should be prudent in selecting a local agent, and should consult with a legal advisor to ensure that the agency agreement adequately protects the company’s interests.
Option Three: Establish a Branch in Oman
Foreign companies performing a contract for the government may establish a legal presence by opening a branch in Oman. The main advantages of a branch are that there are no minimum capital requirements, administrative burdens are minimal, and branches can be 100 percent owned by the foreign company. The drawbacks to branches include their limited lifespan (they exist only as long as the government contracts they were formed to service; although their life can be extended if the foreign company wins a new government contract prior to the expiration of the contract under which the branch was formed), their narrower scope (branches may not service private-sector clients) and the fact that under Omani law branches are considered extensions of the foreign parent company for liability purposes.
Forming a branch is typically the preferred way for foreign companies servicing a government contract to establish a legal presence in Oman, largely because the ability to own the branch 100 percent allows the foreign company to maintain sole control over the entity that receives payments under the contract. The procedural requirements for forming a branch are less than for forming an LLC, but greater than for entering into an agency agreement. Taxable income derived from branches is taxed at a rate of 12 percent.
Wednesday, June 2, 2010
The Future of Combating Piracy
With its rich history as a seafaring nation, Oman has centuries of experience confronting maritime piracy. This heritage may prove useful in coming years, as it becomes increasingly clear that pirate attacks are not merely a past relic, but also a present-day menace – and one that is on the rise. Oman’s proximity to the main hub of modern pirate activity, the Gulf of Aden, has made piracy a particularly important issue for the Sultanate, as brought to prominence by a dramatic attack last summer in which Somali pirates armed with heavy weapons and night-vision goggles hijacked a German cargo vessel 60 miles off the coast of Sur, Oman. As Oman continues to develop its ports and shipping industries, and pirate gangs seek to expand their territorial reach, anti-piracy initiatives seem poised to be a key economic as well as national defense issue for the Sultanate going forward. The Sultanate has been proactive in addressing the threat of piracy. Last week, for example, when the Indian defense minister visited Oman to discuss defense matters with his Omani counterparts, discussion of piracy took center stage. According to reports in the Omani press, the two nations have agreed to conduct joint military exercises and to strengthen their cooperation to root out piracy in the region. As Oman and other nations in the region bolster their anti-piracy efforts, they may consider looking to the United States for ideas about one promising future avenue for fighting piracy: cutting off the pirates’ funding. On April 13, 2010, U.S. President Barack Obama issued an Executive Order declaring maritime piracy to be a threat to the security of the United States, and authorizing the freezing of U.S. funds or property of persons determined to be supporting designated individuals associated with piracy. This Executive Order represents a very early step for U.S. anti-piracy efforts; it now falls to the U.S. Treasury Department to draft regulations implementing what the Executive Order broadly outlines. The regulations are expected to prohibit banks and insurers that have a U.S. presence from processing ransom payments to pirates affiliated with the individuals named in the order. This approach from the United States does present an interesting idea: perhaps the future of combating piracy lies not just in warding pirates off with gunboats, but in seizing their treasure chest. The more difficult it becomes for pirates to receive and transfer funds, the more difficult it will be for them to operate. Such measures by themselves may not be enough to root out piracy, but jamming the pirates’ financial machinery may help to slow them down. Anti-piracy financial restrictions will naturally be more effective the more broad-based they are, for example if they are formulated and implemented as part of a multi-lateral international effort. With the threat of maritime piracy continuing to grow throughout the region, we are likely to see increased international cooperation on anti-piracy initiatives. As these efforts progress, Oman, its neighbors in the region, and the rest of the global community may wish to look to the U.S. example of blocking pirates’ access to financial institutions as one potential weapon in the ongoing fight against piracy.
