Trade and Investment
The Foreign Capital Investment Law of 1994 provides the legal framework within which foreigners may invest and carry on business in the Sultanate of Oman. The following address procedural requirements and investment vehicles of which prospective investors should be aware. Foreigners cannot conduct any commercial, industrial or tourist business or otherwise participate in an Omani company unless a license is obtained from the Ministry of Commerce and Industry. A license is granted upon the fulfillment of the following conditions:
The business must be conducted by an Omani company with a capital of at least RO 150,000;
The foreign share therein must not exceed 49 percent of the company’s total capital, unless authorization to increase participation up to 65 percent is given by the Minister of Commerce and Industry. In instances where the project contributes to the development of the economy, the project’s capital exceeds RO 500,00 and an approval is given by Development Council, foreign participation may be increased up to 100 percent.
Exemptions from the above requirements may be granted under the following circumstances:
The company conducts a business under a special contract with the government or a contract established pursuant to a Royal Decree;
The company conducts a business which is declared by the Cabinet as necessary for the country.
The following information and certified documents must accompany a license application:
The objects of the proposed business;
Articles of association or constitutive agreement;
Details of each proposed shareholder or partner;
The aggregate interest in the capital to be owned by foreigners;
A certificate from the Commercial Registrar Secretariat of the Ministry of Commerce and Industry that no other company is engaged in Oman under the proposed name;
Power of attorney to at least one individual;
The foreigner’s major activities and projects;
Approvals from other government departments where relevant;
Operation through a Branch of a foreign Company or through a Commercial Agency.
It is possible for foreigners to carry on business in Oman without direct Omani participation in ownership and management. For example, foreigners may set up a branch office to perform specific contracts awarded by the government or by an oil company holding a concession granted by the government. Registration of such a contract with the Ministry of Commerce and Industry and the appointment of an Omani agent allows lawful performance of the contract, including ancillary activities, without the need to set up a company of the types described above. In addition, certain professional consultants, in areas where there is a critical shortage, are allowed to set up a branch office in Oman subject to the satisfaction of certain requirements.Investment incentives granted by the Ministry of Commerce and Industry are provided pursuant to Royal Decrees and the Foreign Capital Investment Law of 1994: Under Royal Decree 40/87, foreign investors may be eligible for interest-free soft loans from the Ministry of Commerce and Industry, provided that not more than 25 percent of the equity in the company is owned by non-Omani persons. Such attractive loans are given for the following purposes:
Acquisition of fixed assets for new projects;
Acquisition of machinery and equipment for expansion of existing projects;
Infusion of finance into a ‘failing’ industry, provided that the entity has been in existence for at least one year, losses have not been caused by mismanagement and that it can be established that the loan would convert the entity into a viable enterprise.
The granting of such loans is linked to priority areas as determined by the Ministry of Commerce and Industry. There are two priority areas that are encouraged in the Sultanate. The first concerns the following industrial projects or entities:
Food processing industries;
Projects using at least 20 percent local raw materials;
Projects employing at least 35 percent Omani employees;
Joint stock companies with at least 40 percent of public subscription.
The second priority area concerns the following tourism projects or entities:
Projects outside the capital area assisting in regional development;
Projects involving a new tourism activity;
Projects with at least a 30 percent Omani work force;
Projects with foreign investment that will transfer management techniques to Oman;
Projects that promote traditional industry or that market their products;
Joint stock companies with at least 40 percent of public subscription.
The amounts of the loans are determined in accordance with the following guidelines:
Up to 100 percent of the paid-up capital for projects in the capital area;
Up to 125 percent of the paid-up capital for projects in other areas;
Joint stock companies may be granted a loan not exceeding RO 3 million;
Non-joint stock companies may be granted a loan not exceeding RO 250,000;
Tourism projects may be granted a loan not exceeding RO 500,000.
Loans given for new and expansion projects can be repaid over fifteen years, with the first installment paid after a grace period of five years. For tourism projects and ‘failing’ industries, the repayment period is thirteen years, with a grace period of three years. Delayed installments may attract an annual 10 percent interest charge, calculated for the period of delay. As to securities, all fixed assets of the project are mortgaged under a first priority charge to the government for the term of the loan.Tax-related incentives and government loans are the major incentives given to foreign investors. Additional incentives and provisions are provided under Royal Decrees and the Foreign Capital Investment Law.
Foreign investors are specifically allowed to resolve disputes with third parties by way of local or international arbitration. The importation of any production materials, machinery, parts, and the like does not require to registration in the Importers Registrar. Foreign investors are free to conduct the licensed activity and to transfer abroad the imported capital along with the profits accrued in the project. Their projects may not be confiscated or expropriated unless for the public interest and against equitable compensation. Foreign businesses may be entitled to preferential allocation of government land. They may be given a free survey of industrial investment opportunities, a reduction in charges for electricity, and priority in government purchases.
Other incentives include the following:
- Low interest loans from the Oman Development Bank
- Subsidized plant facilities and utilities at the industrial estates
- Exemption from customs duties on equipment and raw materials during a project's first ten years.
- Significant incentives, including subsidies and tariff protection, are mostly available to joint stock companies.
Oman is a member of the Gulf Cooperation Council States (GCC) that includes Saudi Arabia, United Arab Emirates, Bahrain, Qatar and Kuwait. Under the United Economic Agreement of the GCC states of 1981 and the resolution of the Supreme Council of GCC states, Oman permits GCC nationals to conduct certain economic activities in specified fields in the Sultanate upon the same terms and conditions as applicable to Omanis. The fields are determined periodically by the Ministries of Commerce and Industry and of Finance and Economy. Activities currently permitted include industry, agriculture, animal resources, fisheries, construction, management of hotels and restaurants, retail and wholesale trade, law, medicine, accountancy, engineering, pharmaceutical, craft and computer programming. The government carries out most major infrastructure and commercial projects and at times it may carry out a project as a party to a joint venture. Design, engineering, construction, operation and maintenance contracts may be awarded separately. In order to monitor these contracts and ventures, a Tender Board was set up to handle all large governmental projects. Certain bodies, however, have their own tender boards: the Ministry of Defense, the Royal Oman Police, the General Telecommunication Organization, and the Petroleum Development Oman.
For contracts the value of which is higher than RO 100,000, the Tender Board sets the terms of bidding, issues invitations and selects the winners. In general, there is no formal pre-qualification process. Nonetheless, bidders must comply with the procedure set out in the Law and Regulations for Government Tenders (Royal Decree 86/84). For example, bidders are required to have an Omani sponsor or partner and must be registered with the Tender Board as well as with the Ministry of Commerce and Industry. Bidders are generally required to submit a deposit equal to 2 percent of the tender’s value in the form of a bank guarantee. The main factor taken into account by the Tender Board is the price, in addition to past performance, financial capacity, compliance with procedure and the like. Within fifteen days of receiving the award, the winner has to submit a bank guarantee amounting to 5 percent of the value of the contract.
© 2000 Mena Report (www.menareport.com)
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