By Catherine Jaskiewicz
A. Setting-up a presence in Oman
The Sultanate’s political stability and modern trading system, makes Oman one of the most attractive hubs in the Middle East for international businesses. Setting up a business in Oman can be a cumbersome procedure and it is advisable to involve a locally practicing attorney in the establishment process, as the majority of the documents requested by the Omani governmental authorities are required to be drafted in Arabic. This poses a challenge for business owners who have do not speak Arabic fluently. Generally, the process of setting up a business is not a particularly lengthy one, if the local regulations are adhered to and the client submits apostilled or legalized copies of the required documents from its country of origin/registration.
B. Choosing the appropriate legal structure for the business activity that you wish to carry out in the Sultanate
As it is obligatory for any company doing business in the Sultanate to have a legal presence in Oman, the first step for any potential business owner should be to carefully review all of the available legal structures for foreign investments in Oman to determine the most appropriate legal form for the Oman based subsidiary of the client. We will focus on the most popular business models for joint foreign and Oman investments in the Sultanate including engaging a local agent, establishing a branch office, and setting up Limited Liability Company.
1. Commercial Agency
Article 1 of the Oman Commercial Agencies Law (issued by Royal Decree No. 26/1977, as amended) defines a Commercial Agency as “any agreement whereby a manufacturer or supplier outside Oman assigns one or more merchants or commercial companies in Oman to sell, promote or distribute goods and products or supply services whether in his capacity as an agent, representative or intermediary for the product of the original supplier who has no legal presence in Oman, against a profit or commission.” Effective representation by an agent has both practical and commercial benefits. Companies operating as agents must (i) be registered in the commercial register and with the Oman Chamber of Commerce and Industry (ii) list conducting of commercial agency activities amongst their business objectives and (iii) have an Oman shareholding of minimum 30% (in accordance with the Commercial Agencies Law the minimum national shareholding is fixed at 51%, however the Ministry of Commerce and Industry have introduced a policy allowing Omani companies with foreign shareholding of up to 70%to act as local agents).
In general, appointing a local agent is a rather straightforward process. It requires the signing of a commercial agency agreement (which may have a non-exclusive character) between the parties, and subsequently, the agent registering the agreement with the Ministry of Commerce and Industry. Also, following theamendments to the law introduced by Royal Decree No. 34/2014 the agency agreement between the principal and agent can clearly provide for the conditions for termination of such contract, as opposed to the previous wording of the law which allowed a foreign principal to terminate the agency agreement without having to pay a compensation only if the registered local agent was in breach of the agency agreement.
2. Branch office of a foreign company
To start with, it’s important to note that only foreign companies performing a contract for the government entity of Oman are allowed to register a branch office in the Sultanate. Establishing a legal presence through a branch is an attractive model as there are no minimum share capital requirements, a branch may be fully owned by the foreign mother company (i.e. the foreign company reserves a sole control over the entity that receives payments under the governmental contract) and the administrative set-up process is considerably easier and more expeditious than forming a company in Oman.
On the other hand, a branch office lifespan is duration of the government contract under which the client is providing services in Oman, and a branch commercial registration will expire with the main contract completion or termination; naturally the registration period may be extended, dependent on the foreign company securing a new government contract prior to the expiration of the contract under which the branch was established. Additionally, a branch will have a limited scope of services it can perform in the Sultanate, narrowed to the services listed under the government contract itself and will not be allowed to service the private-sector. The latter is derived from the fact that, for liability purposes, a branch office is not considered to be a separate legal entity from the foreign mother company.
3. Limited liability company
A limited liability company (an LLC) is most often chosen by foreign investors due to a fact that it may continue to exist indefinitely, service both private and government clients, as well as having a shorter registration process, and costing less to establishing comparison to other entity that a foreign company may form with a local partner, i.e., a joint stock company (which is required under Oman law for conducting business in certain fields, e.g., insurance or investment companies). Notably, LLCs are not required to be listed on the Muscat Securities Market in Oman and they must comply with less procedural, disclosure and corporate governance requirements than joint stock companies. An LLC is formed by at least two and no more than forty natural or legal persons, with the minimum registered capital of OMR 150,000 (approx. 390,000 US Dollars) for foreign ownership.
A foreign investor may own up to 70% of an LLC’s equity, however, the allocation of the capital contribution and the distribution of profits may be altered in the shareholders agreement. Furthermore, the foreign shareholding ratio may be increased to 100% subject to the Oman Council of Ministers approval, usually dependent on the following factors: (i) the foreign investor can demonstrate that the entity is in need of expertise which is not readily available in Oman; or (ii) the foreign investor is participating in the development of the economy by investing substantial capital in the country.
Importantly, an Omani limited liability company may be fully owned by GCC or American (assuming the LLC is covered under the US-Oman Free Trade Agreement) natural persons or corporate entities, and the minimum registered capital of OMR 20,000 (approx. 52,000 US Dollars), typically reserved for the fully Omani owned local companies.
C. Hiring national workforce
The state of Oman has rigid restrictions on the number of foreign nationals permitted to work within its borders, especially if there are Omani citizens available to fulfill these roles. Foreign nationals hoping to work in Oman require an employment visa, to obtain such, a foreign national must be aged between 21 to 60 and the employer must secure a labour permit issued by the Oman Ministry of Manpower (Ministry of Labour) for each foreign employee.
Since 1988 the Ministry of Manpower has espoused a policy commonly referred to as “Omanisation” which is essentially a set of guidelines specifying the quotas of Omani nationals required to be employed by private companies operating in various sectors (and as a percentage of the overall work force). The “Omanisation” percentages are updated from time to time based on further directives issued by the Ministry of Manpower, certain specified categories of employment are reserved exclusively for Omani nationals. “Omanisation” can be a hurdle for multi-nationals and foreign companies looking to establish a business presence in Oman, as the inability to attract and retain the requisite numbers of Omani nationals can have adverse consequences. Recently, the Ministry of Manpower issued a Ministerial Decision No. 38/2018, which imposed a six-months’ ban on hiring expat employees in eighty-seven different occupations, falling under the sectors of information systems, sales, marketing, administration, insurance, media, airports, engineering, technical professions, and human resources.