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The New Foreign Capital Investment Law in Oman


Prologue

In the last decade, the Gulf Cooperation Council (GCC) has witnessed some legislative developments signalling efforts to reduce barriers to foreign investment in most of its member countries. The move has come due to a sharp decline in crude oil prices since 2015 resulting in significantly lower state revenues and partly due to the simmering discontent amongst the populace in wake of the Arab Spring. Much like its more powerful neighbours Saudi Arabia, Qatar and the United Arab Emirates, Oman has also embraced policies liberalising foreign investment.

New legislation

On 1 July 2019, the late Sultan Qaboos, the then ruler of Oman, issued Law No. 50/2019 enacting the new foreign capital investment law (the “New FCIL”) that became effective later on 1 January 2020. The New FCIL replaces the earlier foreign capital investment law that was enacted under the Law No. 102/1994 (the “Old FCIL”). The Ministry of Commerce and Industry (the “MOCI”), being the corporate regulator in Oman, will issue executive regulations under the New FCIL (the “New Executive Regulations”) in July this year. The New Executive Regulations are expected to be significantly different from the executive regulations issued under the Old FCIL. Until the issuance of New Executive Regulations, the executive regulations under the Old FCIL will continue to the extent that they do not contradict the provisions of New FCIL

Key features
  • The Old FCIL restricted foreign investors to conduct any commercial activity in or from Oman without establishing a formal presence by way of a legal entity (commercial company or a branch office) or a local commercial agent. Under the Old FCIL, the maximum ceiling of foreign ownership was restricted to 49% of the share capital of a commercial company which was later increased to 70% upon Oman’s accession to the World Trade Organisation (the “WTO”) However, there were certain exceptions to this condition. GCC and US citizens and companies owned by them were generally allowed to have 100% ownership. Foreign investors setting up special projects (with a minimum capital of OMR 500,000, or equivalent US$ 1.3 million) contributing to the national development were also exempted from the maximum ownership rule provided they had prior approval of competent body. The foreign investors setting up businesses in one of the several free zones were also allowed to have 100% ownership. The New FCIL has abolished the shareholding restrictions on foreign investors (both natural and juridical persons) - effectively removing the requirement of having an Omani shareholder. The foreign investors will now be allowed to have 100% ownership in a wide range of permissible businesses though the fees payable for registration of such companies is set at OMR 3500/- which is considerably more than the fee that was payable by foreign investors for incorporating companies under the OLD FCIL.
  • The Minister of Commerce and Industry has issued a negative list setting out a list of 37 business activities in which foreign investment is prohibited. These activities include translation and interpretation services, bespoke tailoring, laundry services, taxi operating services, rehabilitation centres, etc. [the full list is attached as annexure 1]
  • All the benefits, incentives and guarantees granted to foreign investment projects under the Old FCIL shall continue until such time that such benefits, incentives and guarantees expire. The investment projects will be subject to the laws of Oman and international treaties in force concerning investments and avoidance of double taxation.
  • The provisions of the New FCIL shall not affect existing legislation related to GCC investments, the free zones (including the Special Economic Zone at Duqm) and the Public Establishment for Industrial Estates.
  • An Investment Service Centre (the “Centre”) will be established at the MOCI. The Centre is tasked with carrying out licensing and easing the procedures relating to grant of licences, permits and other consents required for an investment project. The Centre will also be responsible for issuing foreign investment licences to foreign investors.
  • An economic viability study would need to be approved by the MOCI under the New FCIL. It is not yet clear whether this requirement would apply to all foreign investments or just the projects.
  • The ministerial cabinet may, acting upon the recommendation of MOCI, grant a single approval (covering construction, manpower and other relevant approvals) to establish, operate and manage strategic development projects involving public facilities, infrastructure, new or renewable energy, roads, transport & ports. The New Executive Regulations shall set out the rules and procedures for grant of such approval.
  • The New Executive Regulations shall also specify the nature of investment projects that may be exempted from taxes and customs and non-customs duties and the duration of such exemptions. The investment projects may also enjoy additional benefits and exemptions at the sole discretion of the ministerial cabinet.
  • The courts of Oman will have jurisdiction to hear any dispute between an investment project and third parties. The courts will hear such disputes on an expedited basis. The disputes may also be resolved through arbitration. Although the dispute resolution mechanism seems unclear at the moment due to reference to both litigation and arbitration simultaneously, it is expected that the New Executive Regulations will clarify the position.
Future

While we await the New Executive Regulations to clarify certain points including the much-speculated minimum capital requirement for foreign investors to establish a commercial company in Oman, the New FCIL has indeed liberalised the foreign investment regime in the country to much extent – in particular by allowing 100% foreign ownership for most business activities.

Although the move towards liberalisation of foreign investment is largely being driven by lower crude oil prices, it seems that the policymakers in Oman have recognised that simply being open to foreign investments is not enough to diversify the economy. The International Monetary Fund, Organisation for Economic Cooperation and Development and World Economic Forum have noted that “FDI [foreign direct investment] can boost growth by triggering technology spillovers, promoting knowledge, creating a more competitive business environment, and enhancing productivity.”[1] Past studies have consistently shown that FDI contributes to both productivity growth and income growth in the domestic market beyond what domestic resource mobilisation could alone achieve[2]. The FDI inflow into Oman reached US$ 4.1 billion in 2018 (showing an increase compared to 2017 from US$ 2.9 billion[3]). Free zones (such as the ones in Duqm, Sohar and Salalah) have proven the economic effects of allowing foreign investment. For Oman, foreign investment outside of the oil sector presents a real opportunity to advance domestic knowledge and develop additional competitive and value-add sectors.

Hitherto, the Omani state has been the primary investor in the local market and developer of mega infrastructure projects across the country. The New FCIL coupled with progressive policies towards economic liberalisation has the potential of diversifying the economy and paving the way for the private sector (including foreign investors) to play a bigger role in the development of Omani economy and reap the benefits out of it.

[1] IMF, “Trade and Foreign Investment—Keys to Diversification and Growth in the GCC.” 6 December 2018.

[2] OECD, “Foreign Direct Investment for Development.” 2002.

[3] UNCTAD, “World Investment Report 2019.” 2019.

Annexure 1
No. Activity Code
1 Services of photocopying and typing of documents 821902
2 Translation and interpretation activities 749009
3 Transactions clearance 829902
4 Tailoring of Arabic menswear (menswear tailoring shops) 141004
5 Tailoring of non-Arab menswear 141005
6 Tailoring of Arabic and non-Arab women's clothes 141006
7 Tailoring of sportswear 141007
8 Tailoring of military uniforms 141008
9 Manufacture of Omani kimmah 141010
10 Manufacture of women's Abaia (gown) 141011
11 Electrical repairs of motor vehicle and recharging of batteries 452003
12 Repair and clean of vehicle radiators 452004
13 Wheel balance 452006
14 Service stations of washing and lubrication of motor vehicle 452007
15 Change oils of motor vehicle 452008
16 Repair of motor vehicle air conditioner 452009
17 Repair of exhaust sound for motor vehicle 452010
18 Washing and polishing of motor vehicle 452011
19 Tyre and tube repair 452005
20 Transport and sale of drinking water 360003
21 Labour recruitment offices 781001
22 Employment placement offices 781002
23 Driving training 854903
24 Laundering of all kinds of clothing (including fur) and textiles 960101
25 Ironing of clothing 960103
26 Laundry steam (dry wash). 960104
27 Hair trimming and cutting, hairdressing, shaving and beard trimming for men 960201
28 Hairdressing and other beauty treatment for women 960202
29 Hair trimming and cutting, hairdressing for children 960203
30 Taxi operation 492201
31 Marine fishing 031101
32 Freshwater fish fishing 031201
33 Education for handicapped 854901
34 Homes for the elderly 873002
35 Orphanages 879001
36 Rehabilitation centres 879003
37 Specialized rehabilitation centres 872001


Authored by PartnerArsalan Tariq.
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