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This document describes some of the key commercial and taxation factors that are
relevant on setting up a business in Oman
CONTENTS
Background
Country overview
Economic overview
Oman Commercial Laws/ Labour Laws
1. Choice of Legal Form a) Limited Liability Company b) General Partnership c) Limited Partnership d) Sole Proprietorship e) Holding companies f) Joint Venture
2. Taxation a) Corporation Tax b) Other Taxes c) Custom Duties
3. Tax Treaties
4. Employment
5. Withholding Taxes
6. Miscellaneous
7. Exemptions
GENERAL INTRODUCTION –BACKGROUND
COUNTRY OVERVIEW Geography Oman is the second largest country after Saudi Arabia in the Arabian Peninsula.
It stretches over 309,500 square kms, encompasses a diverse range of
topography, including mountain ranges, arid deserts and fertile plains. It shares
borders with the Republic of Yemen to the southwest, the Kingdom of Saudi
Arabia to the west and the United Arab Emirates to the north.
Advantages of investing in Oman:
Oman offers following advantages to the foreign investors to invest in Oman.
• Political stability.
• Liberal foreign ownership in companies permitted.
• Oman is rich in oil and gas.
• Capital and profits of a business entity is fully repatriable.
• No personal income-tax. All individuals can fully repatriate their savings.
Population:
The population of Oman is about 3.6 million out of which expatriates are about
900,000
Climate: The country’s climate, like its topography is diverse, with humid coastal areas and a hot, dry desert interior. Although rainfall is generally light and irregular, Dhofar province in the south catches the Indian Ocean monsoon that falls between June and September. Communications: Oman is linked with the rest of the world by the most modern telecommunications system. Oman has two International airports i.e. Muscat International Airport at Muscat and Salalah Airport at Salalah. Government and Constitution: The highest executive authority is the Council of Ministers deriving its power from His Majesty the Sultan, to whom it is collectively responsible. There are specialist councils, the MajlisA'Shura i.e. the Council of the People, the Government of the Capital and ministries.
Legal System:
The Sharia Law which is based on the Holy Quran is the general law of the land. To regulate and control its economic affairs, Oman has developed a comprehensive framework of laws and regulations.
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Language:
The official language is Arabic and all communication with government is generally required to be made in Arabic. English is generally used for all written communication between businesses.
Immigration:
Foreign nationals seeking entry into Oman are required to have visas, which may be obtained through an Omani sponsor from the Immigration Department of the Royal Oman Police. Amongst others, the following entry visas to the Sultanate are issued:
• Residence visa (investor visa, joining visa, family joining visa)
• Visit
• Tourist visa
• Transit visa (via airports, via sea, and truck drivers visa)
• Work visa (with companies and servant visa)
Major Exports and Imports:
Oman's major exports are oil and gas. Export earnings are also derived from export of dates and tourism. Major imports are motor vehicles, equipment, computer hardware/software, consumer products, textiles and foodstuffs.
Government policy on foreign investment in Oman
The Government has established Foreign Capital and Investment Law and guidelines for foreign investment in Oman.
ECONOMIC OVERVIEW General Economy:
Oman is a country in the Middle East. Current GDP per capita has expanded
continuously in the past 50 years. It grew 339% in the 1960s reaching a peak
growth of 1,370% in the 1970s scaling back to modest 13% growth in the 1980s
and rising again to 34% in the 1990s and in the last decade the GDP per capita
has witnessed a growth of 332.46% .
Finance:
The Central Bank of Oman is the apex body which acts as the official bank of
the government and supervises the finance in the banking sector. Central Bank
of Oman controls country’s monetary policy and regulates commercial banks
and foreign branches of the banks.
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OMAN COMMERCIAL LAWS/ LABOUR LAWS
Oman Commercial Laws
Regulation of business activity and investment in Oman is done through
various laws. The following are some of the important laws governing industry in
Oman
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1. The Commercial Companies Law
2. Foreign Capital and Investment Law 3. Banking Law 4. Insurance Law 5. Capital Market Authority Law 6. Oman Labour Law 7. Accounting and Auditing Profession Law 8. The Code of Corporate Governance for MSM Listed Companies
and Insurance Companies
It is obligatory for all business activities to register with the Ministry of
Commerce & Industry and also become members of the Oman Chamber of
Commerce and Industry.
Foreign Capital and Investment Law:
Non-Omani participation in the capital of a company is not allowed to exceed
70%. However, in certain exceptional cases, 100% of the capital of the company
is allowed to be owned by foreigner by the Ministry of Commerce and Industry.
The council of ministers on a recommendation from the Ministry of Commerce
and Industry may allow 100% foreign ownership in an Omani company subject
to fulfilment of the following conditions:
1. The capital of the company should not be less than RO.500, 000/-.
2. Projects contribute towards economic development.
OR
In case of direct government contract, a foreign company can register a branch
or 100% subsidiary.
Labour Laws
Regulatory Body
The Ministry of Manpower regulates the Oman Labour Law which governs the
working relationship between the employer and the employee. The Labour Law
governs work contracts, overtime pay, annual leave pay, worker/staff passage,
working hours, industrial safety, labour dispute, vocational training, etc. .
Working Hours
As per Oman Labour Law, total normal working hours are 48 per week. During
Ramadan, the hours of work will be reduced for Muslims employees to six hours
a day or 36 hours a week.
Overtime
If an employee is required to work for more than the normal working hours, he
will be entitled to overtime salary at 1.25 to 2 times his basic salary or
granted permission of absence from work in lieu of the extra hours of work
which he has done.
Minimum Wages
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The minimum wages for Omanis depending upon their qualifications have been
stipulated by Ministry of Manpower.
End of Service Benefits for Expatriate Staff
The employer has to pay end of service benefits to its foreign employees. The
end of service benefits is calculated on employee’s final salary and paid
accordingly
For the first three years of service; the equivalent of 15 days’ basic pay for
each year worked; and
For each subsequent year: the equivalent of one month’s basic pay
Leave Salary
An employee shall, upon completion of one year of continuous service with the
employer, have a right to an annual leave with full salary, for a period of thirty
days each year.
Social Security for Omani staff:
Social Security Law requires Omani employees working in the private sector to
be insured against old age, disability, death, and occupational injuries and
diseases. As per this law, private sector employers must make monthly
contributions to the Public Authority for Social Insurance at a rate of 18.5% of
each Omani employee’s monthly basic salary including the employer’s
contribution.
1-CHOICE OF LEGAL FORM Business Structures :
Following commercial entities can be registered with the Ministry of Commerce
and Industry.
a) Limited Liability Company b) General Partnership c) Limited Partnership d) Sole Proprietorship e) Holding companies f) Joint Venture
a) Limited Liability Company Foreign investors usually choose to conduct their operations in Oman through
limited liability companies (LLC). An LLC is a private company formed by a
minimum of two and a maximum of 40 natural or legal persons, whose liability
is limited to the nominal values of their shares in the company’s capital.
An LLC must register in the commercial register of the Ministry of Commerce
and Industry.
b) General Partnership A general partnership is formed by two or more individuals or entities who are
jointly and severally liable for the partnership’s debts. One or more individuals
manage a general partnership; these persons need not be partners.
The name of a partnership consists of the name of one or more partners and
the designation “general partnership”. General partnerships must register in
the commercial register of the Ministry of Commerce and Industry.
c) Limited Partnership
A limited partnership is formed by one or more general partners who are
jointly and severally liable for the partnership’s debts, and by one or more
limited partners whose liability for the partnership’s debts is limited to their
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contributions to the partnership’s capital. General and limited partners may be
either individuals or entities.
Limited partnerships must register in the commercial register of the Ministry of
Commerce and Industry.
d) Sole Proprietorship
Under the Foreign Capital Investment Law, foreign nationals may not operate
businesses except US nationals in Oman without Omani participation in
capital and profits. However, foreign nationals of Gulf Cooperation Council
(GCC) countries may do business in Oman through sole proprietorships.
e) Holding companies
A holding company is a joint stock company or an LLC that holds at least 51%
of the shares of another company (or companies) and thereby controls the
other company financially and administratively.
A holding company may not own shares in a general or limited partnership or
in another holding company. The capital of a holding company shall not be
less than RO 2 million.
A holding company must obtain a license from the Ministry of Commerce and
Industry and must include in its name the words “holding company” in all of
its papers, advertisements and other documents.
f) Joint ventures A joint venture is formed by two or more individuals or entities. A contract
governs the objective of the venture and the terms between its members. A
joint venture does not carry a name, nor does it have the legal status of a
business entity. It cannot be registered in the commercial register.
2-TAXATION
Tax is assessed on income that accrues to the tax payer. Income includes
business profits, interest, dividends, royalties, management fees and income of
any kind.
International Financial Reporting Standards and generally accepted methods of commercial accounting must be followed. The accrual method must be used to determine income, unless the SGT permits the taxpayer to use a different method. The following are the taxes levied by the government of Oman.
a) Corporate Tax b) Other Taxes c) Custom Duties
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a) Corporate Tax Income Tax Liability
Only Commercial Companies are liable to pay income tax in Oman. There is no
personal income tax, no sales tax or value added tax.
The Secretary General of Taxation at the Ministry of Finance is responsible for
the assessment and collection of income tax from commercial companies.
The old tax law was applicable for the tax years up to 31st December 2009.
The provisions of the new tax law that have been given in the following
paragraphs are effective from tax year 2010 onwards. As per the new tax law,
the executive regulations on various tax matters have been issued .
Tax Registration :
All abovementioned taxable entities must register with Income Tax department
by filling up a Business Particulars Form and enclosing various
registration documents.
Provisional Return of Income:
It is mandatory for all taxable entities to file within three months of their
financial year ending, provisional return of income and pay the income tax i.e.
the taxable entities have to make an estimate of taxable income for the
accounting year and pay income tax based on their own estimate of taxable
income.
Annual Return of Income and Audited Accounts:
Annual return of income along with audited accounts is required to be filed
within six months of the end of the financial year and should be accompanied
with the balance tax payable, if any.
Accounting Records
It is mandatory for the companies to maintain the accounting records along with
all supporting documents for a period of 10 years.
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Accounting Period
The tax payer can choose an accounting period ending of his own choice i.e.
it could be 31st December, 31st January or 31st March, etc .Once the tax year
is chosen it cannot be changed without the consent of the tax authorities.
A company may at the commencement of its operations prepare its accounts
for an accounting period of less than twelve months or for an
accounting period not exceeding eighteen months in respect of the first tax
year only. Thereafter, once the choice of accounting period is exercised, then
it cannot change accounting period unless it gets approval from the Secretary
General for Taxation.
In event of company being in liquidation, the accounting period may be for
less than 12 months.
Tax Depreciation
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Buildings and Civil works
4% on depreciation on buildings constructed with selected materials
15% on prefabricated buildings
100% on buildings used for hospitals and educational institutions
If used for industrial purposes the depreciation will be doubled for first 2
The depreciation is allowable on capital expenditure incurred in the
acquisition of the building used for the purpose of business
Plant and Machinery
33% annually for the first pool comprising: Tractors, cranes and heavy
machinery and plant similar in nature and use, computers, vehicles and self
propelling machines, fixtures, fitting and furniture. It also comprises
computer software and intellectual property rights.
10% annually for the second pool, comprising drilling rigs.
15% annually for the third pool, comprising any other machinery and plant
which is not included in the above points.
The depreciation will be calculated on the basis the depreciation base of that
pool which in turn represents the Written down value of the pool at the
beginning of the year added by the Additions to the pool and deleted by
Disposal value of the assets.
Corporate Tax Rates
Under the new Income Tax Law of Oman, income-tax rate applicable to
any business establishment, Omani company or Permanent Establishment
(i.e. foreign branch), for any tax year ending after 31st December 2009 would be
as under:
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Net taxable income Rate %
First RO 30,000 0%
Excess of RO 30,000
Petroleum Companies
12%
The rate of tax for tax payers engaged in petroleum exploration shall be 55% of
the taxable income in respect of any income derived from the sale of petroleum.
b) Other Taxes Oman does not impose estate tax, gift tax or dividends tax. Municipalities may
impose certain consumption taxes, including tax on the income categories
outlined below:
5% on hotel and restaurant bills
4% on hotels, motels and tourism restaurants
Tax at a rate of 2% on electricity bills exceeding RO 50 per month
Tax at a rate of 3% on lease agreements, payable by landlords
In addition, a border toll fee is levied on all vehicles across all the entry
points of the Oman border
c) Custom Duties
Customs duty levied at a flat rate of 5% on their cost- insurance-freight (CIF)
value. Consumer goods, including food stuffs are exempt from customs duty.
Alcohol and tobacco are subject to higher rates of duty.
3-TAX TREATIES
Avoidance of Double Taxation
Under the new Income Tax Law, companies which are liable to pay income
tax on their overseas income will be entitled to corresponding tax credit to
the extent of Omani tax on foreign income or the foreign tax paid whichever
is lower, in those cases where there is no Avoidance of Double Tax
Treaty between Government of Sultanate of Oman and Government of that
foreign country. Tax credit should be claimed within 2 years from the ending
date of the tax year in which the payment of income tax overseas was made.
Where there is an Avoidance of Double Tax Treaty (ADTT) between
the Government of Sultanate of Oman and Government of that foreign
country, then the Omani company will get suitable tax credit / relief in
Oman in accordance with the provisions of the relevant ADTT.
List of countries with whom Oman has entered into
Avoidance of Double Tax Treaties (ADTT)
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Presently, Oman has double tax avoidance treaties with following countries:
1. France 15. Canada
2. United Kingdom 16. Turkey
3. India 17. Syria
4. Pakistan 18. Republic of South Korea
5. Mauritius 19. Singapore
6. Tunisia 20. Belgium
7. Italy 21. Netherlands
8. Algeria 22. Thailand
9. Lebanon 23. Maldova
10. China 24. Vietnam
11. Yemen 25. Sudan
12. South Africa 26. Yemen
13. Seychells 27. Tunisia
14. Iran
4-EMPLOYMENT The government of Oman has issued visa procedures, which are aimed at
liberalizing the entry regulations into Oman. The salient features of the visa
procedures are as follows:
1. Citizens from countries mentioned in List Number One such as Austria,
France, Germany, Italy, United Kingdom and United
2. States of America will be eligible to obtain single entry visit visas on arrival
on all ports of entry into the country
3. Citizens from countries mentioned in List Number Two such as India, Iran,
Egypt, Tunisia, and Morocco will also be able to obtain single entry visit
visas by applying for the same at Oman’s diplomatic missions in the
respective country
4. Citizens of countries on either list can obtain multiple entry visit visas from
Oman’s diplomatic missions or Commercial Representative offices in
these countries.
5. It is however, not possible to extend this visa
6. In addition, for countries not covered under these lists, express visas can
also be issued within 24 hours of application
7. Certain new categories of visas such as tourist, multiple journeys,
employment, owners and joint owners are also available
8. In all cases, there is an overstay penalty of 9. RO 10 per day beyond the validity of the visa
Employers wishing to employ foreign nationals must obtain labour clearances and No Objection Certificates (NOCs) from the Ministry of Manpower. An employer may engage a foreign employee only in the jobs specified by the labour clearance. 5- WITHHOLDING TAX
As per the Income Tax Law in Oman, withholding tax shall be charged
at 10% on the following types of payments made by the companies who does
not have a permanent establishment in Oman :
Royalties
Consideration for research and development
The use of or right to use computer software
Fees in return for management
Categories of tax exempt income
The Oman Tax Law provides that the following two "Categories of Income"
would be fully exempt from taxation in Oman for all tax years.
Dividends received by the tax payer from the shareholding it owns in the
capital of any Omani company.
Profits or gains from disposal of securities listed in the Muscat Securities
Market (MSM).
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6-MISCELLANEOUS
Carry Forward of Losses
The losses are not allowed to be carried forward for more than five subsequent
tax years.
All companies who had availed tax exemption and engaged in certain activities
are allowed to carry forward losses to indefinite years until the losses are fully set
off.
Related Party Transactions
Related party transactions are closely examined by the Oman Tax Department
and they would normally require documentation to ensure that it is at an arms
length price and is reasonable considering the value of services received. As per
the new Income Tax Law, the executive regulations governing the transfer
pricing rules in Oman would be issued in due course.
7- EXEMPTIONS
Income that is derived by all business establishments and companies operating in
Oman from the following the activities are exempted from tax
Industry
Mining
Companies that export locally manufactured or processed goods
Hospitality Business
Farming, including animal farm and agricultural products.
Fishing Business
Educational Institution & Private Hospitals
SIGN OFF & DISCLAIMER
This document is provided as a general overview of matters to be considered
when setting up an overseas business in Oman . It is essential to take advice on
specific issues. No liability can be accepted for any action taken or not taken
arising from the information provided
Prepared By: Ibn Hyan DFK International Chartered Accountants
Created : May 2015
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For further information on the services available from IBN HYAN CHARTERED
ACCOUNTANTS the DFK INTERNATIONAL MEMBER firm in Oman
IBN HYAN DFK INTERNATIONAL
CHARTERED ACCOUNTANTS
Tel: 00968- 24562886 |00968 - 24652544
Fax: 00968- 24563558
Website: www.ibnhyan.org
Mailto: [email protected]
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