Introduction -The Sultanate of Oman is characterised by political-economic stability. Oman has 3.1 million inhabitants, of which almost a quarter are immigrants (mostly from India and Pakistan). Spoken language is Arabic, but English is widely spoken. Oman’s economy flourishes while being mainly dependent on oil- and gas exports. The government pays much attention to economic diversification; privatisation and foreign investments are considered very important. Oman has been a member of the World Trade Organisation (WTO) since 2001. The currency, the Omani Rial, is linkedto the American dollar.

Knowledge of and interest in Oman are appreciated. Showing respect is very important, status is important. Agreements are concluded on the basis of friendly relations; therefore take time to build up relations. Be prepared to discuss your business subject, but don’t cut into this immediately.

Oman in brief: oil and gas (LNG), ports, education, low inflation, steady economic growth, modern economic politics, moderate political course, (de facto) separation of state and religion, rule of law.

Trade with Oman - Most companies start their trade relations with Oman on the basis of simple trade operations, where the Omani purchaser is responsible for customs clearance (in the case of goods). If a more durable trade relation is needed, it is logical to appoint one or more local agents. If a legal entity is needed, several choices are available: a branch-office, a commercial representative office, or a participation in a local legal entity.The current customs tariff on import is 5% of the CIF-value, with few exceptions, such as luxury-goods, for which a tariff of 15% can apply. No tax on the added value (VAT) or (personal) income tax exists in Oman.

Local agent – In general a local agent ensures promotion, distribution, sales and after-sales services. The appropriate local legislation is found in the (Commercial) Agency Laws which regulate the relation between Omani agent and foreign actors.

Both a natural person (of Omani nationality) and a legal entity (at least 51% Omani participation in company capital) can act as an agent. The most important conditions that have to be met are its recording at the Ministry of Trade and Industry (MOCI), registration in the Commercial register of the Chamber of Commerce and if necessary the Tender Board.

An agreement which is closed between two parties has to meet certain requirements from the Agency Laws. Agreements on commission or methods of payment are of course entirely a contractual matter. As a rule, an agency agreement should imply that the agent will not represent products of third parties which can be considered as competitive.

It is important to know that an agency contract cannot always be terminated in a simple manner. Suspension of a contract or not extending a contract by one of the parties can only occur on the basis of legally founded reasons and in accordance with the notice as prescribed in the agreement. The most uncomplicated manner of concluding a contract with an agent is when it finishes by right, irrespective of built network. Cancellation is more cumbersome when, for example, the agent is not functioning properly.

Our experience is that unilaterally terminating a contract can result in a lot of legal problems. A once closed agreement can be compared with to a "Catholic Marriage". Unilateral suspension of a contract is not usual. The common vision is that it takes two sides to make an agreement; therefore it takes the same two sides to break the agreement.

If an Omani Court of Justice decides that a contract was not terminated on the right legal grounds, it will grant compensation to the agent. These are calculated by taking into account the past sales figures of the agent (often taking into account 3 years of sales) and an average of the annual commission or profit received by the agent. The court will in the end decide on the exact amount of compensation. It’s important know that although an agreement can contain legal aspects arising from foreign legislation, in general an Omani Court will not accept this, and will treat the agreement as being completely under Omani law. It is also important to know that any agreement will have to be presented with extensive documentation in Arabic. If a case ends up in court, the judge will pass his judgment on the basis of proof from written documentation; verbal agreements carry no weight.

The most important lesson from the previous is that it’s important to be careful when selecting an agent. One good start is to make use of local professional legal advice.

Investing in Oman – Local legal entities

The most commonly used company entities are:

-joint stock company (SAOC or SAOG)
-limited liability company (LLC)
-general partnership
-limited partnership
-sole proprietorship
-foreign branch
-joint venture

The LLC and the Joint Stock Company are the most common company forms to be found in Oman. Below we will explain the following three entities: the LLC, the commercial representative office and the foreign branch.

The Limited Liability Company (LLC)

An LLC is a private company, formed by a minimum of two and a maximum of 40 legal persons, whose liability is restricted to the nominal value of their share in the company capital. If you want to participate as a company in an Omani venture as such, there are a number of matters which are important to you. First of all this is the percentage of foreign participation in Omani legal entities, which is by 1 January 2001 a maximum 70%.

Each foreign company that wants to engage in commercial, industrial or tourist business in Oman has to obtain a licence of the Ministry of Trade and Industry (MOCI). Moreover you must familiarise yourself with the so-called Foreign Capital Investment Law (FCIL). This law is considered as an addition to the other existing Omani company laws.Concerning commercial legal entities within the Sultanate Article 2 of the FCIL describes the conditions that have to be met to be able to obtain a license. If a foreign company wants to participate in an LLC, the minimum capital input is 150.000 Omani-riyal.

Concerning the taxes; for registered companies with mixed ownership, a current tax tariff of 12% applies to taxable profits in excess of 30.000 Omani Riyal, provided the foreign participation in shares does not exceed 70%.

When foreign ownership exceeds 70%, in some cases a higher tax tariff of 30% is applied (over taxable profits more than 100.000 Omani Riyal). Apart from this no taxes are levied on personal income or profit. Some companies enjoy "tax holidays” as a result of an agreement with the Omani authorities. For more details get in touch with the Dutch embassy or have a look on the Internet site of the Omani Chamber of Commerce   www.chamberoman.com

Commercial Representative Office

Foreign companies whose activities are related to commerce, industry or tourism are permitted to use so-called commercial representative offices to represent them in Oman. A representative office has to be registered in the Commercial Register. CRO’s cannot import or distribute goods; they are there only for the introduction of a product and/or establishing contacts. These are not direct contacts with consumers but with the potential importers of the product.

Advantages to setting up a representative office:

-          Relatively easy contact because of local know-how with potential customers in the private  and public sector for possible introduction of a foreign product;

-          Contact with exporters and salesmen of for example raw materials, semi-finished products and facilities for fast delivery;

-          Relatively efficient notification possible in case of complaints concerning the product or regarding problems with respect to distribution.

Foreign Branch

Finally there is also the option of setting up a so-called Foreign Branch, which is subject to a number of conditions.Foreign companies, involved in doing business with Oman by means of branch-office don’t have to fulfil the requirements that are set out by the aforementioned FCIL.

A foreign company can set up a branch office under the following conditions and in accordance with with the conditions from the Commercial Register Law;

-          The company must have closed a special agreement for that purpose with the government;

-          The local entity has to be set up by Royal Decree

-          In some cases setting up of an FC is allowed on the basis that the production of the future company is essential to the national economics of Oman;

-          In some cases setting up of an FC is allowed for companies that have a local agent in Oman;

-          Foreign branches must have an Omani sponsor;

-          Foreign branches are taxed more than local companies: up to 30% of their annual profit made in Oman.