Ravinderjit Dhillon of Al Busaidy Mansoor Jamal & Co in Muscat looks at the issues facing foreign investors in Oman
Restrictions on foreign investment
Under the Foreign Capital Investment Law (Royal Decree 102/94), non-Omani nationals and entities wishing to (i) engage in trade or business in Oman, or (ii) acquire an interest in the share capital of an Omani company, must obtain a licence to do so from the Ministry of Commerce & Industry (MOCI). In principle, foreign nationals and entities are permitted to own up to 70% of the share capital of an Omani company, but the MOCI has recently introduced more stringent requirements for the grant of a licence to foreign investors such as:
(a) the foreign investing entity must have been in existence for at least three financial years; and
(b) any company to be incorporated with foreign participation must provide evidence to the MOCI’s satisfaction , that the monies deposited to subscribe for the share capital have been transferred by the partners in their respective proportions.
An application from a foreign investor to the MOCI to incorporate an Omani entity or acquire an interest in the share capital of an Omani company will be referred to an investment committee which will consider, inter alia, (i) whether the foreign investor is financially sound, (ii) whether the investment is beneficial to the Omani economy and (iii) the level of Omani participation in the company.
A consequence of the more stringent requirements and the investment committee consultation process is that the time taken to incorporate a new company with foreign participation or to register a share transfer to a foreign investor has increased from 5-10 working days to up to a month in the case of a limited liability company (LLC) for example.
GCC nationals (or companies 100% owned by GCC nationals) are permitted to establish 100% owned business entities in Oman for most activities. Approval for 100% non-GCC foreign ownership may be granted by the Council of Ministers upon application to the minister of the MOCI, or through sector-specific Royal Decrees such as the Sector Law (Royal Decree 78/2004) (Sector Law). The Council of Ministers reserves its approval for 100% foreign participation: (i) where foreign participants can demonstrate that they will be introducing technical expertise which is not readily available in Oman; or (ii) if the foreign participants will be contributing to the development of the national economy and will be investing substantial capital in the country; and (iii) will create job opportunities for Omani nationals. Such application can take up to six months to be considered.
The preferred corporate vehicles for foreign investors to conduct business in Oman are LLCs, joint stock companies and branch offices. Foreign companies that wish to conduct business in Oman without establishing a presence may do so by appointing a local agent.
A branch office can be established in accordance with the Commercial Register Law (Royal Decree 3/74). A foreign company will be permitted to establish a branch office provided:
(i) the company has been awarded a contract by a government department or agency in Oman and a branch is being registered for execution of such contract; or
(ii) a branch is permitted for a specific type of business under applicable law in Oman. Currently, foreign banks, financial services providers, engineering consultancy firms, insurance companies and audit firms are permitted to establish branches.
A free trade agreement between Oman and the United States came into force on January 1 2009, pursuant to which US-incorporated entities are permitted to set up 100% owned companies in Oman.
Recent legislative changes
The Civil Transactions Law (Royal Decree 29/2013) (Civil Code) was introduced with effect from August 2013. The Civil Code articulates the basic principles of the law of obligations (mainly contract and tort) and supplements pre-existing legislation dealing with a range of matters including mortgages and pledges.
Greater clarity is now available for Omani courts in respect of regulating and providing for the creation and enforceability of security interests for the benefit of lenders and lending in Oman. The Civil Code now provides specifically for assignment, novation and the right of set-off all of which are important in transactions undertaken in Oman particularly for banks seeking to exercise their rights of step-in and/or enforcement of other security interests.
The Civil Code also sets out circumstances in which contracts may be terminable i.e. non-binding contracts, termination of contracts in case of deceit, fraud, and mistake. In addition, the Code stipulates that if the purpose of a contract is found to be contrary to Shariah Law, Oman public order or morals, it will be considered void from the outset.
The Civil Code also enshrines, for the first time under Omani law, the right of a contracting party to seek a remedy in specific performance where a claim for damages may not adequately recompense him for his loss.
The Tender Law (Royal Decree 36/2008) (“Tender Law”) has been amended by Royal Decree 60/2013 pursuant to which:
(a) companies that are “independent bodies corporate owned fully by the Government” have been removed from the scope of the Tender Law regime in relation to the award of contracts of procurement, supplies, consultancy services etc.; and
(b) the authorisation limit of internal tender committees in administrative systems of the state and public organisations other than security and defence units has been increased from OR1 million to OR3 million.
It should be noted however that the Tender Law will continue to apply to “independent bodies corporate owned fully by the Government” until a new tender law pertaining to such companies is issued. Until then internal tender committees in such bodies will assume the jurisdiction of the Tender Board.
In view of the government’s aim to increase the desalinated water supply, Royal Decree 47/2013 amended the Sector Law bringing stand-alone desalinated water projects under its remit alongside generation and co-generation projects.
Al Busaidy Mansoor Jamal & Co
About the author
Ravinderjit is a senior associate in AMJ’s corporate and capital markets team. He qualified as a solicitor of the Senior Courts of England and Wales in 2008 and joined AMJ from UK-headquartered international law firm, Wragge & Co in 2013. Ravinderjit has significant experience advising on cross-border acquisitions and disposals, investments, joint ventures and restructurings. In addition, he provides clients with general corporate advice on directors’ rights, duties and responsibilities, board and general meetings, company formation and shareholders’ rights. He has also gained a wide-ranging knowledge of banking, commercial property, employment and intellectual property issues through the corporate transactional process. He acts for private equity investors, venture capital houses, major corporates and management teams operating across a broad range of sectors including finance and investment, manufacturing and industry, technology, media, telecommunications and life sciences.
Ravinderjit was educated at the University of Essex, UK and the University of Nijmegen, the Netherlands. He speaks English and Punjabi.