Doing business
Setting up a company
Trowers & Hamlins’ Kate Marshall and Andrew Slucky explain
the process of establishing a presence in the sultanate
To do business in Oman, it is necessary for any foreign individual,
partnership or company to comply with laws governing foreign business activity; in particular, the Foreign Capital Investment Law.
There is no such thing as an off-the-shelf company in Oman. Every
firm must be specifically incorporated and is subject to express
authorisation regarding foreign investors. This is neither a simple nor
a quick process and requires a significant amount of documentation.
There are several options available to a business looking to establish a presence in Oman. The most appropriate entity will generally
depend on the size of the business, the individual needs of the parties involved, the administrative burden the business is prepared to
undertake and the desired shareholder base of the business.
There are three types of company under Omani law: the limited
liability company (LLC); the closed joint stock company (Societe
Anonyme Omanaise Close – SAOC ); and the open joint stock company (Societe Anonyme Omanaise Generale – SAOG). Brief details
of these entities are set out below.
Types of company
LLC
“There is
no such
thing as an
off-the-shelf
company
in Oman”
22 Doing business in Oman
An LLC is the most popular company format in Oman. It must have
a minimum of two and a maximum of 40 shareholders. The company may only undertake activities set out in the objects contained
in the LLC’s constitutive contract (similar to memorandum/articles
of association). The minimum capital of an LLC with a foreign shareholding is RO150,000 ($390,000).
Foreign shareholders may own up to 70 per cent of the shares in
the LLC, except for GCC or US shareholders, which can own
100 per cent of the shareholding. Foreign shareholders seeking
more than 70 per cent ownership must obtain approval from the
Council of Ministers, following a recommendation by the Ministry
of Commerce and Industry (MCI).
Shareholders from GCC member states and the US, who benefit
from a free trade agreement between Muscat and Washington, may,
at the discretion of the MCI, have a 100 per cent shareholding.
An LLC is less regulated than an SAOC or SAOG and is also easier to operate on a daily basis. The management of an LLC is carried
out by a manager, or managers, who must be natural persons (rather
than companies, etc) and may or may not be shareholders. Omani
law does not provide for an LLC to have a board of directors,
although a board can be established by way of contract, such
as a shareholder agreement.
The LLC structure suits a small operation with a limited number
of promoters.
SAOC
Both the SAOC and SAOG are joint stock companies. The two differ
in that an SAOC is a ‘closed’ company, whereas an SAOG is listed on
the Muscat Securities Market (MSM).
An SAOC:
■ requires a minimum of three shareholders
■ must have a board of directors
■ requires a minimum capital of RO500,000
Foreign firms: Establishing a presence in Oman requires complying with the Foreign Capital Investment Law
Doing business in Oman 23
doing business
“The board
of an SAOG
must comprise
a minimum
of five and
a maximum
of 12 directors”
■ only requires shares to be partially paid-up (an LLC’s shares must
be fully paid-up on incorporation)
■ must appoint an auditor
■ is subject to greater statutory regulations. For instance, an SAOC
must have statutory meetings at certain intervals
SAOG
An SAOG’s shares are listed on the MSM and are freely transferable.
The minimum capital for an SAOG is RO2m.
As would be expected for a public company, this structure carries
a much greater regulatory burden and cost than either an LLC or
SAOC, and is highly regulated. SAOGs must comply with a mandatory Code of Corporate Governance, as well as the disclosure rules
set out in the Executive Regulations of the Capital Markets Law.
The board of directors of an SAOG must comprise a minimum
of five and a maximum of 12 directors. One third of the board must
be independent.
Steps for establishing a company
LLC
Step 1 Name reservation – the MCI needs to approve the name for
the new company. Under Omani law, a new company cannot have
a name similar to that of an existing one. The MCI also requires
a higher starting share capital for companies with certain words,
such as “Oman”, in their name.
Step 2 MCI application – this involves preparing and obtaining
several documents, including:
■ foreign shareholder documents – each shareholder (if a corporate
entity) must provide its constitutional documents, certificate of
incorporation, board resolution and power of attorney
■ and/or Omani shareholder documents – each shareholder must
provide an MCI computer printout, certificate of registration,
authorised signatory form and Oman Chamber of Commerce and
Industry (OCCI) certificate and shareholders’ resolution
■ a constitutive contract and an authorised signatory form, which
form a part of the constitutional documents of an LLC
■ a bank certificate – this is obtained from a bank in Oman and is
used as evidence of compliance with the LLC’s capital requirements
Step 3 OCCI registration – this is the final step of the registration
process and is obtained immediately on the MCI completing its registration of the LLC.
24 Doing business in Oman
Step 4 Approvals – depending on the LLC’s intended business
activities, further governmental approvals may be required.
Step 5 Post registration – once the LLC is registered the company
will need to organise and obtain:
■ a municipality licence
■ tax registration
■ registration with the Royal Oman Police
■ registration with the Ministry of Manpower, to apply for labour
clearances and visas
■ import/export licence, depending on the nature of the business
■ industrial, environmental and other permits and licences,
depending on the nature of the business
Omanisation targets: The government aims to boost the number of Omani nationals in the workforce
Doing business in Oman 25
SAOC/SAOG
The processes for establishing an SAOC or SAOG are similar to
that of an LLC, but are longer and more document-intensive, especially for an SAOG.
Step 1 Name reservation – this is the same as for an LLC.
A search will be conducted at the MCI to ensure the proposed
name is permissible.
Step 2 Constitutional documents – the proposed constitutional
documents of the company (the memorandum and articles of association) must be drafted and translated into Arabic. The drafts are
then taken to the MCI for review. The MCI may seek to negotiate
certain details and must approve the form of the draft.
Step 3 Application for administrative decision – prior to the formal
application for company formation, approval must be obtained
from the Director General of Commerce (and the Capital Market
Authority for an SAOG). The documents listed below must be prepared and filed with the MCI:
■ covering letter in Arabic
■ final constitutive contract and articles of association
■ foreign shareholder documents (similar to those documents
required for an LLC)
■ Omani shareholder documents (similar to those documents
required for an LLC)
Step 4 Constitutive general meeting and board meeting – the
SAOC/SAOG is required to hold a constitutive general meeting to
elect the board of directors for the company, formally approve the
constitutive contract and articles of association, appoint auditors,
approve any related party transactions and approve the founders’
committee report, which details the formation process and preincorporation expenses. Notice of the constitutive general meeting
must be published in the local press, unless that requirement is
waived by all shareholders.
A board meeting is then held to appoint authorised signatories,
a chairman and a vice-chairman, and to approve submission of the
application to the MCI. Signed board minutes are required for the
next step of registration.
Step 5 MCI commercial registration – the MCI application form
must be completed in Arabic. The application form must be signed
by all authorised signatories.
Step 6 OCCI registration.
26 Doing business in Oman
SAOG For an SAOG, a further complexity is the requirement of
undertaking an initial public offering.
Alternative structures
Under Omani law, non-Omanis, whether natural individuals
or corporate entities, cannot conduct business of any type in
Oman without either a registered legal presence, in the form
of the structures outlined above, or through one of the following
business structures:
■ branch office
■ commercial representation office
■ commercial agency
■ general partnership
■ limited partnership
■ holding company
Branch office
A foreign company that has entered into a contract with a government entity or quasi-government entity is entitled to register and
operate in Oman as a foreign branch.
The branch registration is dependent upon the term of the government contracts, which must also be registered. The branch
office is not normally entitled to seek and carry out business within
the private sector.
A branch office is a ‘footprint’ of the foreign company in Oman.
Accordingly, this kind of corporate entity requires neither share
capital nor a local partner, and the foreign company remains liable
for all of the debts and other liabilities of the branch office.
Agency and distribution
Oman has many well-established local commercial and trading companies, some of which have grown into sizeable conglomerates with
extensive local, regional and international business interests.
Many of these entities are used to acting as agents or distributors
for overseas companies. Foreign investors who wish to appoint an
agent or distributor need to draft the agency or distribution agreement with care and take legal advice on the background legislation
to these forms of contract.
For example, Oman’s Commercial Agencies Law offers an agent
significant protection from the termination of its appointment by
an overseas principal.
“Failure
to meet
Omanisation
targets can
give rise to
the company
being fined”
Doing business in Oman 27
Investment: Oman is an evolving market for a broad spectrum of businesses
Other considerations
Once a company is established, it will need to apply for work permits and labour clearances. The process of applying for work permits for expatriates is tightly regulated by the Ministry of Manpower
and is granted upon certain conditions being met, including the
skills of the proposed employee, as well as with regard to the state’s
Omanisation policy (the aim of Omanisation is to limit the sultanate’s dependence on expatriate staff – different sectors of industry are
given different Omanisation thresholds). Failure to meet Omanisation targets can give rise to the company being fined, as well as being
blocked from carrying out labour clearances.
The current rate of tax for all Omani companies, regardless of foreign ownership, is 12 per cent on earnings above RO30,000.
28 Doing business in Oman
Conclusion
The process and length of time attributed to incorporating a company in Oman can vary and sometimes unforeseen hurdles can arise.
However, the country is an evolving market for a broad spectrum
of businesses. The government of Oman aims to develop its economy through a series of five-year plans, under the umbrella framework known as Vision 2020. The government is committed to
steady progress, diversification and the involvement of the international and local private sectors, and the legal framework is continually developing to improve and support foreign investment.
As a law firm, we believe Oman remains a country full of possibilities for investors.
About the writers
Kate Marshall (pictured) is
a partner in Trowers &
Hamlins’ Muscat office.
With input from Andrew
Slucky of Trowers & Hamlins in London.
Tel: (+968) 2 468 2900
Web: www.trowers.com
Doing business in Oman 29