DOING BUSINESS IN OMAN

Transcription

1 DOING BUSINESS IN OMAN

2 This document describes some of the key commercial and taxation factors that are relevant on setting up a business in Oman Background CONTENTS 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

3 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. Page 3

4 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. Page 4 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 %. 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.

5 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 Page 5 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.

6 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.. Page 6 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 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.

7 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. Page 7 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

8 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. Page 8 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

9 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. Page 9 The old tax law was applicable for the tax years up to 31st December 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.

10 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. Page 10 Tax Depreciation 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.

11 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: Page 11 Net taxable income Rate % First RO 30,000 0% Excess of RO 30,000 12% Petroleum Companies 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

12 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. Page 12 List of countries with whom Oman has entered into Avoidance of Double Tax Treaties (ADTT) 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

13 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. Page 13 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).

14 6-MISCELLANEOUS Carry Forward of Losses The losses are not allowed to be carried forward for more than five subsequent tax years. Page 14 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

15 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: Fax: Website: Page 15 Mailto: