DOING BUSINESS IN THE
SULTANATE OF OMAN
1
Doing business in Oman
DOING BUSINESS IN THE
SULTANATE OF OMAN
2
DOING
BUSINESS
IN THE
SULTANATE
OF
OMAN
Although the greatest possible care has been
observed in drawing up this publication, the
possibility always exists that certain
information has in time become outdated or is
no longer correct. RSM & Co, therefore do
not accept any liability for the consequences
resulting from activities undertaken on the
basis of this publication. Consultation of an
expert remains necessary at all times.
International
Published by RSM & Co -The Sultanate of Oman - Updated January 2002
DOING BUSINESS IN THE
SULTANATE OF OMAN
3
CONTENTS
Why Invest In Oman 2
General And Economic Profile 3
Business Structures 9
Company Registration Procedures 12
Legal & Judiciary System 14
Grants And Incentives 16
Corporate Taxation 19
Range Of Services 29
Useful Contact Numbers 31
This guide is for private circulation only.
RSM & Co. is affiliated with PKF
International, an international association of
qualified professional Accountants and
Business Advisors, having over 150 member
firms in 107 countries.
DOINGBUSINESS
IN THESULTANATE
OFOMAN
In the Sultanate of Oman our staff look after
the needs of several clients with a wide
range of business interests. The quality of
our service depends upon the people who
provide it, so our practice is one built upon a
careful balance between responsiveness to
the requirements of our clients and the
highest professional standards of
independence and objectivity. This is
accomplished not only through the technical
competence of our staff, but by matching
specific expertise to the assignment in hand.
DOING BUSINESS IN THE
SULTANATE OF OMAN
2
WHY INVEST 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.
§ Committed to privatisation, industrialisation, economic diversification and
development.
§ Free trade and open market policy.
§ Low income tax rate structure for joint ownership companies and double taxation
relief treaties available with many countries.
§ Income tax holiday period of five years renewable for further period of five years,
available for business entities engaged in priority areas of economic development.
§ Geographically ideally located, proximity to Gulf, Asian and African markets.
§ Well regulated stock exchange.
§ Industries fulfilling certain conditions can get interest free / soft loans, exemption
from custom duty on import of plant, equipment and raw materials and export credit
insurance.
§ Government leased land available at a very nominal price, cheap utilities and natural
gas available in abundance for industrial purposes.
§ Modern infrastructure with good roads, airports, sea ports, and state of the art
telecommunications and other services.
§ English is used widely in day to day business and commerce.
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GEOGRAPHY
Oman is the second largest country after Saudi Arabia in the Arabian Peninsula. It
stretches over 300,000 KMS (120,000 Sq.Miles) in the south east corner, south of the
Strait of Hormuz with a long coast line of 1,700 kilometres. To the west, Oman is
bordered by Saudi Arabia and United Arab Emirates; to the south, the People's
Democratic Republic of Yemen; to the north, the Strait of Hormuz; and to the east, the
Arabian Sea. The total population of Oman, is about 2.1 million. Omani nationals are
1.5 million, and immigrant population is approximately 0.6 million comprising of
businessmen and employees mainly from India, Pakistan, Philippines, Sri Lanka,
Europe and other Arab countries.
COMMUNICATIONS
Oman is linked with the rest of the world by the most modern telecommunications
system. Oman has one International airport i.e. Seeb International Airport at Muscat.
There are several small airstrips located through out the country . Oman also has an
impressive network of roads connecting all the parts of the country and also links Oman
with U.A.E. Oman's main sea-ports are Mina Sultan Qaboos at Muscat and Mina
Raysut at Salalah which are fully equipped to handle ships touching these ports.
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 Majlis A'Shura i.e. the Council of the People, the Government of the Capital and
ministries.
CURRENCY AND EXCHANGE CONTROLS
The monetary unit of Oman is Omani Rial (R.O.). The Rial is divided into 1000 equal
units called Baizas. The Rial is tied to US Dollar, at the rate of Baizas 384.5 to US $ 1.
There are no exchange controls in any form on inward / outward investment or on
repatriation of capital and profits, either by nationals or expatriates.
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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.
AGRICULTURE AND FISHERIES
Agriculture and Fisheries receive a lot of importance in the country's development plans
as the livelihood of number of local Omanis particularly in rural areas comes from these
two sectors.
Within the framework of general objectives of agriculture development, the Ministry of
Agriculture and Fisheries have implemented several programmes for maintaining /
making available water resources in the Sultanate and finding new ones. The Ministry's
policy is to encourage specialisation in Agriculture in accordance with the water status
in each of the geographic sites in Oman.
REAL ESTATE
Foreign ownership of land is not generally permitted in Oman. Building permits are
required for construction of all types.
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 visa (trade mission, job contracting, family and friends visit, official visit, artiste
groups, express business visa)
§ Tourist visa
§ Transit visa (via airports, via sea, and truck drivers visa)
§ Work visa (with companies and servant visa)
For visit to neighbouring gulf states by road, road permits are also issued by the
Sultanate.
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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. There are 15 licensed
commercial banks operating in the country and there are over 25 exchange houses in
the country. All banks and exchange houses are regulated and governed by a detailed
banking law. Central Bank of Oman ensures strict compliance with this law by making it
obligatory for the banks and exchange houses to file periodical returns with the Central
Bank of Oman.
In addition to commercial banks, there are specialised banks in specific sectors viz.
Housing banks, Oman Agriculture and Fisheries Bank, Industrial Development Bank,
Oman Development Bank, etc.
There are companies who specialise in hire purchase and lease finance activities.
There are also investment banking companies and number of pension funds.
ECONOMY
Oman is an oil based economy with production of about 900,000 barrels per day,
accounting for about 70% of government revenues and contributing about 40% to the
Gross Domestic Product (GDP). Fluctuations in the global oil prices result in wide
variations in gross revenues and GDP. The GDP has increased from RO.6,011 million
in 1999 to RO.7,603 million according to initial estimates for the year 2000. The
ambitious Oman LNG Project was founded to exploit the country's proven gas reserves
and is expected to become a major non-oil revenue source, besides giving
encouragement for development of gas intensive industries.
The Economic Vision 2020 outlines Oman's development priorities and objectives on a
long term basis. These include balancing government finances, omanisation, doubling
per capita income, faster adoption of advanced technology, etc. The overall objective is
to develop a free diversified economy with a vibrant private sector, alongwith
ecologically sound and balanced economic development of all the sectors. The
government strategy for economic development is based on a series of five year
development plans, and the fifth five year development plan covering the period 1996 to
2000 had the primary goals of a balanced government budget, encouragement of the
private sector and diversifying the economic base of the country.
The government has embarked on an economic diversification policy that lays emphasis
on agriculture, fisheries, tourism, mining, public utilities, and manufacturing industries
that, use local raw materials and products, help in maximising value addition and are
export oriented. Although the non-oil sectors contribution to GDP has been steadily
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increasing over the years, Oman's dependence on oil is likely to continue in the years to
come.
Oman has been a leader in devising and implementing privatisation policy. The
government has given impetus to the privatisation plans to promote inward investment,
develop the basic services and mobilise private sector capital for developing the
infrastructure of the country viz. electricity, water, roads, telecommunications, airports,
sewerage, etc.
INDUSTRIAL DEVELOPMENT
Industrial development receives great importance in the country's development plans so
as to reduce Oman's heavy reliance on oil. A number of projects are engaged in
producing intermediate goods for construction, and a wide variety of manufacturing
goods are now produced in the country, ranging from food and beverages to furniture,
textiles, paper products, chemicals, fabricated metal products, electrical goods,
consumer products, etc.
New manufacturing industries have been growing through continuous encouragement
by the government through soft loans, cheap land, good infrastructure and facilities,
import duty exemptions, government sponsored feasibility studies, etc. The government
has also established industrial estates in Rusayl, Raysut, Sohar and Nizwa. The small
size of the local market and free imports are major constraints on development of the
manufacturing sector. The manufacturing sector contributes more than 5% to the GDP.
However, this contribution is expected to increase with plans to develop gas intensive
industries including a petro chemical complex, a fertilizer plant, an aluminium smelter
plant, etc. The government is actively promoting Sohar as an industrial Center, through
development of the Sohar port and providing incentives to the private sector. The
Omani Center for Investment Promotion and Export Development was established by
the government to promote private sector and foreign investments, and to support the
export of Omani products. The Center also acts as a one stop shop, offering various
services to investors including processing of proposals, assistance in raising finance,
facilitating / obtaining of licenses, approvals, exploring foreign markets / customers, etc.MUSCAT SECURITIES MARKET
Muscat Securities Market is the stock exchange of Oman. It was set up in 1989 with the
main objective to bring about the flow of funds in stocks for serving the national
economic interest.
It regulates the primary and secondary market of shares and bonds issued by joint stock
companies (SAOG) registered in Oman. All joint stock companies are required to be
members of Muscat Securities Market (MSM) and have their shares and bonds listed
with MSM.
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The market operates through licensed brokers and the activities of these brokers are
limited to portfolio management and underwriting primary issues. In 1999 Muscat
Securities Market was reorganised into three separate entities as under:
1. The Capital Market which handles the regulatory and supervisory functions.
2. The Stock Exchange which is Muscat Securities Market.
3. Muscat Share Registration and Depository which acts as the Central registrar
and depository for all listed companies with Muscat Securities Market.
OMANISATION
To encourage employment of local nationals, all business entities are required to submit
an Omanisation plan.
Article 1 of Ministerial Decree no.127/94 specifies the Omanisation percentage for
private sector as under:
-- Sector of Transport, Storage and Communications 60%-- Sector of Finance, Insurance and Real Estates 45%-- Sector of Industry (manufacturing) 35%-- Sector of Restaurants and Hotels 30%-- Sector of Wholesale and Retail Trade 20%-- Sector of Contracting 15%
Further, certain specified categories of employment are reserved for Omani nationals
only.
Petrol Filling Stations are required to have an Omanisation level of 50% and
Commercial Banks are required to achieve an Omanisation level of 90%.
SALALAH PORT AND SALALAH FREE TRADE ZONE
Salalah Port
The Salalah Port Services Co. SAOG. (SPS) is a Joint Venture Company (70% Omani
and 30% Foreign - Maersk Sea Land) operating a world class container hub port and
terminal. Salalah Port's strategic location at the region's transshipment traffic has once
again placed Oman into the center of sea trade, and puts it in the best position for
feeder services to major ports in Red Sea, Gulf, Straits of Hormuz, Yemen, and Horn of
Africa as well as Karachi and Mumbai. In a short span, Salalah port has placed itself
amongst the top ten ports in the world.
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Salalah Free Trade Zone
The Salalah Port Servies Company has been appointed as Managers for the Salalah
Free Trade Zone. The free trade zone is positioning itself as a cargo handling,
processing and distribution complex for the region. The services offered include
breaking down of shipments into smaller sizes, repackaging, relabelling, inter-mediate
storage, sorting, grading, mixing and blending of commodities, basic production with
local / imported materials, and post sales maintenance and services. The proposed
incentives for the Salalah free trade zone are:
§ No custom duties.
§ 100% foreign ownership.
§ No corporate taxes.
§ No maximum period for re-exports.
§ 10% Omanisation initially.
§ Made in Oman status for goods with over 40% value addition.
§ No restriction in repatriation of funds and capital.
§ Sub-leasing of land and warehouses.
§ Low rental and utilities charges.
§ Export insurance cover for commercial and political risks.
The one-stop-shopping concept encompassing the following services is also
proposed at the Salalah Free Trade Zone (SFTZ), to reduce the bureaucratic
paperwork and delays in project set-up and implementation, and attract foreign
investment.
§ All necessary licensing by Oman Development Authority (ODA).
§ ODA to issue all visas and SFTZ to act as sponsoring agency.
§ On site accommodation for investors.
§ Recruitment agency.
§ Availability of services viz. International Accounting, Consultancy, Law firms,
Banking, etc.
§ Coordination with local authority by SFTZ in respect of visas, immigration, health
cards, driving license, car registration, communications, etc.
§ Business friendly and result oriented management team.
DOING BUSINESS IN THE
SULTANATEBUSINESS STRUCTURES OF OMAN
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Following commercial entities can be registered with the Ministry of Commerce and
Industry.
SOLE PROPRIETORSHIP
A Sole Proprietorship is allowed to be formed only by Omani nationals or by G.C.C.
nationals and only for those activities which are considered to be permissible activities.
GENERAL PARTNERSHIP
A General Partnership is formed by two or more persons, natural or juristic, who are
jointly and severally liable for all its obligations to the full extent of their property. Any
person who allows his name to be included in the partnership name, though not himself
a partner, is liable to the same extent as a partner where third parties have relied in
good faith on that name. In absence of any agreement to the contrary, the partners
share profits and losses in proportion to their capital contributions.
LIMITED PARTNERSHIP
A Limited Partnership has two categories of partners:
-- One or more general partners with unlimited liability and
-- One or more limited partners whose liability is limited to the extent of their capital
contributions.
If a limited partner allows his name to be included in the partnership name, he will be
liable to the same extent as a general partner where third parties believe him in good
faith to be a general partner.
DOING BUSINESS IN THE
SULTANATEBUSINESS STRUCTURES OF OMAN
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JOINT STOCK COMPANYClosely held joint stock company (SAOC)
A Closely held Joint Stock Company (SAOC) cannot offer shares for public subscription
and shares of SAOC company are not allowed to be traded in Muscat SecuritiesMarket. The minimum capital of closely held joint stock company shall not be less than
R.O.500,000/-. The company should have at least three promoters who are natural or
juristic persons and the promoters of the company should subscribe to the capital of the
company and submit a Memorandum of Association and Articles of Association for the
approval of Ministry of Commerce and Industry. The liability of the shareholders is
limited to the value of the shares he subscribes.General Joint Stock Company (SAOG)
A General Joint Stock Company shall have at least three natural or juristic persons as
founders who shall subscribe for their part of capital and submit to the Ministry of
Commerce and Industry an Articles of Association and Memorandum of Association.
The capital of the general joint stock company shall not be less than 2 million.
Promoters of the company which offer shares to the public for subscription shallsubscribe neither less than 30% nor more than 60% of the shares and offer the
remaining shares for subscription. No single promoter is allowed to own more than 20%
of the capital. The liability of the shareholders is limited to the value of the shares he
subscribes.
In case of closely held joint stock company and general joint stock company, 10% of the
net profits after tax is required to be set aside as a legal reserve before declaration of
dividend till such a time as the reserve equals 1/3rd of the company's paid up sharecapital. The legal reserve is not available for distribution in the form of dividends. The
company must have one or more auditors.
LIMITED LIABILITY COMPANY
A Limited Liability Company can be formed by two or more natural or juristic personswhose liability is limited to the nominal value of the shares in the capital of the company.
The number of shareholders of a limited liability company shall not exceed 40. The
minimum capital of a limited liability company is R.O.20,000/- when no foreign
participation in equity of the company is involved. However, when a foreigner is a
shareholder in a limited liability company, the minimum capital requirement is
R.O.150,000/-.
10% of the net profits after tax is required to be set aside as a legal reserve beforedeclaration of dividend till such a time as the reserve equals 1/3rd of company's paid up
share capital. The legal reserve is not available for distribution in the form of dividends.
DOING BUSINESS IN THE
SULTANATEBUSINESS STRUCTURES OF OMAN
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JOINT VENTURE
A Joint Venture is a commercial company formed by two or more natural or juristic
persons. Unlike other companies, it has no separate legal personality/entity of its own,
except for taxation purposes. Joint venture should have a contract defining the
objectives and the terms of the joint venture between the members in which their
specific scope of work, rights, responsibilities and obligations towards each other and
third parties dealing with them is clearly defined. Joint venture shall not have a name of
its own and its existence shall not be raised as a defence against claims made by third
parties. The third parties shall have recourse only against the members of the venture
with whom they deal.
HOLDING COMPANY
A Holding Company is a joint stock company or a limited liability company which
exercises financial and management control over one or more other companies through
ownership of at least 51% of the share capital of such company. The capital of holding
company shall not be less than R.O.2 million and the holding company is prohibited
from holding shares of a general or limited partnership companies nor shall it hold any
shares of other holding companies.
BRANCH OF A FOREIGN COMPANY
A Branch of a Foreign Company is permitted to operate in Oman as a permanent
establishment without Omani participation. However, it may appoint an Omani agent or
sponsor and the sponsorship / agency agreement must be registered in the commercial
register with the Ministry of Commerce & Industry and become a member of the Oman
Chamber of Commerce & Industry.
COMMERCIAL AGENT
A Commercial Agent can be appointed if a foreign business does not wish to invest in
establishing a permanent operation in Oman and only wants to export goods and
services to Oman. The agent must be an Omani national or a business with at least
51% Omani participation. Agencies have to be registered with the Ministry of
Commerce and Industry.
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THE REGISTRATION FORMALITIES
Application for authorisation to engage in trade or business in the Sultanate of Oman orto form an Omani commercial company (General Partnership firm or Limited Liability
Company) with non-Omani members would be required to be filed with the DirectorGeneral of Commerce, Ministry of Commerce & Industry, which should include thefollowing:§ The Constitutive Contract or Articles of Association signed by all members (in case
of partnership firm, copy of the partnership agreement signed by all the partners)clearly stating the name, capital and the objectives of the company.
§ Name, address, date and place of birth and nationality of each member/partner, theirshareholding / ownership patterns in the capital of the company (or in case of ajuristic person, its name, address, form of nationality and a copy of its ConstitutiveContract and its Articles of Association).
§ A Bank certificate stating the amounts deposited by the partners / shareholders inthe company's bank account towards the capital of the company.
§ The minimum capital of the company, with foreign ownership should beRO.150,000/- and where there is no foreign ownership, it should be RO.20,000/-.
§ Such other information as may be required by the Ministry of Commerce & Industryto register the company.
§ Copy of identity card of Omani Partner/shareholder.§ Copy of the passport of non-Omani Partner/shareholder.The procedure to establish a joint stock company is as under:
§ A letter to the Director General of Commerce, Ministry of Commerce & Industry,seeking permission to establish the joint stock company. The letter should include,names of the founders of the company, its type, equity capital, and commercialactivities and should be signed by at least three founders.
§ A form disclosing that no company exists with the same name and approval of thecommittee for the proposed name of the company.
§ Photocopies of the passports of the natural founders.§ Articles of Association and Constitutive Contract signed by all the founders.§ Bank's certificate stating the amount deposited by the founders towards portion of
the value of shares subscribed by them.§ Within thirty days of the authorisation of the issue of shares, the founders should
invite the public for subscription of the shares. The notice for public subscriptionshould be approved by Muscat Securities Market (MSM) and should appear atleasttwice in two daily newspapers one week before the issue opens.
§ A copy of the notice to subscribe for shares along with a copy of the newspaper inwhich it was published has to be filed with the Company Affairs Department at the
Ministry of Commerce and Industry and also with the Muscat Securities Market.§ Prospectus to be prepared in the prescribed format and should be approved by the
Muscat Securities Market.
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§ Subscription to shares should be through at least three national banks licensed tooperate in the Sultanate of Oman.
§ Adequate copies of the prospectus and the Articles of Association duly signed by all
the members of the board of directors to be kept with these banks, so as to enable
the subscribers to the issue to study the above documents before subscribing to the
shares of the company.
§ The amounts subscribed shall be deposited in a special account to be opened in the
name of the company followed by the expression "under incorporation" in one of the
designated banks. The amounts deposited shall not be used before the constitutive
meeting has approved the incorporation expenses.
§ The bank shall keep the funds received from the subscribers and shall, if all
subscriptions have been accepted, release such funds to the board of directors or its
representative after the incorporation of the company.Establishment of a foreign branch:
The following documents needs to be filed with the Director General of Commerce,
Ministry of Commerce & Industry.
§ A copy of the registration certificate of the Head Office which establishes that the
company was atleast in existence since 10 years.
§ An undertaking from the head office to undertake full responsibility for the operations
of its branch in Oman.
§ Power of attorney for the Resident Manager to sign documents, negotiable
instruments and to authorise all his acts on behalf of the branch office.
§ The qualification certificates and experience of the Resident Manager which should
not be less than 10 years along with the copy of his passport.
§ Details of the projects handled by the head office.
§ The constitutive contract and articles of association of the Head Office.
§ The last annual financial statements of the head office.
All the above certificates/documents should be attested by competent authorities in the
country of the head office and also by Oman Embassy, or if Oman embassy is not
present in that country then Embassy of any Arab country which is a member of the
Arab League.
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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.
The Basic Law provides for equality to all its residents and is established on the
principles of a free economy and the sanctity of private properties.
JUDICIARY SYSTEM
The Basic Law ensures the independence of the judiciary and the role of judges in up-
holding the law of the country.
Commercial disputes are dealt and settled by Commercial Courts. Criminal matters /
disputes are dealt and settled by Magistrate Court. Disputes between employers and
employees in the private sector is primarily dealt by the Labour department of the
Ministry of Social Affairs and Labour and Vocational Training, and unresolved disputes
are referred to the Commercial Court. Tax disputes are dealt and settled by the
Commercial Courts.
OMAN COMMERCIAL LAWS
Regulation of business activity and investment in Oman is done through the following
laws:
1. Commercial Registration Law
2. Commercial Company Law
3. Foreign Capital and Investment Law
4. Banking Law
5. Insurance Law
6. Tender Law
7. The Law for the Organisation and Encouragement of Industry
8. Law of Commercial Agencies and its Regulations
9. The Law of Income-tax on Companies 47/81.
10. Muscat Securities Market Law
11. Capital Market Law
12. Law of Commerce
13. Oman Labour Law
14. Law of Trade Mark and Data Law
15. Law on Organisation of Engineering Consultancy Offices
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16. Compromises and Arbitration Regulation
17. Law organizing Brokerage Profession in Real Estate Activities
18. The Copy Right Law
19. Accounting and Auditing Profession Law
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.
Joint ventures and individuals engaged in fisheries, agriculture and small scale services
are not required to be registered with the Ministry of Commerce and Industry and Oman
Chamber of Commerce and Industry.
FOREIGN CAPITAL AND INVESTMENT LAWRequirements of foreign business and investment law:
A non-Omani national whether a natural or juristic person who desires to engage in
business in Oman or acquires an interest in the capital of an Omani company must
obtain a license to do so from the Ministry of Commerce and Industry. The license
would be granted provided the non-Omani national carries out his business activity
through one of the types of companies recognised by the commercial company law with
a capital of not less than RO.150,000/-.
Non-Omani participation in the capital of a company is not allowed to exceed 49%.
However, in certain exceptional cases 65% of the capital of the company is allowed to
be owned by foreigner by the Ministry of Commerce and Industry on a recommendation
made by Foreign Capital Investment Committee. Normally the above exceptions are
made in the following cases.
1. Industries which use local raw materials and products which helps in maximising
value addition.
2. Export oriented industries.
3. Industries using modern technology.
4. Projects involving construction of integrated tourist villages and zones.
5. Projects that attract and localise internationally reputed industries.
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 fulfillment
of the following conditions:
1. The capital of the company should not be less than RO.500,000/-.
2. Projects contribute towards economic development.
Recently there has been relaxation in ownership of shareholding by non-Omani
shareholders. Presently Ministry of Commerce & Industry is allowing upto 70% foreign
shareholding in most of the business activities including trading.
DOING BUSINESS IN THE
SULTANATEGRANTS AND INCENTIVES OF OMAN
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THE LAW FOR THE ORGANIZATION AND ENCOURAGEMENT OF INDUSTRY
The government provides incentives to approved projects under "The Law for
Organisation and Encouragement of Industry". Following incentives are available only
to licensed industrial units on the recommendation of Industrial Development
Committee:
1. Exemption from custom duties on import of raw materials, plant and equipment.
2. Subsidised electricity, water and fuel charges.
3. Interest free or subsidised loans.
4. Import protection by imposing or increasing custom tariff on imported goods
similar to those produced locally.
5. Preference in government purchases of local products.
6. Preference in allotment of government loans.
7. Financial assistance towards the cost of carrying out economical, technical and
feasibility studies.
8. Provision of planned and service industrial plots for setting up projects and ready
industrial units at a very nominal lease rent.
Foreign investors benefitting from the above concessions and exemptions should
maintain proper records and should periodically submit a progress report to the Ministry
of Commerce and Industry, including the financial statements.
Omanisation of 25% of the work force is required unless there is a specific waiver from
this requirement by the Ministry.
Tax holiday incentives
All companies engaged in industry, mining, export of locally manufactured or processed
products, promotion of tourism which includes operation of hotels and tourist resorts,
fishing and fish processing, agriculture and agricultural industries and public utilities are
given an income tax holiday period for the first five years from the date of
commencement of production or activity. These exemptions are renewable for another
five years.
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A recent amendment exempts Universities, Colleges and Private Higher Educational
Institutions from Income-tax.
Financial Incentives for private sector projects
LOANS
Incentives for project loans are tabulated below:
Nature of theProject
FinancingAuthority
EligibilityConditions
Financing Limits FinancialIncentives
Industrial projects(medium and largescale) - non-jointstock company
Ministry ofCommerceand Industry(MOCI)
Omani capitalnot less than75%. ForStrategicProjects,Omani capitalnot less than51%
Maximum limitRO.250,000/-,provided that theloan amount shouldnot be more than100% of the paid upcapital in Muscatand 125% outsideMuscat.
Interest freeloan.
Industrial Projects(medium and largescale), - joint stockcompanies
MOCI --do-- No maximum limit.Loan should notexceed 100% of thepaid-up capital inMuscat and 125%outside Muscat.
Interest freeloan.
VariousDevelopmentProjects
OmanDevelopmentBank (ODB)
The projectshould besubject toOmanCommercialLaw andregistered inOman. Thefeasibilitystudies, bothtechnical andeconomic,shouldestablish theprojectsimportance.
MaximumRO.250,000/- andmaximum 150% ofthe paid-up capitalin MuscatGovernorate and250% outsideMuscat.
Soft loan(reducedinterest)
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Nature of theProject
FinancingAuthority
EligibilityConditions
Financing Limits FinancialIncentives
Small scaleindustries costingmore thanRO.100,000/-
MOCI For Omanigraduates ofUniversities,TechnicalColleges orVocationalTrainingInstitute.
40% of totalinvestment
Interest freeloan.
Tourism Projects MOCI --do-- MaximumRO.500,000/- Loanamount should notexceed 100% of thepaid-up capital inMuscat and 125%outside Muscat.
Interest freeloan.
Export Financing ODB incoordinationwithcommercialbanks
GeneralExport withvalue addednot less than40% to ArabCountriesand 25% tothe rest of theworld.
a) Financing
unlimited.
b) Covering 80 to85% of the lossresulting fromnon-payment byimporter.
Loan withinterest atrate of 7%.
CAPITAL GRANTS
Nature of theProject
FinancingAuthority
EligibilityConditions
Financing Limits FinancialIncentives
Projects not costing more than RO.100,000/-
1. Industrial MOCI For full timeOmanis whoare notgraduates
30-60% of projectcost, as per thelocation andconditions of theregion.
Non-repayablegrant.
2. Fishing Projects Ministry ofAgricultureandFisheries
For full timeOmanientrepreneurs
--do-- --do--
19
TAXABLE ENTITIES
Taxation of Profits
Income tax on Commercial Companies
Only Commercial Companies are liable to pay income tax in Oman. There is no
personal income tax, gift tax, wealth tax or any form of estate duty, and there is 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.
Entities liable for income tax on its taxable income are as under:
a) Partnership.
b) Limited partnership.
c) Joint stock company.
d) Limited liability company.
e) Joint Venture.
f) Holding company.
g) Any establishment of a permanent nature as defined in article 2(11) of Royal
Decree 47/81 in Oman which is supported by a foreign foundation or which the
Director of Taxation deems to be supported by a foreign foundation.
h) Foreign companies which do not have permanent establishment in Oman as
defined in article 2(11) of Royal Decree 47/81 and receives income from
permanent establishments in Oman by way of
• Royalties;
• management fees;
• rentals from equipment;
• transfer of technical know-how or
• transfer of scientific research.i) Commercial and Industrial establishments owned by an Omani individual.
TAX ACCOUNTING PERIOD
Business entities are required to file income tax returns along with audited accounts for
each tax year.
Oman's tax year coincides with the calendar year i.e. 1st January to 31st December.
Companies prepare accounts for accounting period corresponding to a tax year.
However, business entities may apply to the Secretary General of Taxation to use any
other accounting year provided that the year end date is followed consistently.
For the first accounting period entities may elect to use a period less than twelve
months or for upto maximum of eighteen months. In the event of a company being in
liquidation, the accounting period may be for less than twelve months.
20
FILING OF TAX RETURNSProvisional return of income is required to be filed based on estimated income of an
entity within three months of the financial year end. Tax due based on estimated
income has to be paid along with the provisional return of income.
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.
Extension of time to file tax returns and audited accounts may be obtained from the
Secretary General of Taxation. However, in such cases normally a penal interest
calculated at the rate of 1% per month on the balance tax amount payable is charged.
Audited financial statements are required to be filed only if the capital of an entity is
RO.20,000/- or more.
ACCOUNTING RECORDS
All business entities shall preserve all accounting records and documentary evidences
to support any entry in the books of account for a period of not less than ten years.
INCOME CHARGEABLE TO TAX
Income chargeable to tax means the gross sum of revenues less allowable deductions.
Income chargeable to tax shall be computed in accordance with one of the generally
accepted methods of commercial accounting followed consistently on accrual basis.
However, the Director of Taxation may permit the use, of other method of commercial
accounting e.g. cash basis, for which an approval is required from him.
The law provides that income tax shall be charged for every tax year on the taxable /
assessed income of any establishment whose income has realised or has arisen in
Oman or which the Director of Taxation Affairs deems to have been realised or accrued
or arisen in Oman in relation to the following sources of income:
§ Profits or gains of:
• Any business;
• Any right granted to any individual to benefit from or utilise any land.§ Interest.
§ Royalties.
§ Rent of plant, machinery and equipment.
§ Management fees, amounts collected against technical expertise transfer or
research and development.
§ Any monies considered as income under this law.
§ Any income from any other source.
21
EXPENSES ALLOWED TO BE DEDUCTED IN DETERMINING TAXABLE INCOMEOF AN ENTITYAll actual expenses incurred during each tax year shall be deducted to the extent that
such expenses are incurred wholly and exclusively for business purpose and has
resulted in the generation of gross income for the company.
EXPENSES NOT ALLOWED AS A DEDUCTIBLE EXPENSE
Following expenses are not allowed as a deductible expense in computation of taxable
income of a company.
§ Income tax paid in Oman or outside in other countries and tax fees paid to tax
consultants.
§ Capital expenditure.
§ Expenditure or loss which may be recovered by virtue of any insurance contract or
claim for compensation.
§ Provisions made i.e. for doubtful debts, stocks obsolescence, warranty, etc.
§ Any expenditure which the Director deems inappropriate and unreasonable in
relation to the value of services offered or any other considerations connected
therewith.
§ If the Director has a reasonable cause to believe that the intention of any transaction
was to avert or to reduce a tax liability.
§ Any expenses which are not supported by documentary evidence are liable to be
disallowed.
CERTAIN EXPENSES DEDUCTIBLE ONLY UPTO SPECIFIC AMOUNTS
Following expenses/charges are restricted to specific amounts in computation of the
taxable income of an entity.
§ Payments made to local sponsor (if any) is restricted to 5% of taxable / assessed
income.
§ In respect of Branches of Foreign Companies, allowance for head office overheads
which cannot be directly identified for Oman operations is restricted to least of the
following amounts, provided that the head office role is not limited to only
supervision and control of the branch:
• Expenses estimated and claimed by the branch, as provided in the accounts;
• Average head office expenses approved for the branch during the three yearsimmediately preceding the previous taxable year subject to assessment;
• 3% of the branch's total gross income during the year. However, this percentagewill be increased to 5% in respect of branches of foreign banks and insurance
companies.
22
The percentage may be increased to 10% in respect of branches of major industrialcompanies which use the latest and most advanced methods for productiontechniques or pursue scientific methods or provide technical assistance or usepatents which require exchange of information and technical assistance with theirHead Offices.• Gifts / donations made only to organisations as specified by the Council of
Financial Affairs will be allowable, provided that the value of such gifts /donations does not exceed 5% of the gross income.
• In case of an Insurance company, insurance commission paid to an authorisedagent in Oman by a foreign company is restricted to 25% of the net premiumunderwritten.
• If the Director has reasonable cause to believe that a transaction was not carriedout at arms length, then he may allow such a transaction to the extent he deemsfit.
• Remuneration (salaries and perquisites) paid to the partner/director/proprietorand their spouse and minor children, other than that of a professional firm, shallbe allowed as a deduction provided they are full time engaged in management ofthe business and do not get salaries and perquisites from any other entity. Theamount allowed shall be limited to the amount specified in the employmentcontract or an amount of RO.1,000/- per month whichever is lesser (forprofessional firms, RO.3000 per month). However, total amount of remunerationallowable to all partners/directors of an entity shall not exceed 10% of the taxableincome of an entity before deducting the salaries and the losses brought forwardfrom preceding years.
• Remuneration paid to Chairman and members of the board of directors of jointstock companies shall be considered as a deductible cost as per limits specifiedin articles (101) and (106) of the commercial companies law.
• Rent paid to a director / partner of an entity would be allowed to the extent it isconsidered reasonable by the Director. However, in case of proprietorship itwould be allowed as a deduction to the extent of 4% of the cost of the real estateutilised for business purposes, and the period of utilisation of real estate shall notexceed 25 years from the date of purchase or construction of the real estate.
DEPRECIATION AND AMORTIZATIONSince the capital expenditure cannot be written off in the year in which it is incurred, theincome tax law has established a system of depreciation in order to allow the tax payerto recover its costs over the estimated useful life of the property. Amortization ofintangible assets is also allowed, at a rate approved by the Director of Taxation Affairs.Rates of depreciation prescribed in the Income tax law is as under:
Assets Rate (%)Permanent buildings 4Prefabricated buildings 15Bridges, platforms, pipelines, permanent way and railwaylines
10
Heavy equipment 33 1/3Light vehicles 33 1/3Furnishings 33 1/3Other equipment and tools 15Aircraft and ships 15
23
Hospital buildings and educational establishments 100Scientific research implements 100
Depreciation is to be accounted on a straight line basis.
In case of buildings used for industrial purposes (excluding building for housing of
employees, offices and storage), the stated rates of depreciation shall be doubled.
In case of tools and equipment which are used for three shifts of work per day,
depreciation rate stated above shall be increased by a maximum of 50%. The
additional depreciation is to be computed by reference to the number of days the tools
and equipment are used for three shifts in proportion to three hundred days.
CORPORATE TAXATION RATESI. Net taxable assessed income is subject to the following tax rate structure.
Entities wholly owned by Omanis or where Omanis shareholding in capital of a
company is 51% or more. (Revised from tax year 2001 to entities wholly owned
by Omanis and mixed ownership companies of which 70% or less than 70%
capital is owned by foreigners and public joint stock companies, be it Omani
shareholders or foreign shareholders, provided it is in accordance with the
capital market law).
The First RO.30,000/- of the taxable income Exempt
Taxable income over RO.30,000/- Taxed at a flat rate of 12%
Tax rate of 12% will be applicable to General Joint Stock Companies irrespective
of the extent of foreign shareholding.
Tax rate of 12% will apply in case of investment funds set up pursuant to the
Muscat Securities Market Law.II. In case of companies (i.e. Limited Liability Company/partnership firm etc.) where
Omanis own less than 51% of the share capital of the company, tax rates
applicable would be as under: (Application of this para is deleted from tax year
2001 i.e. as from tax year 2001 there will be only two categories of tax slab [I]
and [III]).
1. The first RO.30,000 of the taxable income Exempt2. Next RO.100,000 of the taxable income 15%3. Next RO.150,000 of the taxable income 20%4. In excess of RO.280,000/- of the taxable income 25%
III. As regards companies in which non-Omanis owns 100% of the capital, tax rates
as provided for in the Second Schedule [i.e. the tax rates applicable to branches
of foreign companies] of earlier Royal decree no.47/81 would be applicable,
which is as under:
24
Taxable/assessed income
Over Not over Tax rate
RO. RO. %
0 5,000 05,000 18,000 5
18,000 35,000 1035,000 55,000 1555,000 75,000 2075,000 100,000 25100,000 200,000 30200,000 300,000 35300,000 400,000 40400,000 500,000 45
Over 500,000 50From tax year 2001 applicable tax rates for 100% foreign ownership companies
and mixed ownership companies where more than 70% capital is owned by
foreigners will be as under.
Taxable/assessed income
Over Not over Tax rate
RO. RO. %
0 5,000 05,000 18,000 5
18,000 35,000 1035,000 55,000 1555,000 75,000 2075,000 100,000 25100,000 30
The tax on income due in respect of a company for any tax period shall be the
lesser of the two sums prescribed in Paragraphs (a) and (b) below:
(a) The annual percentage of tax which is applicable on the income of a
company in every tax period shall be defined in accordance with the
category within which the income of such company falls.
(b) Apply to a part of the taxable income (equal to the upper limit of taxable
income in the immediately preceding lower band) the tax rate applicable to
that lower band, and adding to the resultant product the excess of the
company's taxable income over the upper limit of the taxable income of
that lower band.
25
IV. Petroleum Companies
Special provisions are applicable to taxation of income derived from sale
of petroleum, the tax rate is 55% since 1970. Oman LNG Company L.L.C.
is subject to special tax rate as per provisions of Royal Decree No.95/96.
CARRY FORWARD OF LOSSES
As per the Royal Decree no.47/81 the losses were not allowed to be carried forward for
more than five subsequent assessment years. However, by virtue of amendment by
Royal decree no.87/96, companies which are mainly engaged in any of the fields of
activity specified in para (a) to (g) mentioned below can indefinitely carry forward their
losses beyond the exempted period of five years and deduct it in subsequent years until
the losses are fully absorbed / set off against the profits of future years.
BUSINESS ENTITIES EXEMPTED
Companies which are mainly engaged in any of the following activities shall be
exempted from income tax for a period of five years from the commencement of the
production, or from the date of commencement of the business, as the case may be, on
the recommendation made by Minister of Commerce & Industry to the Ministry of
Finance and Economy. The exemption may be renewed for a further period of not more
than five years by a decision to be issued by the Council of Financial Affairs and Energy
Resources.
[a] Industry and mining.
[b] Export of locally manufactured/processed products.
[c] Promotion of tourism including operation of hotels and tourist villages, excluding
management contracts.
[d] Agriculture-farm production, farm processing including animal husbandry,
processing/manufacturing of animal products and agricultural industries.
[e] Fishing and fish processing.
[f] Utilisation and performance of services such as projects for public facilities
excluding management and project contracts.
[g] Universities, colleges and private higher institutes (Recent Amendment in tax
law).
DIVIDENDS
As per Royal Decree 77/89, income-tax will not be levied on dividends received by any
business entities from shares held by them in capital of another company provided the
company paying dividend has already paid tax on its profits in Oman.
The above decree has been recently amended vide Royal Decree no.68/2000, which
stipulates that tax would not be imposed on Dividends received by a company through
shares in the capital of the other companies.
26
MARINE COMPANIESArticle 5 of Royal Decree no.68/2000 exempts commercial marine establishment owned
by Omani individuals from income tax.
WITHHOLDING TAX
Foreign companies which have no permanent establishment in Oman and receive
Royalties, fees in return for management, rent of equipment, machinery and devices or
amounts in return for transfer of technical know-how or research and development from
companies or permanent establishments situated in Oman, tax at the rate of 10% of the
gross income shall be deducted at source. The obligation to deduct this tax shall rest
with the company or the permanent establishment which pays the above amount.
INCOME TAX PARITIES FOR G.C.C. NATIONALS WITH OMANI NATIONALS
Business entities owned by Gulf Cooperation Council states nationals are treated at par
with Omani nationals in respect of Omani income tax, provided they are engaged in
following permissible economic activities and they fulfil the conditions as laid down in
various ministerial decisions.
1. Retail trade in goods provided it does not import, export and hold commercial
agencies and goods are sold directly to the consumers without any intermediary
through one shop.2. Wholesale trade allowed to import, export and hold agencies.
3. Hotels and restaurants.4. Economic activities in fields of agriculture, livestock, industry and contracting.
5. Economic activities in field of fisheries other than fishing.
6. Inspection and survey.7. Operation and maintenance of machines, apparatus, factories, etc.
8. Translation, surveying, soil testing, computer programming, analyses and
operations.9. Professions of medicine, accountancy, advocacy, engineering, consultancy in
economics, management, technical, agriculture, fisheries, industrial fields, andpharmacy, excluding the imports of pharmaceuticals products except through the
approved national agent.
10. Skilled crafts.11. Educational services for kindergartens and nurseries.
12. Private medical centres and private hospitals and treatment for the disabled.13. Vocational training centres set up for giving training in languages, computers,
office administration, typing, accounting, book keeping, management, and
support management / administrative positions.14. Weight and measuring services to others for charges.
15. Marketing services for goods and products of third parties for commission or
fees.16. Cleaning services.
27
TAX ASSESSMENTS AND OBJECTIONS
The Secretary General of Taxation issues a tax order based on tax returns, audited
accounts, various details, documentary evidences and representations made by the
company. Normally a detailed investigation is carried out before a tax order is issued.
Tax payable as per tax order, if any, is required to be paid within 30 days of the date of
the order .
Any taxable entity may object to a tax assessment by submitting an objection in writing
under article 45 to the Secretary General of Taxation within 45 days from the date of the
tax assessment order. If a taxable entity is not satisfied with the decision of the
Secretary General issued under article 45, it can appeal against the decision of the
Secretary General within 45 days by submitting in writing an appeal under section 46 to
the President of the tax committee.
Entities have a further right to appeal against the order of the President of the tax
committee before Commercial Court (circuit of first instance) within 45 days from the
date of the tax ruling given by the President of the tax committee.
The taxable entity and the Secretary General of Taxation, can appeal against the ruling
of the commercial court (circuit of first instance) to the appellate division of the
commercial court. Further, the taxable entity and the Secretary General of Taxation
may further protest against the appeal ruling by requesting for reconsideration of the
final judgement.
RELIEF FOR DOUBLE TAXATION
(A) Presently, Oman has double taxation treaties with following countries:
(1) France
(2) United Kingdom
(3) India
(4) Pakistan
(5) Mauritius
(6) Tunisia
28
(B) Double taxation treaties in process of being ratified with the following countries:
(1) Malaysia(2) Singapore(3) Thailand(4) China(5) Turkey(6) Kazakhstan(7) Russia(8) Egypt(9) Algeria(10) Italy
SOCIAL SECURITY
Every company employing Omanis must pay a social security premium equivalent to
8% of the basic salary of its Omani employees. The company must also deduct and
pay every month to the Public Authority for Social Insurance, another 5% from the basic
salary of Omani employees. Further, 1% of the basic salary of Omani employees has to
be paid to the corporation by the employer towards security against occupational
injuries and diseases.
CUSTOM DUTIES
Normally custom duty is levied at 5% on most of the items. Certain essential consumer
goods are exempt from custom duty. Usually a manufacturer is granted an exemption
from custom duty on import of machinery and raw material for which he has to take
necessary approval from the Ministry of Commerce & Industry. Higher custom duties
are charged sometimes on certain items that compete with the goods manufactured in
Oman. Very high custom duty is charged on liquor, cigarette and tobacco items.
CONTRIBUTION FROM EMPLOYERS TOWARDS THE VOCATIONAL TRAINING
LEVY
Vocational training levy is levied at a flat rate of RO.100/- per expatriate employee per
annum.
Some of the other taxes are briefly listed below:
Tax rate %On annual rental of leased premises 3Electricity bills in excess of RO.50/- 2General sewerage charge in water bills 10Hotel bills 5Leisure and cinema tax 10Tourism levy 4
DOING BUSINESS IN THE
SULTANATERANGE OF SERVICES OF OMAN
29
As a firm of Chartered Accountants and Consultants, we provide a wide range of
professional services as stated hereunder which are designed to provide specialised
assistance to business enterprises.
AUDIT
• Statutory audits under international accounting standards
• Evaluation and design of operational and accounting systems and controls
• Internal audits
• Due diligence reviews
MANAGEMENT CONSULTANCY
• Business valuations
• Feasibility studies
• Financial advisory services
• Mergers and acquisitions
• Consultancy in information technology
• Partners search
• Investigations
INTERNATIONAL ACCOUNTING STANDARDS ("IAS")
• Application & Interpretation of "IAS"
• Conversion of "IAS" to and from other standards
• Technical Support & Training on "IAS"
30
HOTEL CONSULTANCY
• Hotel feasibility studies
• Market demand and supply studies
• Hotel operational studies
OFFSHORE COMPANIES AND REGISTRATION
• Corporate structuring
• Registration requirements
TAXATION
• Legal tax planning and compliance services
• Double tax treaty benefit
• Cross border investments
HUMAN RESOURCES SOLUTIONS AND
EXECUTIVE RECRUITMENT
31
USEFUL CONTACT NUMBERS
Telephone number
Ministry of Commerce & Industry 7713500
Secretary of Commercial Register 7714234
Head of Business Registration 774453
Head of Company Control Section 774459
Director of Company Affairs Department 7716232
Director General of Tourism 774370 7716527
Director of Tourism Marketing Department 774331 7717085
Director of Tourism Planning & Development Department 774367 7710547
Director General of Industry 7717245 7714246
Director of Development of Incentives Department 774385 7714253
Ministry of Agriculture and Fisheries 696300
Oman Chamber of Commerce & Industry 707684
Oman Telecommunications Company SAOC 631000
The Omani Centre for Investment Promotion &
Export Development 7712344
Ministry of Finance 738201
Office of H.E. The Secretary General of Taxation 737178
DOING BUSINESS IN THE
SULTANATERSM & Co. - OMAN OF OMAN
41
PARTNERS : M.A.Rafik - Managing Partner
N.B.Daruvala
Dinesh Kanabar
DIRECTORS : Percy R. Bhaya
Zarir J. Patwa
LOCATION
Suites 107 & 108, Hatat House, Wadi Adai
P.O.Box 1171, Postal Code-112, Muscat, Sultanate of Oman
Telephone : (968) 563195
Fax : (968) 563194
E.mail : [email protected]
DOING
BUSINESS
IN THE
SULTANATE
OF
OMAN
Although the greatest possible care has been
observed in drawing up this publication, the
possibility always exists that certain information
has in time become outdated or is no longer
correct. RSM & Co., therefore do not accept any
liability for the consequences resulting from
activities undertaken on the basis of this
publication. Consultation of an expert remains
necessary at all times.
International
Published by RSM & Co.-The Sultanate of Oman - Updated October 2000
42
NOTES
43
"Developing
a business
relationship"Developing a good businessrelationship with our clients' owners andmanagement is a key to our providing aproactive and effective service.
Constructive advice on a range ofbusiness issues is an important elementof our work.
Doing Business inthe Sultanate of Oman
A BUSINESS AND TAX PROFILE
International