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DOING BUSINESS IN THE SULTANATE OF OMAN 1 Doing business in Oman
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Page 1: Doing business in Oman - PKF Business in Oman.pdf · Doing business in Oman. DOING BUSINESS IN THE SULTANATE OF OMAN 2 DOING BUSINESS IN THE SULTANATE OF OMAN Although the greatest

DOING BUSINESS IN THE

SULTANATE OF OMAN

1

Doing business in Oman

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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information has in time become outdated or is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

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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.

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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.

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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.

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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.

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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.

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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.

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DOING BUSINESS IN THE

SULTANATEGRANTS AND INCENTIVES OF OMAN

16

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--

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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.

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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.

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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.

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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

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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:

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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.

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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.

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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.

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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

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(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

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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"

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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

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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

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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]

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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

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NOTES

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"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.

Page 39: Doing business in Oman - PKF Business in Oman.pdf · Doing business in Oman. DOING BUSINESS IN THE SULTANATE OF OMAN 2 DOING BUSINESS IN THE SULTANATE OF OMAN Although the greatest

Doing Business inthe Sultanate of Oman

A BUSINESS AND TAX PROFILE

International


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