Transparency of the Regulatory System
The legal, regulatory, and accounting systems in Oman remain less than fully transparent and new policies are at most times ambiguous and hence subject to individual interpretation of the government official, leading to reporting of cases of ‘bias’ by foreign investors. There is not an independent central government entity to oversee and regulate the workings of the different government ministries and bodies.
Omani NGOs or private sector associations do not play a role in the regulatory environment. Commercial registration and licensing decisions often require the approval of multiple ministries; the government decision-making process can be tedious and is perceived as non-transparent. However in recent years there is a move towards greater transparency in telecommunications, securities, and corporate governance of publicly traded companies.
There is no formal process for oversight or enforcement mechanisms in place. Though a new law granted the Oman Council new powers that expand its policy review function to include approving, rejecting, and amending legislation and convoking ministers of agencies that provide direct citizen services, its powers remain limited.
Oman regulation is developed by The Ministry of Legal Affairs which is the governmental body in the Sultanate of Oman that is responsible for drafting legislation and providing other government bodies with legal advice. The Ministry of Legal Affairs prepares and revises draft laws, drafts Royal Decrees, international agreements and contracts in which the Omani government is one of the involved parties. It also gives legal opinions and advice on matters put before it by other ministries and government departments. The Ministry of Legal Affairs’ website contains copies of Sultani Decrees (the primary, first-ranking legislation in Oman), together with copies of some Ministerial Decisions. Most of the legislation is provided in Arabic only, but there are some English translations.
Recently, the latest Royal Decree 09/2017 (the Amendment) introduced sweeping amendments to the Income Tax Law of 2009 and was formally published on 26 February 2017. The Amendment increases the standard corporation tax from 12 percent to 15 percent. On May 22, 2016, the Omani legislature issued a new, and more comprehensive, Engineering Consultancy Law, under Royal Decree 27/2016he new Engineering Consultancy Law – Royal Decree 27/2016, showcasing a new and comprehensive framework to regulate the engineering consultancy profession. Royal Decree 41 of 2016 (“RD 41/16”), was issued on August 18, 2016 in relation to approving the Sultanate of Oman joining and becoming a party to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Convention”). Sultani Decree 30 2016 (the “New Law”) has recently been promulgated, setting up Oman’s new anti- money laundering and terrorism financing regime.
There are no formal prescribed time limits for the completion of the process of promulgation of new legislation. In theory, the promulgation of a new law can be completed quickly, if one of the councils has expressed the matter concerning the legislation to be urgent, or due to the fact that the requirement for the legislation has been brought about by an international treaty or Gulf Corporation Council (GCC) agreement. In practice, however, it would be very difficult to predict as to how long each applicable government unit will take to review and approve the new law as the timeframe is at the discretion of each applicable government unit.
While many of the reforms are said to be introduced in an effort to diversify governmental revenues and improve transparency, the private sector is feeling victimized in a difficult economic environment. Oman retooled its legal, regulatory and enforcement mechanisms and empowered several agencies such as State Audit office, Public Authority of Consumer Protection, Royal Oman Police, with greater investigatory power.
International Regulatory Considerations
The Sultanate of Oman is a member in Gulf Cooperation Council (GCC), and the GCC is a member of the Financial Action Task Force (FATF). A Common Market was launched on January 1, 2008 among GCC countries with plans to realize a fully integrated single market. The creation of a GCC customs union began in 2003 and was completed and fully operational on January 1, 2015.
As Oman is a member of the WTO, it is committed to update the WTO Committee on any Technical Barriers to Trade (TBT)
Legal System and Judicial Independence
Oman’s legal system is based on English common law and Islamic law. The regulation of business activity and investment in Oman is done through several laws. The main law was issued in a Royal Decree No. 55/90, knows as the Commercial Code of Oman. Other laws include the Commercial Registration Law, the Commercial Companies Law, and the Oman Commercial Law.
Business disputes within Oman are resolved through the Commercial Court. The Commercial Court has jurisdiction over most tax and labor cases, and can issue orders of enforcement of decisions. The Commercial Court can also accept cases against governmental bodies; however, the Court can only issue, and not enforce, rulings against the government. U.S. firms should note that the Commercial Court is relatively new, replacing the Authority for Settlement of Commercial Disputes.
Laws and Regulations on Foreign Direct Investment
The Foreign Capital Investment Law (Royal Decree No. 102/94) provides the legal framework for non-U.S. and non-GCC foreign investors. Oman amended this law in 2000 as part of its WTO accession and in 2009 to implement the United States-Oman FTA. For most investments (apart from those covered by the FTA) the law requires that there be at least 30 percent Omani ownership, and more frequently requires a majority stake. There are exceptions; notably wholly foreign-owned branches of foreign banks are allowed to enter the market. Non-U.S. investors may also obtain approval by the Council of Ministers to allow a 100 percent foreign-owned business entity if the investment is in the national interest.
The MOCI is in the final stage of drafting a new foreign capital investment law with assistance from the World Bank. The law, in its third and final draft, would (among other things) remove the 30 percent Omani ownership requirement for all investors. (U.S. investors are not currently subject to that restriction, due to the FTA.) The proposed law is still in draft form and has not yet been ratified or passed. It will only become effective after all due legal and governmental processes are completed.
The current process for registering a business in Oman is laid out in the Foreign Investment Law (promulgated by Royal Decree No. 102/94), and can mostly take place online at https://www.business.gov.om . This website, run by the Ministry of Commerce, outlines necessary steps to start a business, manage a business, invest in existing businesses, and other commercial actions for both foreign and domestic investors.
Competition and Anti-Trust Laws
Currently, investments are not screened for competition considerations, and Oman does not have an active competition commission. The Competition and Anti-Monopoly Law, promulgated by Royal Decree 67/2014 in December 2014, aims to combat monopolistic practices by prohibiting anti-competitive agreements and price manipulation, and includes a reporting requirement for any activity, such as mergers and acquisitions, which results in a dominant market position for one firm
Expropriation and Compensation
Oman’s interest in increased foreign investment and technology transfer make expropriation or nationalization unlikely. In the event that a property must be nationalized, e.g., for a public building, Article 11 of the Basic Law of the State stipulates that the Government of Oman must provide prompt and fair compensation. There are no recent examples of expropriations, although on December 8, 2011, the first trade dispute under the United States-Oman FTA was submitted to formal arbitration at the World Bank’s International Center for Settlement of Investment Disputes. (Under the United States-Oman FTA, Oman must follow international standards for expropriation and compensation cases, including access to international arbitration.) In practice, Oman compensates for any expropriations it makes, although at times the compensation can be incrementally paid. There are no laws forcing local ownership in any sector, though land ownership is limited to Omani and GCC nationals outside of special Integrated Tourism Complexes set aside for foreign residency.
ICSID Convention and New York Convention
Oman is a party to the International Convention for the Settlement of Investment Disputes between States and Nationals of other States (ICSID) and the UN New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
Oman has a modern Arbitration Law (Law of Arbitration in Civil and Commercial Disputes, Royal Decree 47/97, as amended by Sultani Decree 03/07) which is largely based on the model law developed by the United Nations Commission on International Trade Law (UNCITRAL). Pursuant to its arbitration law, an arbitration agreement must be in writing, and it can be in one or more instruments. The parties are free to choose any law relating to the arbitration agreement and, in the absence of an explicit law, the courts are given the power to determine it.
Additionally, there are specific dispute resolution mechanisms through the United States-Oman FTA that can assist Omani and U.S. companies in resolving disputes outside of the Omani legal system.
International Commercial Arbitration and Foreign Courts
Many corporate entities in Oman are increasingly turning to arbitration to resolve their disputes as it is considered to be a more efficient and reliable mechanism. An arbitral award is usually rendered in Oman within 12 months of the aggrieved party stating in writing that a dispute has arisen. In contrast, court processes can often be much lengthier, particularly where technically complex issues are involved. The fact that cases normally go through three tiers of justice (Primary, Appeal and Supreme) also naturally means a longer process.
The Omani Arbitration Law (Royal Decree 47/97 as amended) defines the term “Arbitration” as a dispute resolution mechanism agreed to by parties of their own volition. Usually, the parties will state in their initial contract that any dispute will be resolved by arbitration pursuant to, for instance, Omani Arbitration Law. The Law mandates that an arbitration agreement should be in writing. It is also permissible for parties to agree in writing, once a dispute has arisen, that it will be resolved by arbitration. In such cases, however, the agreement has to specify the underlying issues that the parties have agreed to resolve by arbitration.
Binding international arbitration of investment disputes between foreign investors and the Omani government is recognized. Omani courts recognize and enforce foreign arbitral awards, and international arbitration is accepted as a means to settle investment disputes between private parties. Oman’s legal framework provides for the enforcement of international arbitration awards and most foreign companies elect for dispute resolution by arbitration. Arbitration is generally cheaper, quicker and easier than settling commercial disputes in the normal court system, where judges often lack expertise on technical commercial issues.
Oman has written and consistently applied commercial and bankruptcy laws. However, insolvency laws currently allow only for complete dissolution rather than restructuring, and many businesses opt to simply shut their doors rather than go through the insolvency process, which can take up to four years. Omani law (Royal Decree 55/1990) also provides for arrest and imprisonment in many bankruptcy cases. According to the World Bank, it takes on average four years to resolve bankruptcy and investors can expect to recover 37.7cents on their dollar. However, the cost of resolving bankruptcy as a percentage of the estate is lower in Oman than the region. According to June 2016 World Bank resolving insolvency, Oman is ranked 6th out of the twenty countries of the MENA region.