Economic Overview
The government encourages the private sector to take on a greater role in financing infrastructure projects.  The capital area and other population centers have modern, well‑developed communications, utilities, and road systems.  Additional investment is extending this infrastructure to rural areas.  The long-term "Oman Vision 2020" development plan highlighted the need for the Omani economy to diversify beyond its present reliance on petroleum, through a process of Omanization, industrialization and privatization.  The government has proceeded with several major privatization projects, including power generation projects in Salalah, Barka, Rusayl, and Sharqiya.  In late 2001, a consortium led by the British Airport Authority became the strategic partner for Muscat's Seeb International Airport and Salalah Airport as part of the Omani government's privatization effort.  Other privately financed infrastructure projects still in the planning phase include a petrochemical plant, a steel rolling mill, and an aluminum smelter in Sohar.

One of the most successful diversification projects thus far is Salalah Port, opened in 1998.  The container transshipment port was originally established jointly by private investors.  The port handled more than 700,000 TEUs in the first quarter of 2004, which means that its has exceeded its current capacity and is well on the way to achieving its 2004 target of three million TEUs.  Aside from being one of the largest in the region, Salalah Port ranks among the most efficient container ports in the world.  It is currently undergoing a major expansion plan, adding two new berths and extending its breakwater to meet an expected increase in demand. The Omani government continues to pursue the establishment of an industrial free zone at Port Salalah.

Oman is developing more light manufacturing industries.  In order to provide facilities for these efforts, the Public Authority for Industrial Estates manages industrial estates throughout the country.  More than 200 factories operate in industrial estates, with a total investment of $800 million.  Furthermore, 33 other production units are under construction in these estates.  The original and most developed is Rusayl Industrial Estate, located on the outskirts of the capital.

Since 1998, the government has introduced numerous measures to revive the market and regain investors' confidence.  The government announced a $260 million bailout in November 2000, offering to aid "small investors" and creating a national investment fund made up of contributions from government pension funds and the strategic reserve fund, as well as offering incentives for investment companies to merge. The government's regulatory agency, the Capital Market Authority (CMA), also took steps to improve transparency in the market, including the enforcement of the International Accounting Standard (IAS) 39 and the establishment of new corporate governance standards.

Openness to Foreign Investment
Oman actively seeks private foreign investors, particularly in the industrial, tourism, and higher education fields.  Investors transferring technology and providing employment and training for Omanis are particularly welcome.  Omani law relating to foreign investment is contained in the Foreign Business Investment Law of 1974, as amended.  A Commerce Ministry spin-off, the Omani Center for Investment Promotion and Export Development (OCIPED) opened in 1997 to attract foreign investors and smooth the path for business formation and private sector project development.  OCIPED also provides prospective foreign investors with information on government regulations.  Nevertheless, despite OCIPED's efforts to become a "one-stop shop" for government clearances, the approval process for establishing a business might face some difficulties, particularly with respect to land acquisition and labor requirements.

With Oman's accession to the World Trade Organization in October 2000, automatic approval of majority foreign ownership (up to 70 percent) is available.  Registration of these joint ventures is treated in the same manner as that common to all registrants.  The foreign firm must supply documentary evidence of its registration in its home country, its headquarters' location, its capital holdings, and its principal activities.  If a subsidiary, it must demonstrate its authority to enter the joint venture.  Except in the petroleum sector, new entities with greater than 70 percent foreign ownership are subject to the approval of the Minister of Commerce and Industry.  As part of its WTO accession package, Oman is also expected to allow 100 percent foreign ownership in certain services sector, such as banking, law, accountancy, and information technology.

Foreign-owned joint ventures with up to 70 percent foreign participation enjoy the "national" corporate tax rate of 12 percent, while foreign-owned joint ventures with greater than 70 percent foreign participation are subject to a maximum corporate tax rate of 30 percent.  In early 1999, the government amended its corporate tax policy and lifted the requirement that foreign-owned joint ventures include a publicly traded joint stock company listed on the MSM in order to enjoy national tax treatment.

New majority foreign-owned entrants are barred from most professional service areas, including engineering, architecture, law, or accountancy.  In 1996, existing foreign-owned professional service firms were given timeframes within to obtain Omani partners (e.g., five years for accounting firms).  An exception exists for professional service firms with subspecialties of critical importance to Oman.  Under Omani commercial law, wholly foreign-owned branches of foreign banks are allowed to enter the market.

The permitted level of foreign ownership in privatization projects increased to 100 percent in July 2004, based on a Royal Decree providing an updated privatization framework.  By privatization, Oman refers not only to the conversion of a state-owned or mixed enterprise into a private sector firm, but also to the establishment of any new firm providing a commercial service that had previously been provided by the state (e.g., electricity).  One approach to partial conversion will be applied to the state-run telephone company, Omantel: the government is planning to float 30 percent of its stake in the company, while retaining the remaining 70 percent. 

Industrial establishments with total capital of $52,000 or more must be licensed by the Ministry of Commerce and Industry.  In addition, a foreign firm interested in establishing a company in Oman must obtain approval from other ministries, such as the Ministry of Regional Municipalities, Environment, and Water Resources.  Foreign workers must obtain work permits and residency permits from the Ministry of Manpower and the Royal Oman Police's Immigration Office.

            Oman's investment incentives focus on industrial development and include the following:

  • Five year tax holiday, renewable once;

  • Low-interest loans from the Oman Development Bank (now available on a very limited basis, and only for small firms);‑ Low-interest loans from the Ministry of Commerce and Industry;

  • Subsidized plant facilities and utilities at industrial estates;

  • Feasibility studies supplied by the Ministry of Commerce and Industry; and

  • Exemption from customs duties on equipment and raw materials during the first ten (10) years of a project.

Conversion and Transfer Policies
Oman has no restrictions or reporting requirements on private capital movements into or out of the country, and there have been no reports of difficulty in obtaining foreign exchange.  The Omani Rial is pegged to the dollar at a rate of 0.3849 Omani Rials to the U.S. dollar. Late in 2001, Oman began implementing a new law for the prevention of money laundering, with updated regulations on financial crimes being issued in July 2004.

Expropriation and Compensation
Oman's belief in a free market economy and desire for increased foreign investment and technology transfer make expropriation or nationalization extremely unlikely.  In any event, were a property to be nationalized, we would expect the Government of Oman to provide prompt compensation under international law.

Dispute Settlement
Oman is a party to the International Center for the Settlement of Investment Disputes (ICSID).  However, the ultimate adjudicator of business disputes within Oman is the Commercial Court, which was reorganized in mid-1997 from the former Authority for Settlement of Commercial Disputes (ASCD).  The Commercial Court has jurisdiction over most tax and labor cases, and can issue orders of enforcement of decisions (the ASCD was limited to issuing orders of recognition of decisions).  The Commercial Court can also accept cases against governmental bodies, which the ASCD was unable to do.  In such cases, however, the Commercial Court can issue – but not enforce – rulings against the government.

Oman also maintains other judicial bodies to adjudicate various disputes.  The Labor Welfare Board under the Ministry of Social Affairs and Labor hears disputes regarding severance pay, wages, benefits, etc.  The Real Estate Committee hears tenant‑landlord disputes, the Police Committee deals with traffic matters, and the Magistrate Court handles misdemeanors and criminal matters.

Performance Requirements and Incentives
Since Oman's accession to the WTO in November 2000, it has been subject to TRIMs obligations.

Under the Industry Organization and Encouragement Law of 1978, incentives are available to licensed industrial installations on the recommendation of the Industrial Development Committee.  "Industrial installations" include not only those for the conversion of raw materials and semi‑finished parts into manufactured products, but also mechanized assembly and packaging operations.  Firms involved in agriculture and fishing may also be included.

Companies must have at least 35 percent Omani ownership to qualify for these incentives.  In addition, companies selling locally produced goods are given priority for Government purchases, provided that the local products meet standard quality specifications and their prices do not exceed those of similar imported goods by more than 10 percent.  This incentive is available to Omani‑owned commercial enterprises, as well as foreign industrial producers in joint ventures with local concerns.  The government offers subsidies to offset the cost of feasibility and other studies if the proposed project is considered sufficiently important to the national economy.

Only in the most general sense of business plan objectives does proprietary information have to be provided to qualify for incentives.

Right to private ownership and establishment
Under Oman's foreign capital investment law, non-Omanis are not allowed to conduct commercial, industrial, or tourism businesses or participate in any Omani company without a license issued by the Ministry of Commerce and Industry. 

According to Oman's commercial companies law, all actions by private entities to establish, acquire, and dispose of interests in business enterprises must be announced in the commercial register, and may be subject to the approval of the Ministry of Commerce and Industry.  Subject to the licensing and taxation previously noted, foreign and domestic entities can engage in all legal forms of remunerative activity.  Government entities do not compete with the private sector, and public policy favors the privatization of public utilities.

Protection of Property Rights
Real property rights are recognized and enforced in Oman, and records are well kept.  There is no contemporary history of arbitrary seizures of land.  With the exception of GCC nationals, who are allowed to own property subject to government approval, foreign persons/firms may lease – but not own – real estate.  A new law allowing foreign nationals to own real estate in Oman was issued in March 2004.  The government actively seeks to promote tourism, and a key component of the drive to attract investment is the ability to sell villas and estates in mixed tourist/residential developments slated for construction over the next 5-10 years.

Oman has a trademark law.  Trademarks must be registered and noted in the Official Gazette through the Ministry of Commerce and Industry.  Local law firms can assist companies with the registration of trademarks. In May 2000, Oman revised the trademark law to be in compliance with TRIPS.

Oman enacted a copyright protection law in 1996, and enforced by a ministerial decree in April 1998, which extended protection to foreign copyrighted literary, technical, or scientific works; works of the graphic and plastic arts; and sound and video recordings. In order to receive protection, a foreign-copyrighted work must be registered with the Omani government by depositing a copy of the work with the government and paying a fee.  Since January 1999, the government has enforced copyright protection for audio and videocassettes, and destroyed stocks of pirated cassettes seized from vendors.  The government did not extend protection to foreign-copyrighted software until late 1998, when it declared that retailers must halt the importation and sale of non-licensed software by July 1, 1999.  Thereafter, the government stepped up efforts to curtail software piracy in Oman, including raids on businesses to ensure that no pirated software is used by Omani firms.

In mid-2000, the government introduced new, WTO-consistent intellectual property laws on copyrights, trademarks, industrial secrets, and integrated circuits.  Further, in October 2000 Oman issued new, WTO-consistent intellectual property rights legislation to protect patents and other intellectual property rights.

Oman has joined the World Intellectual Property Organization (WIPO), and asked WIPO to register Oman as a signatory to the Paris and Berne conventions on intellectual property protection.

Transparency of the regulatory system
In 2003, the Telecommunications Regulatory Authority (TRA) began functioning as a legal and regulatory body in Oman.  The TRA oversees the process of liberalization and privatization of the telecommunications sector, and is composed of four senior officials (one from the Ministry of National Economy, one from Omantel, one from the Royal Oman Police, and the Minister of Transport and Communications, who serves as the chairman.)  In addition, the new privatization framework law passed in July 2004 provides for a new regulator for public utilities that are being privatized in the power and water sectors.

The government recognizes that its regulatory environment can hamper investment and commercial activity.  In addition to the ownership and agency requirements already mentioned, the licensing of business activities can be time‑consuming and complicated.  The absence of a particular clearance will stall the entire process.  For example, processing shipments in and out of the Mina Qaboos Port can add significantly to the amount of time it takes to get goods to market or inputs to a project.

Oman's tax laws can also impede foreign investment.  Although Oman amended its tax laws in 2000 to allow national tax treatment for joint ventures with up to 70 percent foreign participation, projects with higher foreign participation are taxed at 30 percent of income.  Oman's labor laws, which require minimum quotas of Omani employees depending on the type of work, form another potential impediment to foreign investment.

Efficient Capital Markets and Portfolio Investment
There are no restrictions in Oman on the flow of capital and the repatriation of profits.  Access to Oman's limited commercial credit resources is open to Omani firms with some foreign participation.  Joint stock companies with capital in excess of $5.2 million must be listed on the Muscat Securities Market (MSM).  According to the recently amended Commercial Companies Law, companies must have been in existence for at least two years before being floated for public trading.

The Sultanate has two loan programs to promote investment.  The Ministry of Commerce & Industry (MOCI) administers a program designed to promote industrial investment.  Formerly interest free, the program now charges 4 percent interest, with generous repayment terms.  MOCI loans will match equity contributions in the Muscat capital area, or 1.25 times equity for other locations.  Projects with a high percentage of local content or employing large numbers of Omanis are given priority, as are tourism projects outside the capital area.  The Oman Development Bank also administers a loan program to support development of smaller loans to industry, agriculture, fisheries, petroleum, mining, and services.

Foreigners may invest in the MSM, as long as this is done through a local broker.  Since the 1998 market downturn, MSM statistics show that the percentage of foreign investment in the MSM has remained stable at around 16 percent.

n an effort to attract foreign investment, Royal Decree 54/2003 was issued on September 10, 2003, enacting a series of amendments to the Omani Income Tax Law.  Oman extended national tax treatment to all companies registered in Oman, regardless of foreign participation.  National tax treatment was also extended to companies wholly owned by GCC member states, irrespective of the nature of their activities.  Furthermore, branches of foreign companies registered in GCC states will also receive national tax treatment.  In such cases, companies will be taxed (on taxable income above $78,000) at a flat rate of twelve (12) percent.  Previously this rate was only available to companies with maximum 49 percent foreign ownership, although it had been extended to companies with 70 percent foreign participation in early 2003.  Companies with greater than 70 percent foreign ownership had been taxed on a progressive scale up to a maximum of 30 percent.  (Prior to 2003, companies in this category were subject to 50 percent taxes.)

In late 1996, Oman introduced a ten (10) percent withholding tax on the gross income of foreign firms, including remittances to parent companies, as a tax on foreign services.  Oman also levies a tax on companies of RO110 per year (about $286) for each foreign employee.