A TIME FOR CHANGE
As the government works on redrafting the Foreign Direct Investment policy, OER speaks to legal eagles about the strengths and concern areas in the existing framework and the changes that would facilitate foreign investment into the Sultanate. Mayank Singh reports

Having signed the WTO agreement in 2004 and the Free Trade agreement with the US in 2007, the government is working on revising the FDI (foreign direct investment) rules in the Sultanate. The revision is expected to bring the rules in line with the provisions of these international treaties. Says Manal Al-Abdwani, director general of planning and follow-up, Ministry of Commerce and Industry, “We are working on changing the FDI policy and a committee is working out the details.”

As countries across the world vie to attract foreign investments the importance of a friendly FDI policy can hardly be overstated. Says Paul Sheridon, Managing Partner, DentonWildeSapte, “People who want to invest billions of dollars are also looking at different jurisdictions. Most investors come in evincing an interest in investing in the Middle East and they look at what each country has to offer.”

Setting shop
The existing policy has a number of things going for it. A big plus is the Sultanate’s foreign ownership rules which allow investors the right to own 70 per cent of a business in Oman. The remaining 30 per cent has to come from a local partner. A number of other jurisdictions permit foreign companies a 49 per cent ownership only. The government also has the right to waive away the 70 per cent clause and give foreign companies 100 per cent ownership if it feels that the project is in national interest. For example Microsoft Oman is completely owned by its international parent company. A number of power projects were allowed to come in with foreign ownership in excess of the mandatory 70 per cent. Oman changed its foreign ownership law raising the limit for ownership from 49 per cent to 70 per cent after signing the WTO in 2004. Says Charles Schofield, partner, Trowers & Hamlins, “Companies which are bringing in proprietary technology and large investments would like to own 100 per cent of a business.” So this is an area where the new policy can bring about definite improvements.

To set up a business in Oman, a company needs to get a commercial registration and has to fulfill a minimum capital requirement. The minimum investment being RO150,000 which goes up to half a million rials for 100 per cent foreign ownership. The promoter has a choice of taking away this sum as soon as the company is set up. A business can also be set up by entering into a management arrangement with a local partner or company. In the latter case, though an investor pays taxes he is technically not registered as a company. This is a grey area that the policy can clarify. Says Sheridon, “It would be helpful if there was more clarity on the matter as it creates a lot of debate on tax laws.” A similar conflict arises in cases where local agencies import and sell goods to customers. A number of principals have lately started selling to the end customer directly, leading to disputes.

No free lunches
Though a number of investors assume that Oman is a tax free country, the law stipulates a 12 per cent corporate tax on earnings above RO30,000 per annumn though sectors like tourism and agriculture are exempt from taxes. “The Sultanate is also promoting free trade zones in Salalah and Sohar where it gives tax incentives to companies. Oman also has a double tax avoidance treaty with countries like France, Britain, US and Vietnam which attracts investors,” says Schofield. The fact that jurisdictions like Dubai are working on introducing VAT (value added tax) soon, increases the attractiveness of Oman as a low tax jurisdiction.

The Sultanate’s Omanisation policy is something that is looked at closely by potential investors. They look at the impact that the policy would have on their cost structure and the comparative economic benefits that they can derive by setting up a business in Oman. The government though reserves the right to waive off Omanisation targets for certain ventures. There are times when questions are raised about how this discretion is exercised but there is an overall acceptance of the government’s desire to promote employment amongst nationals.

Though a few investors may have some reservations about Omanisation, the Sultanate offers a higher degree of economic freedom. Says Schofield, “The average employer would prefer Oman compared to UK or USA as the labour laws there are far more restrictive than Oman.” The government has lately granted workers the right to form trade unions. Strangely in most cases it is the management of the respective companies which are helping workers to form trade unions.

Red tape
One area in which there is definite scope of improvement pertains to the application process. Currently, foreign investors need to get their documents notarised in the country of origin. Says Sheridon, “This is a long drawn out process adding to the time that it takes to set up a business in Oman.” There are countries which have done away with such a formal process and the new policy can bring about a degree of leniency. Once the requisite papers are in place then establishing a business in Oman can take anywhere between a few days to three weeks time.

The prevalence or lack of court certainty is another issue that investors look for in a country. Schofield explains, “They want to know whether there are country specific laws that can override a contract and if so what is the redressal mechanism at their disposal.” Aware of this concern a number of countries have been working on the problem.

As the usual court process takes a long time there have been demands for a fast track legal system for an expeditious disposal of commercial litigation. “Oman can establish a commercial division of the court, with judges who are trained in commercial law,” says Schofield. Qatar and Dubai have taken the lead by establishing such divisions. Adds Schofield, “The law in most countries is surely becoming more international and outward looking.”

Copyright matters
Intellectual Property Rights (IPR) and copyright violation is not seen as a big issue in Oman. This is largely because most FDI in the Sultanate has been in tourism and manufacturing. These are sectors where IPR’s infringement is on the lower side. Says Sheridon, “Oman has just started appearing on the radar of foreign investors, but with its growth rate, IPRs are sure to become an important area.” Anticipating this the FDI policy should enshrine adequate safeguards for IRP and copyrights.

There is also a difference of opinion whether the revised framework should be more of a code or a law. “Codes are more generalist and it would be difficult for us to interpret,” says Sheridon. The revision of the FDI policy has been in the works for a while and there is a need to expedite things. The blue print for change has gone to the ministry of legal affairs and most investors would be keen that it sees the light of day soon.

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