The 1996 Basic Statute of the State (also referred to as the Basic Law) sets out the legal structure of Oman and the respective functions of the executive and the judiciary, as well as citizen’s personal liberties and public obligations. It provides that Oman’s basic principles include free market economics, cooperation between the public and private sectors, the protection of private property (with expropriation only in cases provided for by law and against fair compensation) and taxation in accordance with the law that shall not have retrospective effect.

The Basic Law states that “Islam is the religion of the state and the Islamic sharia is the basis of legislation” and that existing laws and regulations remain in force “provided that they do not conflict with any of the provisions of this Basic Law”. The Basic Law also provides for the establishment of a court with jurisdiction to determine whether legislation complies with the provisions of the Basic Law. Currently there is no such court. However, perhaps one may be established in the future. The only area which the Basic Law states will be governed by Islamic sharia is the law related to family affairs and inheritance.

Judicial power lies with the courts, which are independent of the executive authority. The Commercial Court has jurisdiction over commercial disputes. Oman is a civil law jurisdiction, hence judges enjoy greater freedom to interpret agreements in a way which in their opinion correctly reflects the intention of the parties in question if the express terms of the agreement are ambiguous. A judge’s interpretation can extend to amending a contract if he or she feels that doing so would reflect the original intention of the parties.

Commercial Agency

Any foreign producer seeking to supply goods or services to Oman on a sustained commercial basis, but which does not wish to have a presence in Oman, can appoint a commercial agent (or agents) for purposes of marketing, after-sale and servicing. The agreement under which any such appointment is made must be entered in the Register of Commercial Agencies and Agents maintained by the Ministry of Commerce and Industry (MOCI) in order to give it legal effect.


There is no specific legislation in Oman on franchising. The MOCI sees franchise agreements as different from commercial agency agreements, in that the franchisee is subject to a substantial measure of operational control by the franchisor and is not independent.


When a visit or work visa is obtained by an Omani for a foreigner, that Omani is said to be the foreigner’s “sponsor” and to some extent stands as surety for that foreigner’s good conduct in Oman. Other than in this immigration context, there is no wider legal significance to the concept of sponsorship. Agreements whereby a sponsor also undertakes to promote and support a foreign company’s business in Oman can be exposed to a number of legal hazards. For example, it would be wrong for an Omani business to go so far as to lend its name and commercial registration to a foreign company and thereby allow that company to establish and conduct a covert trading presence of its own in Oman.

General Principles For The Conduct Of Business In Oman

In practice, there are two ways in which a foreign company can conduct business in Oman. First, the person or company may become a shareholder in an Omani company (either by establishing a new company or by purchasing shares in an existing company). Second, in certain circumstances and to fulfil a particular role (as is more fully explained below), a foreign company may establish a branch office of its overseas parent company.

If the foreign company does not wish to directly conduct business in Oman through participation in an Omani corporate entity, it also may be possible to enter into a commercial agency arrangement with an Omani individual or company which is registered as a commercial agent. Although the foreign firm has no legal presence in Oman (and is not therefore “doing business in Oman”), the products or services which they produce may then be lawfully marketed and sold in Oman by the Omani commercial agent in question.

Corporate Structures

There are five types of corporate entity contemplated by the Commercial Companies Law (CCL):

  • General partnerships;
  • Limited partnerships;
  • Joint ventures;
  • Limited liability companies (LLC); and
  • Joint stock companies.

The partners of a general partnership have unlimited joint and several liability. In a limited partnership, the general partner has unlimited personal liability. The Omani “joint venture” referred to above is an unincorporated commercial company and thus, whilst referred to as a “company”, it does not benefit from separate legal personality. Essentially, it is established by a contract between investors engaged in a common venture. Whilst a joint venture cannot enter into contracts independently from its partners and cannot own property, it keeps a separate set of financial books for the venture and is audited and taxed as a commercial company on this basis. The partners of the joint venture may be exposed to unlimited joint and several liability, and this is the primary reason for which this form of commercial entity is not preferred.


The LLC type of corporate entity is commonly used by foreign individuals and companies wishing to establish a legal presence in Oman. This form of company combines limited liability with a number of features normally associated with partnerships. Members of the LLC are usually referred to as “partners” or “members”, and not “shareholders” as the company issues no shares as such, rather, the investors have a percentage interest in the company’s registered capital. The liability of individual members is limited to the nominal value of their contribution to the LLC’s capital.

The minimum number of partners in an LLC is two and the maximum is 40.

The capital of an LLC with up to 70% foreign ownership must be at least OR150,000 ($390,000). The capital of an LLC with 100% foreign ownership must be at least OR500,000 ($1.3m). Capital, whether in cash or in kind, must be contributed in full upon incorporation. LLCs which are wholly Omani owned must have a capital of at least OR20,000 ($52,000).

The CCL provides that an LLC is to be managed by one or more managers (statutory managers) that are appointed by the partners of the LLC. Statutory managers may perform all acts in pursuit of the LLC’s objects as they see fit and are not required to pass resolutions as evidence of such acts. However, certain corporate acts (provided that they act within the scope of their authorisation, which is required by the MOCI) are reserved by law to the partners alone, and there may be other acts which the partners choose to reserve to themselves, either by specific provision in the constitutive contract of the LLC, or by subsequent partners’ resolution. The names of the statutory managers are recorded in the Commercial Register at the MOCI. The statutory managers have liability to the company, the partners and any interested third parties for ultra vires acts, wilful misconduct and negligence.

Before distributing profits, 10% of the net profits after tax must be appropriated to a “legal reserve” until the reserve reaches the level of one-third of the company’s capital. Companies undertaking certain activities may not be allowed to take the form of an LLC, such as banks and insurance businesses.

Joint Stock Coompanies

The structure of joint stock companies (SAO) is derived from the French société anonyme (SA) model. Its formation must have specific prior approval from the MOCI. Certain activities, such as banking, insurance and maritime, are reserved to joint stock companies and require further approvals and licensing.

There are two types of joint stock company:

  • The public joint stock company (SAOG), a joint stock company which has offered its shares to the public and is listed on the Muscat Securities Market (MSM); and
  • The closed joint stock company (SAOC), a joint stock company which has not offered its shares to the public.

The minimum number of shareholders in an SAO is three (unless the SAO has been formed by the government). There must be at least three founders (or promoters) in an SAOG. They are required to subscribe for between 30% and 60% of the capital, with no single founder subscribing for more than 20% (subject to limited exceptions). In general, at least 40% of the capital of an SAOG must be offered to the public, and there can be different classes of shares provided these are included in the articles of association on incorporation.

The minimum issued capital is OR2m ($5.2m) for an SAOG and OR500,000 ($1.3m) for a SAOC. The CCL allows for the payment of up to 50% of this required capital to be deferred for a period of up to three years from the date of incorporation.

SAOs are managed by a board of directors (the board) who are appointed from time to time by the SAO’s shareholders. The board conducts the SAO’s business by passing resolutions in accordance with the SAO’s articles of association. The minimum number of members of the board is three for an SAOC and five for an SAOG, with a maximum of 12 in both cases. The normal term of office for board members is three years on a renewable basis.

Shares in SAOs are freely negotiable, subject to certain restrictions placed on the founders (a founder shareholder cannot dispose of their shares before the firm has published two balance sheets for two consecutive financial years) and a shareholder may pledge their shares as a security for the shareholder’s own loans and other financial obligations.

Branches Of Foreign Companies

By way of exception to the general rule of the Foreign Capital Investment Law, a foreign firm may conduct business in Oman by means of an Oman branch of the company if it is the counterparty to a contract with the Oman government. For these purposes companies with certain levels of government ownership may also qualify, although this depends on practice, which changes from time to time. An Oman-registered branch of a foreign company may contract, own assets and incur liabilities, submit its own tax returns, obtain visas and work permits for its personnel, open and operate bank accounts and effect imports, all in connection with its government contract(s).

Commercial Representative Offices

Foreign firms may also open commercial representative offices or trade offices in Oman. These offices are restricted to engaging in marketing and promotional activities for the foreign head office. Marketing is limited to retailers, not individual consumers. Furthermore, representative offices cannot engage in any sales activities.

Tax Considerations

Tax is payable by Omani companies and by foreign entities which have a “permanent establishment” in Oman. The income which is taxable is that income which has been realised or has arisen in Oman. The tax treatment of a taxable company does not depend on its corporate form – the law applies equally to all corporate entities registered in Oman (and foreign entities operating in Oman through a dependant agent).

There is tax parity between all income-generating Omani corporate entities, including unincorporated joint ventures, foreign parties who establish permanent establishments operating in Oman through an Omani dependent agent, branches of foreign companies, and all Omani companies regardless of the nationality of the shareholders or the percentage of foreign shareholding. Specifically, they are all subject to a 12% rate of tax on net profit over OR30,000 ($78,000).

Withholding tax is payable at a rate of 10%, although Oman has double taxation treaties in place with 29 other countries (including the UK but not the US) under which this rate may be reduced.

There are tax exemptions and other incentives granted to specific industries engaged in the development of tourism, certain manufacturing businesses and projects of strategic economic importance with substantial export and employment potential. These industries are perceived to provide economic growth. Company accounts must be prepared in accordance with international accounting standards and tax returns filed with the tax authorities on an annual basis. There is currently no personal income tax, sales or value-added tax (although the introduction of a sales tax is being considered).

Incentives For Inward Investment

The current legislation affirms the foreign investor’s right to repatriate his or her profits. The Omani rial is a freely convertible currency. It is pegged to the US dollar. The rate is fixed at OR1:$2.60.

Expropriation is precluded, save in cases of public benefit schemes regulated by law and conferring a right to fair compensation. While corporate income tax is payable in Oman, unlike some other GCC states, tax holidays and Customs exemptions are available for an initial five-year period, with the possibility of a further renewal. Customs exemptions are available on imports of plant and equipment for setting up a production facility, and are also in principle available in respect of extensions to the original investment project. For industrial projects, tariff protection may be available for local production. Export credit insurance against commercial and political risk is available, where the project generates exports.

Banking (Conventional & Islamic)

The Omani banking system comprises the spectrum of commercial banks, specialised banks, Islamic banks and windows, non- bank finance and leasing companies, and money exchange establishments. The commercial banks operating in Oman are either locally incorporated or branches of foreign banks.

The Central Bank of Oman is responsible for regulating and supervising Oman’s commercial banks, specialised banks, Islamic banks and finance, leasing companies and money exchange companies. Omani banks are subject to the Banking Law, promulgated by Sultani Decree 114/2000 (as amended) (the Banking Law), and banking regulations issued by the Central Bank of Oman. Banks are also required to comply with other laws of general application.

In December 2012, the Banking Law was amended by Sultani Decree 69/2012 (promulgated on December 6, 2012) to allow the Central Bank of Oman to license the conduct of banks in Oman to carry out Islamic banking services through either fully fledged Islamic banks, or windows of conventional banks. In addition, the Islamic Banking Regulatory Framework was issued to provide detailed and comprehensive guidance on all aspects of Islamic banking including the requirements for obtaining an Islamic banking licence from the central bank and the various accounting and reporting standards that are to be complied with.

Oman is the last of the GCC countries to introduce Islamic banking and its introduction has diversified and widened the pool of banking products available to retail and corporate customers. It also brought about the addition of new entrants to the banking system in terms of two full-fledged locally incorporated Islamic banks and a number of conventional banks have established windows for Islamic banking, further enhancing the competitive banking environment in Oman.

Real Estate

Ownership of real estate by non-GCC nationals, as a general rule, is not permitted. The notable exception to this is that foreigners may own real estate in what are known as integrated tourism complexes (ITCs). Examples of these include The Wave and Muscat Hills Golf and Country Club. ITCs are specific areas set up by the government for the development of tourism.

Commercial and residential leases tend to be granted in a standard form for an initial one-year term, although the term is automatically renewed unless three months’ notice is served on the landlord. Except in specified circumstances a landlord may not terminate (or not renew) a residential lease for the first three years or a commercial lease for the first five years (rent may not be increased in these periods either unless there have been improvements made to the premises). Broadly speaking the rights between landlords and tenants under the law in the sultanate are well balanced.

Real estate can be owned by corporate entities registered in Oman regardless of the level of foreign ownership provided it is required for carrying out their commercial activities. Trust arrangements in relation to land are not recognised by the law.


Business operations in Oman have traditionally relied on skilled and semi-skilled workers from abroad. While there remains a need for expatriate workers with certain specialised skills, the government has taken steps to increase the number of Omanis working in the private sector.

Foreign nationals are prohibited from employment in certain positions and companies must employ specific numbers of Omanis, defined as a percentage of their total workforce, depending on the type of company and the sector it is engaged in.

The government has established a register for the national workforce. No organisation is permitted to employ an applicant unless the applicant first proves that he or she is registered with the National Workforce Register, and all employers are required to report their new employees for registration.

The comprehensive Omani Labour Law issued in 2003 applies to Omani and foreign employers and employees. The law governs work contracts, wages, overtime pay, leave, work hours, industrial safety, labour disputes, vocational training, and the employment of Omani and foreign nationals.

The government has set the minimum monthly wage for Omani employees at OR325 ($845) divided into a basic salary of OR225 ($585) and allowances of OR100 ($260). Omani employees are entitled to a mandatory 3% increase in basic salary each year after working for an employer for six months (and so long as they have not received a poor performance review). There is no minimum wage or mandatory increase for expatriate employees.

Social Security

The Social Security Law introduced a system of social security to insure employees against old age, disability, death, and occupational injuries and diseases. The law currently applies only to Omanis who are working in the private sector. Under the law, private-sector employers must make monthly contributions to the Public Authority for Social Insurance (PASI) at a rate of 9.5% of each Omani employee’s gross monthly wage. Employees contribute at a rate of 6.5% of their gross monthly wages. Employers contribute an additional 1% of each Omani employee’s monthly wage as security against occupational injuries and diseases.

PASI invests all funds received, and it pays out sums due to employees on their retirement and as compensation for injuries and diseases. In accordance with the Labour Law, employers must pay an end of service benefit (ESB) to their foreign employees. ESB is calculated on an employee’s final wage and paid according to the following guidelines:

  • For the first three years of service: the equivalent of 15 days basic pay for each year worked; and
  • For each subsequent year, the equivalent of one month’s basic pay

Visa Procedures

The government of Oman has issued visa procedures that are aimed at liberalising the entry regulations into Oman. The salient features of the visa procedures are as follows:

  • Citizens from countries on list “Number One”, including nations like Austria, France, Germany, Italy, the UK and the US, will be eligible to obtain single-entry tourist visas on arrival on all ports of entry into the country.
  • Citizens from countries mentioned on list “Number Two” such as India, Iran, Egypt, Tunisia and Morocco will also be able to obtain single entry visit visas by applying at Oman’s diplomatic missions in the respective country. If an individual overstays the visa length he or she is subject to a penalty of OR10 ($26) per day beyond the validity of the visa.

Employers wishing to employ foreign nationals must obtain labour clearances from the Ministry of Manpower as well as employment visas from the Royal Oman Police. An employer may engage a foreign employee only in the role that is specified on the labour clearance which has been obtained for that individual. Certain labour clearances are more difficult than others to obtain and there may be restrictions imposed on the number of foreign labour clearances that a given company may obtain in a certain category.

Employees are permitted to form trade unions in Oman, and both Omani and expatriate employees can join trade unions. The administrative officials of a trade union must be Omani nationals. Trade unions are permitted to engage in peaceful strikes provided they give three weeks’ notice.

Oman’s new Civil Code (discussed below) has introduced some new law relating to the employment relationship. For example, definite term contracts are now limited to five-year terms. Also, as an exception to the employer’s general entitlement to new inventions/discoveries made by an employee in the course of work or using the employer’s resources, if the invention is of “major economic importance” then the employee can seek payment from the employer if “justice requires”.

There are also two particularly interesting provisions in the Civil Code which have both clarified and developed the existing law.

First, commissions, gratuities and service charges, if customarily given, are now considered to be part of an employee’s remuneration and this is to be taken into account when determining entitlements. The Labour Law has provided, since certain amendments were made in 2011, that employees are entitled to receive a gross salary during periods of annual leave. It is not yet clear how this new provision will apply in practice, but it might potentially be used to argue that gross salary should include, for example, service tips customarily earned and therefore payable during annual leave.

Secondly, restrictive covenants were expressly prohibited prior to the promulgation of the Labour Law in 2003, which is itself silent on the issue. In the absence of an express prohibition the courts have enforced such provisions in employment contracts subject to a requirement of reasonableness on the part of the employer. The Civil Code makes it clear that restrictive covenants are permitted, but it sets out strict parameters.

For a restrictive covenant to be enforceable the employee must (i) be privy to confidential information, or (ii) know the customers of the business and, in addition to satisfying one of these criteria, the covenant must be limited as to time, place and type of work to the extent necessary to “protect the legitimate interests of the employer”. Restrictive covenants are not enforceable if employment is terminated without cause or if the employer acts in a way to justify the employee resigning. In addition, if compensation is provided for breach of the covenant and it is considered to be an unreasonable amount, it is void if the reason for it is to compel the employee to stay with the employer.

The Civil Code

Oman’s first Civil Code came into effect on August 13, 2013 – Civil Transactions Law (promulgated by Sultani Decree 29/2013). It is a very long piece of legislation including 1086 articles. It has major implications for businesses operating in the sultanate.

Compared to other civil law jurisdictions where the civil code has been the foundation that sets out the legal principles upon which subsequent legislation is issued, in Oman the code is preceded by a considerable body of existing legislation dating back to 1970, each governing a specific sector such as commerce, employment, etc. The code is intended to influence the future legislative framework without prejudicing the existing body of legislation. The interplay between this existing legislation and the code is crucial to understanding the legal landscape of Oman after August 13, 2013. Article 1 provides that the code shall not apply to matters regulated by “special” laws; in other words matters that are already governed by a specific body of law.

Key features of the Civil Code are as follows:

  • In spite of its name, the code applies to commercial as well as civil transactions.
  • The code provides that any matter that is not specifically regulated by the code is to be governed by reference to, first, Islamic jurisprudence, secondly, the principles of Islamic sharia and, thirdly, custom.
  • Most provisions of the code – including the status of sharia law – are matters of “public order”, which means that they are mandatory provisions of Oman law that will, for example, override any applicable foreign law regardless of the general Omani legal principle that permits freedom of choice of law. This may be significant, for example, when the Omani courts are asked to give effect to an award relating to interest payments in the case of a loan agreement governed by English law.
  • Although existing “special” laws will continue to apply, there will undoubtedly be conflicts between provisions in these laws and provisions in the code that relate to the same or similar issues. In such cases we believe that existing laws will continue to take priority; however, there are bound to be areas of uncertainty.
  • The code introduces many new statutory limitation periods, with 15 years being the most significant; however, all must be considered in the context of the relevant facts.
  • The code introduces the principle of Izard which translates as “notification to remedy a breach as a pre-condition for exercising a legal right”. This is relevant where one party to a contract wishes to enforce its contractual rights against another party. Izard is a statutory requirement to give notice to a counterparty prior to taking action to enforce the provisions of a contract. If this notice is not given, it is possible that the party seeking to enforce may lose the right to do so.
  • Irrevocable powers of attorney are now possible in certain circumstances. This is likely to have significant implications for certain types of security packages.
  • The code provides that contractors are liable for all damage and loss arising out of their works and this has potentially significant implications for claims for liquidated damages.
  • The code seeks to bolster the remedies available for breach of contract by providing for specific performance of contractual obligations (and therefore not restricting claims to damages). If the Oman courts start to enforce non-payment contractual obligations in this way, this will be a very significant development for contract law in Oman.
  • The code regulates the assignment of debts, but not the assignment of rights, and this should be considered when assignments are being proposed. Much of the content of the new code mirrors the approach of the UAE Civil Code, and indeed nearly one-third of the articles in the new code are identical to articles in the UAE Code. It is likely, therefore, that decisions of the UAE courts should be considered when it comes to forming opinions on how these provisions will be interpreted by Omani courts.