July 20, 2020
The new Foreign Capital Investment Law (the New FCIL), promulgated by Royal Decree 50/2019, came into force on 1 January 2020. In accordance with Article 15 of the New FCIL, the Executive Regulations of the New FCIL (Regulations) were issued by the Ministry of Commerce and Industry of Oman (MOCI) on 14 June 2020. This note revisits the changes introduced by the New FCIL and takes a brief look at the implications of the recently introduced Regulations.
By removing the requirement for Omani companies to have at least 30% Omani ownership (as was generally the case under the old 1994 Foreign Capital Investment Law), the New FCIL is geared towards attracting foreign investors into Oman who can now invest in Oman without the need for any local shareholder.
Since the introduction of the New FCIL, there has been a bout of activity at the MOCI in respect of applications for the establishment of 100% foreign-owned companies under the New FCIL.
The MOCI has also been accepting applications for the ownership restructuring of existing foreign- and Omani-owned companies, resulting in such companies becoming 100% foreign-owned. As per our briefing article on the New FCIL in February 2020, we continue to recommend that foreign investors review any shareholders’ agreement with their local Omani shareholders to understand whether such agreement paves the way for a purchase of interests held by the Omani shareholder (such as by way of a call option). Of course, suitable due diligence on the relevant target should also be undertaken, given that any restructuring may trigger a change of control termination event on customer/supplier contracts. Even if the restructuring is contractually feasible, foreign investors may also wish to consider the impact on business relations without local ownership in the company – for example, how would key local Omani customers react?
As a general point, the Regulations appear to be geared towards large-scale investment projects, which (according to Article 8 of the Regulations) need to be applied for by way of an investment application that, as at today’s date, is not yet publicly available. Furthermore, Article 8 of the Regulations sets out certain requirements that should accompany an application for foreign investment such as the requirement for the investor to produce an economic feasibility study. It is not clear at this stage what form the economic study should take. Other items required by the application pursuant to Article 8 of the Regulations include: (1) a timetable of the project; and (2) previous experience of the investor.
Based on our discussions with officials at the MOCI, the requirements of Article 8 of the Regulations are unlikely to be required where an existing company is undergoing a restructuring which results in the exit of an Omani owner.
Article 9 of the Regulations refers to various conditions and rules that need to be satisfied in respect of investment projects which can benefit from the New FCIL, with such conditions and rules being set out in an "investment manual". The investment manual has not yet been made available by the MOCI and so we await further information on this.
In addition to encouraging foreign investment in Oman, the Regulations also aim to attract investment in certain locations and sectors. For example, Article 17 of the Regulations sets out that a project established in the least developed regions of Oman, which have not been detailed in the Regulations, will benefit from certain privileges such as low rentals on usufructs and exemptions from Omanisation requirements. Furthermore, Article 19 of the Regulations provides exemptions from taxes and customs duties for projects established in, amongst others, the IT and logistics sectors.
In summary, the Regulations are welcomed as they provide further details regarding the application process for foreign investment. However, it is important to note that, at this stage, there are certain documents (containing conditions), manuals and applications which are yet to be made available and so it is unclear how the Regulations apply. It does not help that the MOCI is not taking general enquiries, given that it is only operating remotely due to COVID-19. For now, and as stated above, the establishment of 100% foreign-owned companies is being considered by the MOCI on a case-by-case basis.