If any foreign investor is looking to invest in a company or open a branch office, he needs to carefully consider the legal framework of the country

With foreign investment on the tip of everyone's tongue recently and a swath of investment opportunities coming up in the sultanate, it is timely to revisit the foreign investment landscape from a legal perspective and consider the rules applicable to foreign investment in Oman. In order to be able to do business in Oman, it is necessary for any foreign individual, partnership or company to comply with the laws governing foreign business activity, and in particular the Foreign Capital Investment Law (FCIL), in addition to all other laws affecting commercial enterprise within Oman generally. Whether a foreign investor is looking to invest in a new company, open a branch office or invest in an ongoing company, the legal framework needs to be carefully considered.

The effect of FCIL is that a foreign person cannot carry out business in Oman unless appropriate authorisations have been issued by the Ministry of Commerce and Industry (MCI). FCIL, together with Oman's WTO commitments, provides that non-Omanis may hold up to 70 per cent of the share capital of an Omani company. It goes further and stipulates, for example, the minimum capital requirements for companies with foreign participation. There are concessions available for GCC nationals who can, subject to certain conditions, invest up to 100 per cent.

There is no such thing as an off-the-shelf company in Oman. Every company must be specifically incorporated and is subject to express authorisation in respect of any foreign investor. The process requires the preparation of necessary documentation on the part of the foreign shareholder which needs to be registered with the appropriate authority. For example, one of the most important documents a new limited liability company (LLC), which is the preferred form of company, requires is a constitutive contract, which is similar to the Article of Association in other jurisdictions. This provides essential details about the company and its activities and will need to be registered with the MCI. Any subsequent changes in the activities of the company will then require an amendment of the contract and further submission at the ministry.

Typically, in addition, the shareholders often sign shareholders agreements which set forth clearly the rights and obligations of all members. The agreement can be used to set and manage expectations and protect the rights of members, for example, a minority foreign shareholder may wish to ensure that certain decisions require his approval over and beyond a simple majority approval. The agreement can also provide deadlock provisions (i.e. where there is an even split over a decision) by reference to a chairperson or agreement to appoint an external expert to resolve the deadlock.

The shareholders agreement can also provide dispute resolution procedures, should disagreements occur. The preference in Oman is currently to provide for arbitration, where the matter can be referred to an external panel and the provisions setting out the process can be made quite specific within the agreement. The reasoning for this is that arbitration is seen as a quicker and more cost effective option than court-based resolution. Also, arbitration provides flexibility for a foreign investor in allowing for it to take place outside Oman.

Cross-border investment should always be done with a degree of caution and Oman is no different in this regard. We have seen global best practices and standards in terms of the documentation being applied in Oman for investment, which are tailored of course, to comply with the laws of the sultanate. The above information gives a reminder that this caution should still be exercised and is indeed being exercised in Oman.