Oman as an investment destination

Oman as an investment destination6

Although the oil sector has underpinned expansion of Oman’s economy over the past decades and accounted for almost two-thirds of total goods exports and one-third of GDP in the recent years, in early 2016, Oman introduced its National Program for Enhancing Economic Diversification – also known as Tanfeedh – to shift its economy away from oil towards a sustainable, innovation, and knowledge-based economy. Tanfeedh was a government initiative aimed mainly at linking the strategies of the main vital sectors of Manufacturing, Tourism, Transport & Logistics, Mining and Fisheries to each other in order to diversify the national income resources and fulfill the objectives of the Ninth Five Year Development Plan 2016-2020. The Oman Government considers diversification as one of the main objectives for the achievement of the vision for Oman’s economy. To achieve this objective, the government is making all-out efforts to provide appropriate conditions. The diversification strategy focuses on three core areas: 1. Attracting foreign capital and expertise into non-oil, export-oriented sectors through a combination of regulatory reforms and infrastructure investments.

2. Capitalising on Oman’s geographic advantage to develop into a regional logistics hub. In addition to boosting the domestic ports and logistics industry, the government hopes this will create positive spillovers to other domestic industries. 3. Enforcing local employment and procurement requirements on foreign firms. In so doing, the government hopes that rising profits in exportoriented sectors will permeate across domestic-focused industries such as retail and real estate.

Investment plays a major role in all developing economies as it drives its dynamic basics of growth, development, and structural changes. Despite the prevailing economic, political and social circumstances at the time of the Omani Renaissance in 1970, the intensive programmes on investment during the past five decades have been able to transfer the oil revenues to a developed economic and social infrastructure, essential for leading sustainable development. The First Development Plan of Oman stated: “Working on finding a new national income that supports oil revenues and supersedes it in the future, the Sultanate deems it essential that it develops its

6 Information for this section has been taken from personal interviews with the stakeholders who have been referenced within the text.

non-oil exports and achieves the benefits expected from contacting the world through multinational network by opening new markets for Omani products”7 .

Initiatives such as the Invest Easy and Invest in Oman portals and the New Foreign Capital Investment Law, Public-Private Partnership Law, Privatisation Law, and Bankruptcy Law, are helping Oman become a leading destination for Foreign Direct Investments (FDI) and prepare for a world without oil. They also represent the cornerstones of a new legislative and regulatory framework that effectively catapults Oman into a league of investorfriendly nations of the world. Promulgated by Royal Decree 50/2019, the New Foreign Capital Investment Law encourages FDI by providing several incentives to investors including 100% foreign ownership, reduced capital requirements, competitive lease rates in specific locations, allocation of real estate property for long-term lease, and tax incentives and customs duty exemptions. The law also provides foreign investors with the same rights and benefits as Omani business owners. Foreign investors are particularly attracted by the fact that Oman taxes corporate earnings at 15% and has no personal income or capital gains tax. The government is also willing to offer additional incentives on a case-by-case basis and for certain types of companies established in recognized industrial estates and free trade zones.

The New Foreign Capital Investment Law, along with other new statutes, are critical to the Omani government’s goal of diversifying the economy, as well as attracting much-needed foreign capital into the country. Furthermore, they will have a positive impact on Oman’s goals to obtain favourable ratings from international credit ratings agents, as well as secure a better ranking from the World Bank in its Ease-of-Doing-Business Index. They also represent the cornerstones of a new legislative and regulatory framework that effectively catapults Oman into a league of investor-friendly nations of the world. Importantly, all five new laws are essentially interlinked and integral to the goal of driving foreign investment inflows into the Sultanate.

7 Open Oman. http://open-oman.com/

Double Taxation Avoidance Agreement (DTAA)1

On 3rd June 1997, India and Oman entered into avoidance of double taxation and the prevention of fiscal evasion with respect to tax on income, popularly known as double taxation treaty. An individual can avoid being taxed twice by utilizing the provisions of the double taxation avoidance treaty. India has signed a comprehensive agreement which covers all types of income. There was strong evidence from both the sides that there was an intention to create strong business relations. The present applicable tax rate as DTAA between Oman and India is 10%.

Income types under DTAA

Under the Double Tax Avoidance Agreement, Non Resident Indians (NRI) do not have to pay tax twice on income earned from: • Services provided in India • Salary received in India • House property located in India • Capital gains on transfer of assets in India • Fixed deposits in India • Savings bank account in India If income from these sources is taxable in the NRI’s country of residence, they can avoid paying taxes on it in India by availing the benefits of DTAA.

DTAA methods

The benefit of DTAA can be used by two methods: • Tax credit: Tax relief under this method can be claimed in the country of residence. • Exemption: Tax relief under this method can be claimed in any one of the two countries.

1 Contributed by Jose Chacko, tax specialist

Why is Oman an investment destination?

Strategic Location Political Stability Economic Stability Investor Friendly Laws

Untapped resources Transparency Excellent infrastructure Tax exceptions

Foreign business ownership

Custom exceptions

Real estate ownership No personal taxation

Confessional power

Non-oil revenue streams Capital and profit repatriation

Presence of export credit guarantee mechanism

Strong bilateral relations with other countries Double taxation treaty

Invest easy arrangements

Allows public private partnerships

Credit: Jose Chacko

Azzan al Busaidi, the former CEO of Ithraa8, during the ‘Oman-India Investment Webinar’ in July 2020, observed: Oman has many attributes that make it a favourable investment destination. Its economy is resilient, the country enjoys great connectivity, the infrastructure is world-class, and the access offered to markets is something we are proud of. While we have a limited market compared to the Indian subcontinent, businesses operating from Oman – whether from the special economic zones or free zones or indeed from any part of the country in general – enjoy access to markets that are home to an estimated two billion consumers across India, parts of Asia adjacent to Oman, as well as the Arabian and East African markets9 .

There is also the government’s nationwide digitalization drive, a central pillar of the Oman Vision 2040 and the national diversification strategy. One of the leading digital initiatives taken by the Ministry of

8 Ithraa – Oman’s inward investment and export development agency was dissolved in

August 2020 and is now part of the Ministry of Commerce and Industries. 9 Oman Daily Observer. (2020, December 8).

Commerce and Industry and Investment Promotion to streamline the process of setting up a business in Oman is ‘Invest Easy’, an online portal that enables businesspeople and investors to get the business procedures done easily in a short time. Its main purpose is to provide citizens, entrepreneurs, and prospective investors with the services and information they need efficiently. Much progress has been made in the integration of various government agencies into the ‘Invest Easy’ system helping reduce the time required to start a business. Further, applications for labour permits for expatriate labour are being processed within three days as opposed to several weeks, prior to the integration. Significantly, all of the government ministries and agencies that have stakeholders in the overall licensing process are now integrated into the ‘Invest-Easy’ portal. These include the Ministry of Commerce, Industry and Investment Promotion, Public Authority for Civil Defence and Ambulance, Ministry of Labour, Ministry of Heritage and Tourism, Tax Authority, Environment Authority, Ministry of Transport, Communications and Information Technology, Ministry of Agriculture, Fisheries and Water Resources, and Public Authority for Special Economic Zones and Free Zones in addition to the municipalities of Muscat, Suhar and Dhofar.

Free Zones

The Sultanate has the infrastructure that encourages and facilitates national and foreign investments in the country. Its geographical location that overlooks international and regional sea lanes, along with the existence of Omani ports open new horizons for investment and free trading. Moreover, the Sultanate is characterized by its stable economy, strong infrastructure, and qualified human resources that guarantee the ease of investment in Oman. This is in addition to the regulations issued to support the open economic direction and encourage foreign investments, which are gradually increasing with the Sultanate’s engagement in international trade organizations and Free Trade Agreement with The United States of America. Within the framework of economic diversification based on exports, the Sultanate aims at the usage and industrialization of its natural resources. These efforts resulted in signing agreements to establish some big industrial projects with the partnership of foreign capital such as polypropylene, urea and ammonia, methanol, and aluminum smelter, steel and iron projects besides other projects such as fertilizers project in Sur, and many other giants in oil and gas. Stressing on the importance of economic diversification and magnifying the benefit of the strategic position of the Sultanate, besides the consideration of

the benefits gained from foreign investment, the government has adopted the idea of establishing some free zones in different parts of the Sultanate. These free zones are:

1. Suhar Industrial Port

2. Suhar Free Zone

3. Salalah Free Zone

4. Salalah Port

5. Al Mazunah Free Zone

6. Musandam Free Zone

All these areas offer many incentives to foreign businesses. In addition to the no-duty charges on goods, some of them offer tax incentives such as 10 years of no corporate tax. In some situations there is a tax exemption for up to 50 years. Free zones also require no startup capital. A foreign company can register a free trade entity and own 100% of it. Rent of warehouses is very competitive and expedited licensing processing is also available in some of these zones. Some of these areas also require only a minimum of 10% of the employees to be Omani nationals. In addition to the Free Zones, there are also what are termed ‘economic areas’ such as the Knowledge Oasis Muscat and seven industrial areas. Three more industrial areas are under construction. The economic and industrial areas offer foreign investors many incentives to do business in Oman. Some offer similar incentives to those offered by the free zone areas. The Public Establishment for Industrial Estates – now called Madayn – with an integrated economic system that seeks to achieve global reach through constructing and operating advanced business environment, has set up seven industrial cities throughout the Sultanate. It’s offers include tenants incentives, renewable lease period on land and facilities, the right to sell or lease buildings on the leased land, the right to involve new partners in the lease contract, exemption from tax on net profit for a period of five years for industrial projects and exemption from Customs duties and taxes on production input. The objectives of Madayn include attracting foreign investments to the Sultanate and localizing the national capital, contributing to stimulating the private sector to achieve sustainable economic and social development, achieving environmental sustainability and contributing to the creation of new job opportunities for the national cadres. The principal endeavour of Oman’s massive investment initiative is in Duqm, located approximately 550 km to the south of Muscat in the Al Wusta region. The Special Economic Zone Authority Duqm (SEZAD) is responsible for the development of the

zone. Today, Duqm is shaping up to become a smart city. SEZAD plays a central role in steering the project down the correct course of development toward a sustainable portfolio of economic diversification that can serve as the model and foundation for the future of Oman by attracting investors from a variety of sectors. Due to its high priority as the flagship project for economic transition in the Sultanate, the Government of Oman is committed to assuring that Duqm developments do not slow down due to a lack of access to financial backing. Former chairman of Special Economic Zone, Yahya bin Said al Jabri stated in his comments in Duqm, a publication devoted to highlight the activities in this new growth pole: We are leaving no stone unturned in boosting investments into Duqm, while pressing ahead with our efforts to keep the Duqm SEZ firmly in the spotlight as an attractive destination for investments. We have full support from every ministry because we all want to meet the vision of His Majesty to put Duqm Special Economic Zone on the map10 . Apart from its potential as a manufacturing zone, Duqm is also blessed with the requirements of a promising tourist destination. Scenic landscape and beachfronts, geo-parks and a rich birdlife have made Duqm a haven for adventure tourists and nature lovers. Adding to this appeal are the invigorating southwest monsoon winds that limit daytime temperatures to the low 30s, even in summer. Conceived as a business-friendly and investment-ready destination, Duqm SEZ has been primed to cater to the needs of domestic and international investors. To this end, the SEZ’s regulatory policies have been structured to offer a differentiated approach designed to attract, retain and grow firms and to support their business needs. Hassan bin Khamis al Ruqaishi, chairman of Real Estate Development and Construction Committee at Oman Chamber of Commerce and Industry, said in his comments in Duqm: The Special Economic Zone at Duqm is full of different investment opportunities in the real estate sector, offered with simple procedures and clear information to attract individuals to invest in Duqm. I believe what we have seen during the visit is a testimonial for the promising growth, which will be witnessed in the Zone over the next five years. Its geographical location is at the heart of Duqm’s appeal as the Middle East’s most promising industrial and economic hub. Situated far outside the Straits

10 Duqm. (2015). https://www.duqm.gov.om/upload/publications/newsletter_02_2015_ en.pdf

of Hormuz, the SEZ lies within proximity of international shipping lanes serving Upper Arabian Gulf and East-African trade. Growing numbers of international investors are now looking to leverage the excellent connections that Duqm enjoys by air, land and sea to access regional and global markets. Duqm’s proximity to the markets of the Gulf, Asia and Africa makes it an attractive investment and logistics destination, supplemented by its worldclass infrastructure, maritime port and ship repair yard. A favourable investment and regulatory regime also underpins this appeal. The growth of industries in the SEZ will open up Duqm to inflows of copious varieties and quantities of raw materials, semi-finished goods and components and intermediate products, effectively paving the way for an upsurge in logistics related investments and activities.

Lee Chee Kian, former CEO of the Special Economic Zone said in his comments to Oman Daily Observer: Duqm as the new centre of gravity for industry and maritime trade in the region, coupled with Oman’s geopolitical characteristics as a politically stable and safe nation, lend it immense competitive advantage that investors can leverage to access huge markets in the Middle East, Indian subcontinent and East Africa. This is the essence of Duqm11 . In January 2020, the ‘Invest in Duqm’ roadshow was held in the Indian capital, New Delhi, which generated significant interest from the local business community. Shaikh Hamad bin Saif al Rawahi, the Sultanate’s Ambassador to India, noted that the ‘Invest in Duqm’ seminar exemplified the common desire of the two countries to strengthen economic relations between them. The visit of Indian Prime Minister Narendra Modi to the Sultanate in February 2018 has also contributed to strengthening these relations. Munu Mahawar, Indian Ambassador to Oman said at a webinar in July, 2020: The Special Economic Zone at Duqm enjoys a number of investment characteristics and I’ve seen the remarkable growth and development in the Zone during my visit. The Sultanate is taking a serious endeavour to establish giant projects in Duqm and the infrastructure is great. A number of prominent infrastructure projects are either in advanced stages of development or are already in operation in 2020. Notable is the Port of Duqm, which is gradually making the transition from early operations to full-fledged commercial operation. Oman Drydock and Duqm Airport are in full operation as well. So are a number of high-end hotels and hospitality properties. The world’s eyes are now riveted on the Duqm Refinery and Petrochemicals

11 Oman Daily Observer. (2020, January 21).

project — a mega scheme that will put Duqm firmly on the global map when it comes on stream in 2024. Construction work on the massive venture is well under way with tens of thousands of workers, employed by a plethora of contractors, currently at site. It will be one of the growth engines for the Special Economic Zone, providing development opportunities for new projects that will directly and indirectly interface with the refinery. In addition, a major fisheries port and industrial fisheries complex under development in the SEZ augurs well for the growth of large-scale fisheries and processing activities in Duqm. To supplement sources of feedstock for fish processing plants, there are aqua farming activities at key locations along the Al Wusta coastline. As investment inflows into Duqm has begun to pick up, the demand for a wide range of soft services, notably banking and insurance, catering and entertainment, health care and other industries will proliferate as well. At some point, Duqm will have its own university as well, with a dedicated R&D component to support the needs of local industries. On the other hand, the port city of Suhar, which has always been Oman’s maritime and commercial outlet to the Gulf and the Indian Ocean, is currently experiencing significant investment and economic shifts, making it the focus of attention to many local and international investors and businessmen. The Omani government has paid special attention to Suhar, and placed it in the priorities of the future plan of the Omani economy, especially its ambitious strategy for the diversification of the national economy. Omar al Meherzi, Chief Executive Officer, SOHAR Freezone said in his comments:

Today, SOHAR Freezone is home to 44 industrial projects in various sectors such as metals, petrochemicals and food industries. It has witnessed an increase in the number of companies occupying the warehouses and offices that is part of the package of innovative solutions offered to the investors12 .

SOHAR Port and SOHAR Freezone are within easy reach of the booming economies of the Gulf and the Indian subcontinent while avoiding the additional cost of passing through the Strait of Hormuz. Companies in Suhar can target India, the Middle East, China and South East Asia while enjoying direct access to Abu Dhabi, Dubai, Al Ain and Muscat, as well as the biggest consumer market in the region, Saudi Arabia. Port of SOHAR and SOHAR Freezone is currently home to logistics, petrochemicals, metals, automotives and food clusters that feed downstream industries with iron, steel, plastics,

12 Asyad. (2020, July 1). ‘Sohar & Salalah free zones attract over 120 investiment projects worth RO 3.7 billion by end of 2019’.

rubber, ceramics, and chemicals, among other materials. In line with the Sultanate’s Logistics Strategy and Oman 2040 Vision to attract local and foreign investments and to develop an integrated logistics system allowing local products to reach international markets, ASYAD Group, the new integrated logistics provider in the Sultanate, is working, in cooperation with the relevant government entities, towards improving the competitive advantage of the Sultanate’s free zones. SOHAR Freezone encourages investors to benefit from the integrated logistic system of the Port and the Free Zone. They also target the manufacturers who consider their proximity as a key value proposition to reach their consumer markets regionally. According to Sasikumar Moorkanat, CEO of the US$ 300 million Moon Iron & Steel Co. SAOC in Suhar, Oman has created an appealing environment for foreign investors looking to invest in manufacturing. He states: “Availability of a full range of utilities to support their operations is what an investor will look at before venturing into establishing any project, especially in the manufacturing sector. Reliable utilities supply will help save on operating costs thereby allowing industries to focus on their core businesses. Oman ensures availability of all utilities including gas, power and water, that too, at competitive prices, in addition to a national workforce with reasonable and affordable remuneration”13 .

From the steel industry perspective, says Sasikumar, Oman’s ports with their capability to handle bulk material, are the biggest advantage. The deep sea SOHAR Port and adjacent SOHAR freezone lie at the centre of global trade routes between Europe and Asia, approximately 200 km from Muscat and 160 km from Dubai. The location of SOHAR Port provides an advantage for handling break bulk and project cargoes, and positions the port as a strong option for trans-shipments across the Arabian Peninsula. Adding to the advantages is a unique online route planner initiative by SOHAR Port and Freezone – Suhar Navigate – a first of its kind platform in the region providing information on available connections to hinterland destinations comprising sea schedules connecting to 550 ports worldwide. Situated in the Dhofar Governorate on the Arabian Sea, the Port of Salalah is a major trans-shipment hub and gateway to the Middle East, Indian subcontinent and East Africa. The handling of locally mined limestone and gypsum has been driving growth in the general cargo business at Salalah, and remains the largest commodity for the terminal, followed by methanol, fuel and bagged material, mainly cement.

13 Personal interview.

The Port of Salalah is recognised for not only being a fast-growing regional container hub but also for being one of the world’s biggest exporters of gypsum, in addition to handling liquids and bagged cargo. The port continues on its long-term strategy for diversification of cargo to cater to the evolving and growing economic activity in the immediate and extended hinterland. The port continues to actively contribute to Oman’s 2040 vision and objectives, and supports Oman’s economic diversification strategy. Strategically located on the trade crossroads between Asia and Europe, and serving the markets of East Africa, the Red Sea, the Indian subcontinent and the Arabian Gulf – the Port of Salalah is operated by APM Terminals as part of the APM Terminals global terminal network. The port operates both a container terminal and a general cargo terminal. It offers shipping times that are 30-40% shorter than other competing locations, such as 15 days to New York, 12 to the UK, and 8 to Singapore. The free zone, adjoining Salalah’s transshipments and logistics hub overlooking the Indian Ocean, has announced a flurry of new investments since the start of this year, many of which have now entered the construction phase. Ali bin Mohammed Tabouk, CEO of Salalah Free Zone (SFZ) says: Our goal is to position Salalah Free Zone as a leading regional and global logistics and industrial hub. The investment projects in SFZ is a testimony for our efforts to attract foreign investors and our successful relationship with the free zone`s strategic partners. Business in Salalah Free Zone is booming, with more than five factories currently under construction at a good pace. We are targeting the operation of 10 new factories before the end of 2020. The Free Zone is sparing no effort in achieving its top priority of creating job opportunities for citizens.14 Salalah Free Zone achieved exceptional results in 2019 that included signing of 24 usufruct agreements worth RO1.4 billion. In line with SFZ policy to ensure the highest international standards for business excellence and raise the level of competitiveness to attract investments to the Sultanate, SFZ has achieved the ISO quality certification. Work on the Free Zone’s first largescale metallurgical plant is gathering pace as well. National Steel Company, backed by a Saudi corporation, is investing US$ 500 million in an integrated steel complex that will produce around 25,000 tonnes per year of steel structures, 60,000 tonnes per year of prefab metal structures, two million sq metres per year of sandwich paneling for industrial structures, and 10,000 tonnes per year of industrial floors. Roughly two-thirds of this output is

14 Oman Daily Observer. (2020, July 01).

destined for overseas markets. Among the major ventures targeted for launch this year is Philex Pharmaceuticals, which is being developed in three phases with a total investment of US$ 365 million. The high-tech facility, backed by Qatari investors, will produce an array of drugs and vaccines as well. Other initiatives that the Free Zone plans to launch is a mammoth, integrated residential city with a capacity to accommodate around 100,000 people, remotely operated ‘smart’ warehouses, and renewable energy projects. The Free Zone in Al Mazyona started operations in November 1999. It is located in Dhofar governorate near the Yemeni border, which is 260 km from Salalah and 245 km from Al Ghedha, 500 km from Saon, the two nearest towns to the Republic of Yemen. The area is located outside the borders of Omani customs. Therefore, the goods can enter Mazyona without taxes. The investors also can enter the area without a visa or complete the border’s procedures between Republic of Yemen and the Sultanate of Oman. The Mazyona area provides excellent chances for those who are interested in trading between Oman and Yemen or establishing storage utilities. There are commercial shops in addition to the general storage and other utilities plus communication services and the essential setup services such as electricity, water and roads.

According to Director General of Al Mazunah Free Zone, Said bin Abdullah al Balushi, the free zone is currently implementing key projects as part of phase one and two of the free zone, and a third phase has been added to the project. The completion rate of the project has reached 90% in 2020, and is being built on a developed area of about 1.5 million square metres that includes all basic services.The implementation of the Facility Building project in the free zone has commenced on an area of 11,337 square metres through Shumookh Investment and Services, the investment arm of Madayn.Work is currently underway to assign the security fence project with an area of 8.5 km, in addition to the design project of phase 4 to develop an area of three million square metres in the free zone. The most northern governorate, Musandam, is also a focus for regional development efforts. Here, the emphasis is on tourism, with the port of Khasab issuing a call for cruise ships. The region’s spectacular coastal landscape, consisting of many flooded wadis, or river valleys, gives it a fjord-like feel, and it has proven to be a popular draw for foreign tourists. Access to Musandam Peninsula has long been a bottleneck, as has travel around its mountainous terrain. This latter difficulty is expected to be aided by the Diba-Lima-Khasab road project, a 65-km coastal road through the