Sohar Free Zone: A Hub for Business Growth

Sohar Free Zone

1. What law established this free zone?

A Ministerial Committee to was set up by His Majesty Sultan Qaboos bin Said establish a new Port in SOHAR in 1995 and to develop the Port of Salalah, formerly called Raysut. The Government of Oman and Port of Rotterdam signed a Memorandum of Understanding in July 2002 to draft a concession agreement for SOHAR Port. Concession Agreement was ratified by the Royal Decree 80/2002, and the same was issued in the August 2002. Further, 2007, a concession agreement for the development of 4,500-hectare acres Free Zone was signed, and SOHAR Free Zone was established in 2010. Thereafter, Royal Decree No. 123/2010 established the SOHAR Free Zone.

2. What are the main internal regulations governing this free zone?

This Free Zone is managed by SIPC, short for SOHAR Industrial Port Company, which is a 50:50 joint venture between the Sultanate of Oman and Port of Rotterdam.

The governing regulations for the operation of SOHAR Free Zone are Ministerial Decision 35/2016 issued by the Ministry of Commerce and Industry. The above Rules and Regulations of SOHAR Free Zone is in accordance with Free Zones law circulated by the Royal Decree No. 56/2002; Royal Decree No 76/2003 related to enforcement of Common Customs Law in GCC; Royal Decree 123/2010; Ministry of Finance’s Approval of its letter Finance(64396/11673).

3. Does this free zone has reciprocal arrangements with other free zones?

No, SOHAR Free Zone does not have reciprocal arrangements with other free zones.

4. What key areas of local legislation must a business operating in this free zone still comply with? What are the most important examples of how this affects operations?

The key areas of Oman Legislation that businesses operating in this Free Zone must comply with are:

1. The Commercial Companies Law no.4/74
2. The Free Zones Law issued in the Royal Decree no. 56/2002
3. The Commercial Register Law no.3/74
4. The Law of Money Laundering and Terrorist Financing issued in the Royal Decree no. 79/2010
5. The Labor law issued in the Royal Decree no. 35/2003

The above list is not exhaustive, but any laws that are not covered by the internal regulations of the Free Zone must be complied with.

5. What key agencies do businesses operating in this free zone need to register with or be aware of?

The agencies that a business operating in this Free Zone needs to register with mainly depends on the type of activity carried out by the company. For example, for industrial projects, a clearance is needed from the Ministry of Environment and Climate Affairs.

Some agencies include:

1. Ministry of Commerce and Industry
2. Oman Ministry of Foreign Affairs
3. Oman Chamber of Commerce and Industry
4. Ministry of Environment and Climate Affairs

6. How does a company set up in this Free Zone?

Upon receiving the complete application form, the registration of a new company in SOHAR Free Zone only takes one business day.

Following are the steps involved generally:

1. Submission of a complete Plot Application Form
2. Agreement on the Commercial terms
3. Pre-contract Clearances (Example, No Objection Letter from the Ministry of Environment and Climate Affairs for Industrial projects. Another example, for large power and water consumers, a principal acceptance is required from the Utility Companies.
4. Due diligence performed on main promoters/shareholders of the proposed company in the Free Zone
5. Plot selection followed by approval of the Plot Application
6. First Quarter lease payment, followed by Incorporation fees and License fees payment
7. Incorporation of the Free Zone Working Company (Including all documents and clearances)
8. Signing the Land Lease Agreement

7. What features go companies set up in this Free Zone have?

Like most other Free Zones, SOHAR Free Zone offers various incentives that attract foreign and local investors like the following:

• 100% of foreign company ownership
• Low Capital requirements
• 25 years of Corporate Tax Holiday
• One Stop Shop for relevant clearances
  1. Company licensing and registration
  2. Environmental Approvals
  3. Visas
  4. Tax exemption certification
  5. Labour permits
  6. Application for Utilities
  7. Plot Work Permits
  8. Customs system registration
• Zero per cent (0%) re-export and import duties
• Zero per cent personal income tax
• Low labour requirements: an overseas workforce of 85% is allowed

8. What can companies set up in this Free Zone do?

Following are the activities that a company in SOHAR Free Zone can carry out:

1. Commercial activity: export, import, storage and handling, general trading.
2. Industrial activity: works based on reassembling, manufacturing and remanufacturing.
3. Service activity: logistics and consultancy services.
4. Banking and financial activities: foreign exchange, banks and money transfers.
5. Educational activity: institutes and schools.
6. Health activities: health centres, hospitals, pharmaceuticals, laboratories and specialized health centres.

9. What can companies set up in this Free Zone not do?

Generally, any activity that does not conflict with the applicable laws in the Sultanate of Oman is not permitted in the Free Zone.

10. What types of business are allowed to operate in this Free Zone?

Same as Question 8 (above) 

11. What inheritance laws apply in this free zone? 

The inheritance law as is mentioned in the 1996 Basic Statute of the State is governed by the Islamic Shari’a Law 

12. What taxation applies?

SOHAR Free Zone offers zero per cent personal income tax. 

Tax and Customs Exemption Department inform the Working Company of their decision in respect to the submitted application for tax exemption.

Companies can enjoy a Corporate Tax Holiday for up to twenty-five (25) years, but is subject to the maintenance of a certain level of Omani Staff. Same is explained in the table below:

13. What accounting and auditing rules do businesses operating in this free zone need to adhere to?

The company undertakes to maintain regular accounts of all the activities carried out by it, approved by an accounts auditor who is licensed to conduct the profession of auditing and accounting. The Auditor must provide the Secretariat with such accounts.

14. Where do businesses operating in the free zone generally locate their bank accounts?

The working companies are required to open a local bank account prior to obtaining the Free Zone license. For the same, copy of the authorized signatory forms, commercial registration, Oman Chamber of Commerce and Industry affiliation certificate, a deposit of capital amount as stated in the Commercial Register and application signed and sealed by the authorized signatory.

15. Are there any specific rules governing when the moveable property is removed from the free zone area or transferred into the free zone area from another jurisdiction?

Activities are generally confined to the Free Zone. Operation in other zones may require the assistance of local agent/distributor.

16. Are any specific licenses required to operate as a specific type of company in this free zone?

The users of Free Zones cannot be allowed to conduct business except post obtaining either a Working Company License or Service Provider’s License.

The types of licenses issued are (5 main):

1. Logistic License
2. Light Manufacturing and Assembly License
3. Service Provider License
4. General Trading License
5. Industrial License

17. Is there any specific ongoing regulation or monitoring firms operating as particular types of companies by this free zone authority?

The Operating Authority, being SOHAR Free Zone LLC itself, assumes responsibility according to Article 2 of the Rules and Regulations for the development and management of the Free Zone couple with supervising the business at the Free Zone. The Article goes on to define specific authorities and powers for the governing of the Free Zone.

18. How are disputes settled in this free zone?

Generally, the contract mentions the dispute resolution mechanism to be followed in a situation where a dispute arises. In the absence of the same, the courts in Oman assist in resolving disputes. The main courts in Oman are:

1. The Court of First Instance
2. The Court of Appeal
3. The Supreme Court

Without prejudice to other laws, the Operating Authority has the power to impose penalties in certain situations, and in extreme cases, may revoke/withdraw the license on the basis of fraud and cheating. A limitation period of sixty (60) days is available to the concerned party to appeal the decision. (Article 46 of the Rules and Regulations)

19. How are disputes between onshore companies and companies in this free zone settled?

Same as Question 18 (Above).

20. What are the main rights and duties of an employer and employee working in this free zone?

Royal Decree 35/2003 issuing the Oman Labour Law provides a comprehensive framework for employment in Oman.

For example, Article 27 of Oman Labour Law mentions certain duties of the employee related to the working diligently under the supervision of the employer, to obey the employer’s instructions as long as it is not inconsistent with contract and the laws, not to disclose work secrets, not to use tools of work outside of the workplace except upon obtaining the approval of the employer, etc. Additionally, according to Article 33, the employer must provide the employees with adequate access to medical facilities. Article 34 states that the employer must provide all the employees with suitable means of transport, accommodation, meals, drinking water etc. for practices specified by the Minister.

21. How are employment disputes between employers and employees working in this free zone settled?

In addition to the Oman Labour Law as mentioned above in Question 20, unless a separate mechanism has been agreed upon in the employment contract, the labour dispute resolution is addressed before a designated body which is the Department for the Settlement of Labour Disputes at the Ministry of Manpower.

22. What entry qualifications and permits are required for staff working in this free zone, and how are employees registered with the authorities?

All Omani employee contract must be registered with the authorities. The same is done via One Stop Shop within 15 of such Omani employee joining the company.

While employing expatriates, three mandatory processes must be completed:

1. Clearance by Ministry of Manpower
2. Issuance of employment visa by Royal Oman Police, the Immigration Department
3. Issuance of resident’s card by the Immigration Department of Royal Oman Police.

There are basically 4 types of work visas provided:

1. Temporary Work Permit
2. Express Visa
3. Business Visit Visa
4. Group Visa

23. How are staff working within this Free Zone registered with the authorities?

Explained in detail in question 22 above. Additionally, once the visa is issued, it is collected by the SOHAR Free Zone representative and deposited at an entry point in Oman, post which a deposit slip is issued. The copy of both is sent to the company.

24. What rules govern the remuneration and minimum benefits of staff working in this Free Zone?

Royal Decree 35/2003 issuing the Oman Labour Law provides a comprehensive framework for employment in Oman, and the same governs the remuneration and minimum benefits of staff working in this Free Zone.

25. What rules govern the working time and leave of staff working in this Free Zone?

Royal Decree 35/2003 issuing the Oman Labour Law provides a comprehensive framework for employment in Oman, and the same governs the leave and working time of staff working in this Free Zone.

26. What are the main features of a property lease in this free zone and what are the key restrictions when leasing a property?

First and foremost, a Plot Application Form has to be completed and submitted for relevant clearances, and the same is essential as a reference of the same is made in the Land Lease Agreement which is a comprehensive document. All the commercial terms must be agreed upon and adhered to. It is essential to get a pre-contract clearance depending on the activity that will be carried out on the said premises. Some examples of the same have been mentioned in Question 6 above. Definitive plot size and approval is done at this stage, and the approval of the Plot Application is done. A final plot plan with technical details is given by the technical department of SOHAR Free Zone. Finally, after the incorporation of the company, the Land Lease Agreement is signed.

27. Is it possible to apply for a building permit in this free zone? How is this done, and what steps are required?

For the execution of a specific work in the common areas of the Free Zone, a construction permit is necessary. An application has to be submitted to SIPC, short for SOHAR Industrial Port Company. The application is checked within 2 weeks from the date of submission. At this stage, the tenant submits a preliminary construction execution plan. SIPC provides is input and comments on the existing pipeline system. The tenant must coordinate the additional requirements and conditions of adjacent plots who must agree to the construction. Written consent from them must be obtained. The tenant then finalizes the construction execution plan which is checked by the SPIC for design and construction, post which a ‘kick-off’ meeting between the concerned parties is organized. Once all parties agree to the terms of the construction, the SIPC issues the Construction Permit.

28. What environmental requirements must construction companies building in this free zone consider, e.g. form of building, landscaping or building height?

The Construction Permits are subject to certain terms and conditions. Construction Permit for Work in or affecting the Common Areas requires several things to be kept in while planning the design for construction. The Permit Holder must mark the corners of the construction site with post dug firmly that extends to 1 meter above ground level. Machine may be used to dig around a distance of 0.50 meters from the existing Pipelines. When the construction is near such Pipelines, temporary barriers must be put within 25 meters. There are a number of delicate details that must be in kept in mind while constructing in this Free Zone, depending on the nature of construction, the activity to be carried out and relevant permissions needed for the same.

29. What are the key restrictions when leasing a property in this Free Zone?

Essentially, a company must be registered within this Free Zone to lease the property here. Upon meeting the prerequisites of incorporating a company in this zone and obtaining the permit/license, the company may apply for Land Lease Agreement, though several clearances for the same are handled before, as mentioned above.

30. What are the rules governing the use of utilities in this free zone?

Generally, One Stop Shop assists investors in obtaining and applying for all utilities. The Authority for Electricity Regulation provides tariffs throughout Oman. The water services in SOHAR Free Zone is provided by Majis Industrial Services.

31. How do retail premises establish themselves in this Free Zone?

There are no particular restrictions prohibiting retail establishments from operating in SOHAR Free Zone. The same process would apply as for any other type of company incorporation.

32. Is it possible for hotels and retail establishments to operate in this free zone- how do they establish themselves?

Yes, hotels and retail establishments can operate in this free zone. The establishment procedure is similar to that of any other company incorporation in SOHAR Free Zone.