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German Legal Expertise in the Middle East since 1981

Free Trade Zones in Sultanate of Oman

Guiding Principle

Oman, in an aim to diversify its non-oil revenues and investments into the economy, began establishing Free Trade Zones (FTZ) at the beginning of 2000. The FTZ which gives investors free access to industrial infrastructure along with the option of 100 per cent repatriation of their revenues, began boosting international trade relations and Foreign Direct Investments (FDI).

A. Oman – Opportunities and Advantages

The Sultanate of Oman is the second largest country in the Gulf Cooperation Councel (GCC). The North of the country is adjacent to the Strait of Hormuz, a critical transit route for global crude oil and to the South of the country lies the vital equatorial trade sea route. Oman is a economically, politically and socially stable nation with a substantial trade surplus and a low inflation. It is one of the most liberalized markets in the region and has invested heavily on economic diversification. Projects have been initiated in sectors like natural gas, chemicals & petrochemicals, metals and international transshipment.

B. Diversification

The development of FTZ across Oman has been a centerpiece of the Sultanate’s plan to diversify the national economy beyond the oil sector by developing the growth of value-added, export-focused industries such as manufacturing, shipping and logistics. FTZ serve as catalysts for this growth by providing infrastructure (e.g. roads, ports), regulatory framework and financial incentives (e.g. income tax and customs duty waivers) that encourage high-end foreign and domestic companies to set up operations.

In addition FTZ aim to build an industrial and trade base in the Sultanate in order to promote sustainable economic growth, using the countries strategically important position with its commercial harbors of Sohar and Salalah to boost trade, bringing new technologies and creating jobs in higher value-added fields. The goal is to create an economically favorable environment to attract and concentrate companies in a business focused environment. Another goal of establishing free zones is to stimulate the private sector to contribute in the economical and social development.

With each free zone project that was announced, the authorities overseeing and controlling the FTZ have ensured that companies brought in investments into various industries, apart from just oil and gas.

C. Free Trade Zones in Oman

At the moment three FTZ are existing in Oman: Salalah, Sohar and Al Mazunah. The large free zones in Salalah and Sohar are important features of the Omani economic landscape, while Al Mazunah is a smaller, lesser known free zone that has recently been capturing headlines: the free zone located in the Dhofar region near the Oman-Yemen border.

1. FTZ Salalah

Oman’s first FTZ in Salalah became operational in 2005. It consists of three major projects – Octal Petrochemicals, Salalah Methanol and Dunes Oman – along with a smaller project from Sapphire Marine who manufactures yachts and commercial fishing boats. Today companies like ABI Showatech (casting, machining and assembly of light engine products) and SAGA (operating and leasing of stores and warehouses) are established at the FTZ Salalah. The free zone has completed its first phase of development and has progressed to the second stage. It is planed to develop the free zone over an area of 19 square kilometers.

2. FTZ Sohar

The Sohar free zone was built on an area of 4500 ha and has begun its first phase development in the year 2010, developing it in a cluster approach. There are three major clusters in the Sohar Port area, namely the hydrocarbon or petrochemical sector, metals and minerals sector and logistics with international terminal operators.

3. FTZ Al Mazunah

The Al Mazunah free zone started operations in 2010. In order to develop the free zone, the Omani government signed an agreement with the Kuwaiti-based company Golden Hala Trading to establish the infrastructure. An investment of an estimated 680 Mio. Omani Rial (OMR) in the project is pledged over the next five years. Focus areas for the free zone’s growth plans are the processing, storage and shipment of products from Dhofari agricultural heartland, along with the automobile and industrial vehicle trade.

D. Advantages and Incentives

Advantages of the three free zones are the strategically good position of its locations. Apart from that, there are various economical incentives common to all three FTZ. For example the fact that they are ring-fenced enclaves exempt from national import and export duties and/or formally operating outside customs area of the country.

Other included business friendly incentives are as follows:

  • 100% foreign ownership
  • No customs on imports and exports
  • No taxes on profits and dividends for 30 years
  • No restrictions on repatriation of capital, profits and investments
  • Minimal omanisation requirements (e.g. 10% in FTZ Sohar)
  • No minimum capital investment or requirement
  • No tax on personal income.

E. Outlook

The FTZ Salalah is dedicated to attract major investments in the areas of logistics, light and medium industries, re-export, trade and information technology. There are investments of over 2 billions OMR provided to be realized within the next five years.

Regarding the FTZ Sohar, development activities and construction in the first 500 ha of land has started in September 2010. It is planned that the first phase will be fully operational within the next five years.

The FTZ Al Mazunah inaugurated the first of three stages and it is gearing up to take its place alongside FTZ Salalah and FTZ Sohar as major industrial hub.

Oman’s free zones appear to play an increasingly important role in the Sultanate’s economic future and are considered to be a sector to watch closely for companies that already do business in Oman and those that seek to do business in the future.

April, 2011 Alessandro Gugolz
Meyer-Reumann & Partners – Muscat Office

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