Many foreign companies looking to establish a legal presence in Oman to perform a contract with a government entity (or a government controlled entity) will opt for the establishment of a branch office in Oman.
It is important to note that a branch office can only be established if the foreign company has a contract with a government entity (or a government controlled entity). If the foreign company has a contract with a private sector entity, it will not be possible for the foreign company to establish a branch in Oman to perform such contract. Moreover, the foreign company needs to submit a written undertaking confirming that it shall be responsible for any liabilities of the branch office.
The main advantages of establishing a branch office (instead of an Omani company with a local partner) to perform a limited duration government contract are that there is no need for a local partner, there are no minimum capital requirements, the administrative and procedural requirements are minimal, the tax treatment is the same as with respect to other types of legal entities in Oman and a branch is 100 percent owned and managed by the foreign company (since this is basically treated as the Omani office of the foreign company and does not have a separate legal existence).
Since the establishment of a branch office is linked to a contract with a government entity (or a government controlled entity) the tenure of a branch office is also restricted to the terms and duration of the contract. The commercial registration of a branch office may be extended if the contract is extended for further periods or if the foreign company is awarded another government contract for a longer duration.
In this respect, it has been noticed that once the government contract has been duly performed and full payment for the services has been received, the foreign companies will often close the branch office without formally cancelling the registration of the branch at the Ministry of Commerce and Industry. One reason for this practice could be that the commercial registration of the branch is only valid until the date of completion of the contract and once this date has passed the foreign companies do not consider that any additional steps are required to be undertaken.
Although the registration of the branch with the Ministry of Commerce and Industry may already have expired, as a matter of good corporate governance, steps should always be undertaken to ensure that the commercial registration of the branch is formally cancelled at the Ministry of Commerce and Industry.
Moreover, the registration of a branch office with the Ministry of Commerce and Industry also triggers the requirement of registering the branch at the Secretariat General of Taxation at the Ministry of Finance. Accordingly, it is important to ensure that the Secretariat General of Taxation is also informed about the closure of the branch. In fact, a no objection certificate will be required to be given by the Secretariat General of Taxation (addressed to the Ministry of Commerce and Industry) confirming that it has no objection to the cancellation of the commercial registration of the branch and that there are no tax liabilities associated with the branch.
Furthermore, at the time of the registration of the branch, an authorized signatories form is also required to be filed with the Ministry of Commerce and Industry indicating the names, signatures, authority limits and financial powers of the authorized individuals (normally officers of the foreign company). The mere expiry of the branch’s commercial registration does not necessarily mean that the authorized signatories of the branch will not be able to use their powers any more and that the foreign company will no longer be liable for the actions of such authorized signatories.
Therefore, the formal cancellation of the commercial registration of the branch is also important to ensure that there are no continuing (tax or other) liabilities for the foreign parent company (or the individuals who are registered as authorized signatories of the branch) in Oman.