07 May 2025 Oman issues law on special economic zones and free zones
On 7 April 2025, the Sultanate of Oman issued Royal Decree 38/2025 enacting the Law of Special Economic Zones and Free Zones (Law). The Law was published in the Official Gazette on 13 April 2025. Oman has also published the Explanatory Memorandum of the provisions of the Special Economic Zones and Free Zones Law (Explanatory Memorandum), which outlines the objectives of the Law and provides further explanations of its articles. The Law introduces a comprehensive framework designed to streamline business operations in special economic zones (SEZs) and free zones (FZs) while providing substantial incentives for investors. Specifically, it offers a 10-year tax exemption for qualifying enterprises from the date they commence operations. This exemption can be extended for two additional periods for activities of a special nature, as specified by the Law. Moreover, the Law includes provisions related to customs that benefit enterprises operating within SEZs and FZs. Additionally, the Law introduces a one-stop-shop service to expedite transactions for approvals, permits and licensing, to make it easier to conduct business in Oman. The Executive Regulation of the Law will be issued within one year of its enactment. Decisions will also be issued to facilitate the Law's implementation. Previously, Royal Decree 56/2002 governed business activities in the FZs, and Royal Decree 119/2011 and related decisions governed operations in Duqm SEZ. As such, different regulations and processes applied to the FZs and Duqm SEZ. Further, benefits such as tax exemptions granted for FZs and Duqm SEZ were also different. By the royal orders of the Sultan of Oman, certain laws related to economic affairs underwent reviews. After this review, the Law was enacted to create a comprehensive legislative framework that regulates SEZs and FZs, thus fostering a conducive investment environment, unifying benefits, and enhancing regulatory oversight and efficiency. The Law aims to enhance the investment environment, attract local and foreign investments, diversify income sources, provide job opportunities, and support small and medium-sized enterprises. It also seeks to regulate and monitor investments, unify regulations to boost investor confidence, streamline procedures through a one-stop-shop service, standardize benefits and incentives, offer additional benefits for strategic projects and link tax exemptions to economic achievements. Furthermore, it aims to regulate real estate development projects within these zones, contributing to urban and economic growth. The Law repeals the previous Free Zones Law issued through Royal Decree 56/2002 and any other legislation that conflicts with its provisions. Until the new Executive Regulation and decisions are issued, the existing regulations and decisions will remain in effect, provided they do not contradict the Law. The Law grants a 10-year tax exemption for all taxes levied by the Oman Income Tax Law to qualifying enterprises established in SEZs and FZs. This exemption can be extended for two additional periods for activities deemed of special nature (i.e., those offering significant added value, contributing to innovation and development). The criteria and procedures for obtaining this exemption will be detailed in the upcoming Executive Regulation. The exemption is not applicable to banks, financial institutions, insurance or reinsurance companies, telecommunication service providers, contracting companies, or businesses in the road transportation and maritime transportation domains in SEZs and FZs. According to the Law, a customs department within the SEZ must be established to streamline import and export processes, lower operational costs through faster customs clearance, support integrated logistics zones, and maintain strict customs control to enhance the investment environment. A customs directorate must be set up within each SEZ to oversee the movement of goods. The customs management system, coordinated with the Royal Oman Police, ensures efficient inspection, examination and release procedures. In particular, goods used in the construction and operation of enterprises within the zones are exempt from customs taxes, and products exported from the zones are not subject to customs duties. Additionally, local and foreign goods can be temporarily admitted to and exported from the zones for repair or manufacture, adhering to specified conditions and procedures. With respect to real property, the Law provides for land allocation for real estate development through usufruct rights. Further, real estate developers are permitted to sell project units to non-Omanis under the freehold system, which allows buyers to fully and permanently own property. The Law also stipulates that all necessary services must be provided to the enterprise and the real estate developer, and the procedures for issuing approvals, permits, licenses, and certificates related to the practice of economic activities in the zones must be facilitated and simplified through a one-stop-shop service. Article II of Royal Decree 38/2025 states that the provisions of the Law should not prejudice the advantages, incentives, exemptions, facilities and guarantees granted to existing operators and operating companies in the FZs and enterprises within the Duqm SEZ upon the Law's enforcement. These operators, companies and enterprises will continue to benefit from these privileges until their respective periods of operations expire, based on the applicable legislation and their existing agreements. Enterprises operating or planning to operate in Oman SEZs and FZs should review the provisions of the Law to evaluate its impact on their operations or investment plans and assess the potential application of benefits. The Executive Regulation should be issued within one year from the date of the Law's issuance to provide more clarity on the provisions of the Law.
Document ID: 2025-0998 | ||||||
