His Majesty issued last week a royal decree establishing the International Financial Centre of Oman (IFCO) as a new financial free zone. IFCO will operate as an independent legal jurisdiction with its own executive authority, regulatory body, and court system that is not subject to oversight by the Council of Ministers, the Council of Oman, or the Omani judiciary. The location of IFCO is designated by royal decree as Madinat Al-Irfan. This blog post explains what a financial free zone is, the criteria for registering a company in IFCO, why companies might wish to register there, the key limitations for operating out of IFCO, and the next steps before this new financial free zone actually operates.
While Oman has had free zones (such as Sohar Free Zone) and special economic zones (such as the Special Economic Zone in Duqm) for decades, these free zones were primarily designated to facilitate trading in physical goods, and as such focused on providing customs and tax exemptions and remained subject to standard Omani laws such as the Labour Law, the Commercial Companies Law, and all other laws that govern the way a business operates in Oman. IFCO is similar to free zones in that it is a zone within certain boundaries that has its own legal framework, but unlike industrial free zones that facilitate trading in goods, as a financial free zone, IFCO is intended to facilitate trading in capital. This goal is achieved by creating a financial regulatory framework that meets the requirements of international financial regulatory bodies in a way that makes it attractive for international financial institutions to operate from within the zone. To enable IFCO to achieve the required standard for its financial regulatory framework, IFCO will operate independently from the rules of the Central Bank of Oman, the Financial Services Authority, and all other regulatory bodies in Oman. In fact, IFCO will not be subject to any Omani laws other than the Penal Law, the Law of Anti-money Laundering and Counter-terrorist Financing, and certain aspects of Omani tax laws.
Financial free zones are not a new concept in the GCC as the DIFC in Dubai, QFC in Qatar, and ADGM in Abu Dhabi operate under this same exact model.
According to last week’s royal decree, IFCO will report directly to the new Office of Deputy Prime Minister for Economic Affairs, i.e. Sayyid Theyazin. It will have a board of directors appointed by royal order, and will primarily operate under three sub-authorities, an executive authority to manage the centre and create the infrastructure, a regulatory body to set the regulatory framework, and a dispute resolution tribunal to oversee the court system of IFCO. The royal decree gave IFCO the power to create its own legal framework without being bound by Omani law. DIFC, QFC, and ADGM have chosen to operate under a common law legal framework that operates entirely in English. It is likely that IFCO will operate under a similar approach.
This means that if a company is registered in IFCO, this company will not be subject to the Omani company law or the Omani labour law, but instead by new IFCO laws inspired by common law legislation. If there is a dispute between this company and third parties, the dispute will not be resolved by Omani courts, but by IFCO courts that operate using a common law legal framework, most likely by judges and lawyers trained in common law jurisdictions. In DIFC, QFC, and ADGM, all the presidents of their courts are international jurists from common law jurisdictions rather than nationals.
Last week’s royal decree merely set the very high-level structure and legal framework for IFCO, and it will be up to IFCO to create its own rules for what companies will be able to register in the zone. However, the royal decree states that companies can be registered under two categories: companies providing financial services (that is the key target of the zone—such as banking services, insurance, investment management, etc) and companies providing ancillary services (these are companies that provide support to financial service providers—such as legal services, accounting services, etc). The royal decree provides a non-exhaustive list of financial services that are permitted, and it is up to IFCO to determine the actual activities and the requirements for registration.
For a company to register in IFCO, the company must have physical presence in IFCO. The law also states that registration in IFCO allows you to operate in IFCO itself, but if you wish to operate outside IFCO in Oman, you will be bound by Omani law. The most obvious example of this is that if you are licensed to provide financial services in IFCO, this doesn’t mean that you can open an outlet outside IFCO and provide services to the Omani public without FSA’s approval. There is a small exemption that allows IFCO companies to promote their services or provide advice regarding IFCO legislation outside the zone and on the Omani mainland.
While the key objective of IFCO is to attract international financial institutions to Oman, registering in IFCO can provide significant advantages for Omani and non-Omani businesses that do not wish to be bound by Omani law and fall within the categories of financial services providers or ancillary service providers. For example, if IFCO permits the creation of holding companies created to own shares in other companies, a common law legal framework similar to that of England and Wales is likely to grant a higher level of autonomy for the shareholders in a way that Omani law currently does not provide. The mainland Omani legal system is known to being open to disregarding the concept of separate legal personality of LLCs and holding shareholders liable for the conduct of companies they own shares in. Creating a holding company in IFCO that owns the local Omani subsidiary can be extremely advantageous to Omani shareholders, even if the subsidiary is still subject to Omani law.
In addition to the benefits of not being bound by Omani law, companies established in IFCO will enjoy an exemption from corporate tax until 2076, non-Omanis working in IFCO will not be subject to personal income tax, and the zone is declared a zero-rated special zone for VAT purposes.
The creation of IFCO is a major and unprecedented development for the Omani legal system as a whole, not only for the way financial business is conducted in the country.
The royal decree came out only a few days ago, and it will take IFCO months, if not years, to start its actual operations, as it needs to develop its entire legal framework in a manner that complies with the international requirements of regulatory bodies and provide physical office space for the companies wishing to register in IFCO.
The Law of the International Financial Centre of Oman has already entered into force. You can read it in full in English on the link below: