Thursday, October 11, 2007

How business works - part 2

Tip No. 2 Exploit your advantage

The tax laws in Oman are heavily biased toward local companies. A pure foreign company has to pay 32% company tax, whereas a local affiliate, or a fully local company, only pays 12%. This is a serious difference. The catch however, is that only Omanis can register a local company or affiliate.

So, all foreign affiliates [or expat workers] here have to have a person called ‘a sponsor’. Some Omani – actually pretty much any omani adult – who’s willing to act as your local sponsor. And you get an instant tax discount of ~66%.

Naturally, all foreign companies take advantage of this. And then question is: who do they want as a sponsor? Obviously, someone who can add value to the 5 – 10% they’ll have kick back to them for the privilege. Maybe even someone who can supply some of the things you’ll need easily, like Indian workers, a bank loan for working capital, premises, legal support, and business contacts.

This was and still is a key loophole the merchant families exploit to extend their reach into businesses across the board in Oman. It was also a perfect way to employ the rapidly accumulating numbers of sons, cousins, sons-in-law, and eventually their children too, getting them involved in business, without risking any capital and getting them nice paying jobs too.

Even better of course, if the sponsor [or their Dad, or Uncle say] are ‘connected’ to the sources of all the major cash in Oman that a foreign company wants to be a part of, ie the Government, especially a department with lots of projects going or lots of things they need to buy.

There is obviously nothing whatsoever illegal about this. Somebody has to be the sponsor, after all, it’s the law. And if the tender process is all above board, no problem.

Ministers and other senior officials are not allowed to be on the board of public companies, or companies that are tendering for Government contracts. But there doesn’t seem to be any law whatsoever against people very close to senior Government members being a sponsor to a private company.

But I’m also not sure this law has been extended to tenders associated with private companies, even where a significant participant is Oman Oil Company, a wholly Government owned investment vehicle in the upstream and downstream oil and gas business and acknowledged incubator of big projects, like Sohar Aluminum, but not actually a formal part of the Government itself.

None of this is strictly a problem either. The problem is that there is no public scrutiny of these dealings. To find the names of company sponsors, you have to physically go the register of companies and look. And it is trivial to have a chain of such companies interlinked, like YYY Holdings, SSS Trading, etc etc, and figuring out who the actual owners and sponsors are is not easy. They might even be a sub-contractor, or a sub-sub contractor to the actual winning company. Very very difficult to track, even for the State Audit Office [who do seem very very honest, by the way].

Plus, no newspaper in Oman is going to point out that the son of Minister X’s brother is sponsor of a company that just won an Oman Oil contract for $XXX. Or not that I’ve ever seen. And as they would not be able to prove anything illegal, even reporting it would itself be potentially illegal [see earlier post].

What I do know is that at the Government departments I deal with, the first question of the list of big foreign companies bidding for a tender is not how good they are, but ‘Who’s their sponsor?’…

Interesting isn’t it?


  1. The system works, and as an Omani citizen that's all that matters to me.

    Money comes, and money goes, never through my hands, but if I trust that the people it will go to WILL infact do the job required (even with very inflated bills) I could care less.

    You assume that this is important to us, because you're a tax payer, and the money you employ works (supposedly works) for you. We are benefitors and we need to realize that any benefit is benefit.


  2. I really want to get on this sponsorship scam. If you know any foreign investors who are looking for a looking for a local partner please send them my way. We can agree on some monthly compensation or salary wherein I don't claim any percentage of their income, at least until the first 12 month's accounts are audited. But I will not act as guarantor to any bank facilities. :)

    PS. do you know who Airbus' agent is in Oman? I'm interested to know who got the commission for the recent 5 A330 plane deal.

  3. Muscati,
    I'll keep my ear to the ground for you. I'm sure you'd be an excellent sponsor! More posts on that to come...

    Hmmm. OK. I guess if Oman had soooo much money that all deserving Omani got everything they need, I'd be more OK with it too. But thank you for taking time to comment.

    But it all has to be paid for, and the alleged bribe we recently heard about would be added to the bill that the Government paid. Perhaps more importantly it often means that decisions on who to award contracts to could be made not on the basis of the effectiveness of the contractor or best value to Oman, but on the size of the inducement [see OmanTel post later]...

    And you DO pay tax ti3gib. 5% import tax on everything, luxury and Munisipality tax on restaurant bills, and indirectly company tax most other places.


If you wish to post anonymously, please pick a nickname by selecting the Name/URL option, or at least sign off your comment with one! I will delete comments I find objectionable or needlessly inflammatory. Sorry for the word verification.... OMG the spam has gotten BAD these past 12 months... trying to avoid making one log in...