Oman unveils Capital Market Incentives Program to boost economic growth

Executive summary

On 11 August 2024, Oman's capital market regulator, the Financial Services Authority (FSA) and other key departments — including the Ministry of Finance (MoF), Ministry of Commerce, Industry and Investment Promotion (MOCIIP), Muscat Stock Exchange (MSX) and Estidamah (National Programme for Fiscal Sustainability and Financial Sector Development) — announced details of the Capital Market Incentives Program (CMIP or Program), a strategic initiative based on Royal Directives and aimed at enhancing Oman's investment and business climate.

The CMIP is structured to engage private sector entities by providing them with three entry points or pathways for listing on the MSX over a five-year period, with each entry point being complemented by a tailored incentive framework. Through this Program, the FSA seeks to increase market activity by attracting investors from all segments, from large businesses, family-owned enterprises, small- and medium-sized enterprises (SMEs) and start-ups. The first pathway is designed to include companies in the main stock market. The second pathway introduces the Muscat Stock Exchange-Alternative Investment Market (MSX-AIM), an innovative platform dedicated to the advancement of emerging companies. The third pathway is aimed at facilitating the conversion of limited liability companies (LLCs) to closed joint stock companies (SAOCs), thereby enabling their transition to a more robust corporate stature within the capital market ecosystem.

Detailed discussion

Background

Before the CMIP was introduced, options for entry into Oman's capital market were limited, and only a certain number of public joint stock companies (SAOGs) were actively traded on the MSX. To expand the size and further develop the capital market in Oman, the FSA introduced the CMIP for both local and foreign investments. The CMIP also aims to offer alternative financing sources for all company segments, including SMEs. The CMIP is expected to play a pivotal role in supporting economic development and fulfilling the objectives of Oman Vision 2040 through a commitment to fostering a dynamic economic landscape, attracting investment and driving progress toward a prosperous future.

Pathway 1: New joint stock company formation or conversion

The first pathway of the CMIP focuses on encouraging the formation of new SAOGs and the conversion of private and family-owned businesses with a market value exceeding 10 million Omani Rial (OMR10m) into SAOGs. Substantial support from various government bodies is offered. The Program has a duration of five years.

Key benefits and the criteria for availing the incentives under this pathway are described below.

Benefits

The MoF will provide a refund of two-thirds of the income tax paid for five years after listing on the MSX, resulting in a reduction in the tax rate from 15% to 5%. The Oman Tax Authority (OTA) will allow for income tax installment payments for five years, with a six-month exemption from any additional taxes from the due date. Further, the General Secretariat of the Tender Board (GSTB) will offer a 10% price preference for procurement contracts and tenders for five years.

The FSA also offers the following incentives under this pathway:

• Exemption for three years from listing fees charged by the FSA
  
  
• Exemption for three years from fees for IPO prospectus and any other subsequent fee charged by the FSA
  
  
• Free consultation to the company for one year on all legal and regulatory requirements, including allocation of an employee within the FSA to assist with compliance issues and resolution of any problems that may arise during the listing process
  
  
• Approval of the prospectus within three working days upon receipt of all required documents and response to the company's communications within two working days.

The Muscat Clearing & Depository Company (MCDC) will offer exemption from transfer agent fees for three years. The Oman Development Bank (ODB) will provide fast-track processing of financing applications. Further incentives include preferences in obtaining land usufructs and concession areas.

Criteria

The company must be valued at no less than OMR10m and offer at least 25% of its shares for public subscription.

The company may not convert to any other legal form for five years following the incentive period, unless the FSA allows an exception.

Pathway 2: Establishment of MSX-AIM

The second pathway of the CMIP introduces a sub-market within MSX, called the Promising Companies Market or the MSX-AIM, targeting private and family-owned companies, SMEs, and emerging companies (start-ups) with a market value exceeding OMR500,000. To be eligible for listing, a company must either be a closed joint stock company (SAOC) or convert into one. Eligible companies can choose to list through an initial public offering (IPO) or opt for a direct listing, provided they meet the necessary requirements.

The MSX-AIM aims to create a favorable environment for private entities and SMEs to flourish and explore alternative financing for growth and expansion. The FSA is currently collaborating with MSX to establish regulations and listing procedures, with the market's launch anticipated before 31 December 2024, subject to regulatory approval.

The MSX-AIM is designed to allow targeted companies to list and trade with fewer disclosure obligations and at a reduced expense. This initiative aims to facilitate their eventual move to the primary market. However, due to the increased risk associated with these entities, only experienced investors will have access to trade on the MSX-AIM.

Key benefits and the criteria for availing the incentives under this pathway are described below.

Benefits

The MoF will provide a refund of one-third of the income tax paid for five years after listing on the MSX-AIM, resulting in a reduced tax rate of 10% from the current tax rate of 15%.

The OTA will allow for income tax installment payments for five years with a six-month exemption from any additional taxes from the due date.

The GSTB will offer a 10% price preference for procurement contracts and tenders for five years.

The FSA offers the following incentives to companies under this path:

• Exemption from listing and prospectus fees charged by the FSA for three years
  
  
• Free consultation to the company seeking to list on MSX-AIM
  
  
• Support with the training program by supplying specialized trainers and content to prepare entrepreneurs and company owners for listing on the stock exchange
  
  
• Provision of summary templates for prospectuses and financial disclosures to suit companies targeted in the MSX-AIM

The MCDC will also offer an exemption from transfer agent fees for three years.

The MSX will contribute to covering the costs of the issuance manager for the first five companies listed on the MSX-AIM, and the corporate marketing and media coverage of these new listings.

The ODB will provide fast-track processing of financing applications for companies listed on MSX-AIM.

Criteria

Participants are not permitted to exit the market during the five years after the incentive period ends. Exceptions will be permitted for converting to public joint stock companies and moving to the parallel market, or for merging with another company.

The Program has a duration of five years.

Pathway 3: Conversion of LLCs into SAOCs

The third pathway of the CMIP encourages the conversion of LLCs into SAOCs to help companies gradually implement governance requirements before transitioning to SAOGs.

Key benefits and the criteria for availing the incentives under this pathway are described below.

Benefits

The MoF provides a refund of one-third of the income tax paid by companies for two years post conversion, resulting in a reduced tax rate of 10% from the current tax rate of 15%.

The OTA allows installment-based income tax payments for two years with an exemption from any additional taxes on these installments for up to six months from the due date.

The GSTB, after approval, offers a 10% price preference for procurement contracts and tenders for two years from the date of conversion to SAOC.

ODB offers fast-track processing for SAOC companies benefiting from the Program, valid for two years from the date of conversion to a closed joint stock company.

Criteria

The duration for benefiting from this pathway will be two years from the date of the company's conversion into an SAOC.

The company must have at least three partners, although it may commit to adding the third partner after the approval of its application by the MOCIIP. The company's market value must be no less than OMR500,000, which must be proven by submitting audited financial statements from an audit and review office accredited by the FSA.

The company must also: employ at least 20 Omani citizens; have permanent licensed premises for conducting its economic activities; be compliant with tax payments and have no outstanding obligations with the OTA; and meet the in-country value (ICV) criteria (as per the ICV guidelines provided by the tender board for the relevant sector in which the company is operating).

Implications

Companies considering participating in the CMIP should carefully evaluate the outlined benefits and eligibility criteria. It is advisable for businesses to conduct a thorough cost-benefit analysis to determine the most suitable pathway based on their requirements. Conducting this strategic assessment should help companies leverage the incentives to align with their growth objectives and contribute to the broader economic development of Oman.