Sultanate of Oman*

INTRODUCTION General
Capital/Other major cities: Area: Population: Language: Currency: Country telephone code: Weekend: National holidays: Muscat/Salalah, Sohar 212,460 km2 3.0m Arabic Omani rial (OMR) 968 Friday 2nd half of 2005 3 Sep, 25*, 1920 Nov. 2006 1, 912*, 31* Jan, 10*, 1617 Apr, 21 Aug, 2426 Oct*, 1819 Nov, 31 Dec*.
* Since the Islamic calendar is lunar, these holidays depend upon the sighting of the moon and exact dates may vary from those listed above.

Business hours: Banking hours: Stock exchange: General market index:

08:0013:00 and 16:0019:00 (SatWed), 08:0013:00 (Thur) 08:0013:30 (SatThur) Muscat Securities Market (MSM) MSM Index

Government
Legislature Monarchy with a bicameral national assembly (Majlis Oman) composed of an upper chamber (Majlis alDawla) and a lower chamber (Majlis al-Shura). Upper chamber 58 members appointed by the monarch. Lower chamber 83 members elected via limited suffrage for four-year terms. Oman is a member of the Gulf Co-operation Council (GCC). Head of state and political leader Sultan and PM Qaboos bin Said Al Said.

Economy
1998 Exchange rate* (OMR/USD) Interest rate (lending rate**) (%) Consumer inflation (%) Unemployment (%) GDP volume growth (%) GDP (OMRm) GDP (USDm) GDP per capita (USD) BoP (goods, services & income) as % GDP 0.3845 10.09 0.6 NA +2.7 5,416 14,086 5,726 12.1 1999 0.3845 10.32 +0.4 NA 0.2 6,041 15,711 6,210 6.2 2000 0.3845 10.06 1.1 NA +5.5 7,639 19,867 7,612 23.7 2001 0.3845 9.23 1.1 NA +9.3 7,668 19,943 7,414 17.8 2002 0.3845 8.55 0.7 NA 0 7,809 20,310 7,332 16.6 2003 0.3845 8.23 0.4 NA +2.5 8,343 21,698 7,613 14.4 2004 0.3845 7.57 +0.4 NA NA NA NA NA NA 2005 Q1 0.3845 NA NA NA NA

* End of period. ** Transactions-weighted average interest rate on all local currency loans. Year on year. Source: International Financial Statistics, IMF June 2005.
*

Please note that rules and regulations and market practice are not necessarily documented and are subject to interpretation. In addition, they may change rapidly for economic, political, social and religious reasons. As a result, the de facto enforcement and interpretation of regulations and market practice may diverge from the formal regulatory framework described in this country report. If you are planning any business activity in the country, we would recommend that you seek independent advice on the latest market and regulatory developments as well as legal and tax advice.

Sectoral distribution of GDP (% of GDP) Agriculture Industry Services

3.1% 41.1% 55.8% (2004 estimate)

COUNTRY CREDIT RATING

The BBB+ long term foreign currency issuer credit rating (outlook stable) reflects a prolonged period of fiscal prudence and expectations that the government debt burden will remain low and the external finances will remain comfortable for the foreseeable future. In addition, medium-term growth prospects for the non-oil economy have improved due to ongoing investment in industrial diversification projects.

Positive Factors Sizeable hydrocarbon resource base Improving prospects for non-oil economy Healthy external finances.

Negative Factors Narrow productive and export base Other structural weaknesses.

Positive factors Sound public and external finances The central government budget has posted surpluses in each year
since 1996, (except 1998) reaching around 6% of GDP in 2004. The ratio of government debt to GDP has trended downwards over the past decade and is estimated to have fallen from 29% in 1998 to an estimated 11% in 2004. The country's gross external debt is also low, at around 21% of GDP (37% of current account receipts) in 2004. Improving prospects for the non-oil economy The development of gas-intensive, export-oriented industries (petrochemical, fertiliser, aluminium and iron and steel projects) is expected to commence operations in 20058. Oman is also seeking to expand liquefied natural gas (LNG) production. The outlook for non-hydrocarbon sectors remains bright with the establishment of a free trade zone, the promotion of tourism, the easing of rules on foreign investment and measures to improve the skills and employability of the local labour force. A sizeable hydrocarbon resource base Proven crude oil reserves are expected to last at least 20 years (and probably many more), while ever-increasing natural gas reserves are expected to last considerably longer.

Negative factors A narrow productive and export base Dependency on oil remains excessive directly contributing over
40% of national output, and accounting for 75% of budget revenues and 68% of exports of goods and services in 20004. National output growth, government cashflow, and foreign exchange earnings are all vulnerable to volatile oil prices. Oil dependence is risky, not just because of price volatility, but also because production is falling due to the complex geology of Oman's ageing oil fields. Petroleum Development Oman (PDO), which is 60% government owned, expects investment in enhanced oil recovery schemes to result in the arrest and partial reversal of the output decline over the next five years. Other structural weaknesses Nationals prefer to work in the relatively high-wage public sector and expatriates dominate the private sector. Strains in the job market could emerge as the domestic labour force expands over the medium term given the relatively high birth rate. The capacity of the non-hydrocarbon economy to absorb the growing working-age population remains in doubt given the focus on the expansion of capital-intensive industries.

Regional Comparative Table

Foreign Currency* Bahrain Egypt Jordan Kuwait Lebanon Oman Qatar Saudi Arabia United Arab-Emirates Yemen BBB+ BB+ BB A+ B BBB+ A A A+ B Outlook Stable Stable Stable Stable Negative Stable Stable Stable Stable Stable

* For an explanation of CIRatings definitions please see page 335

Analysts
Anthony Cooke Email:anthony.cooke@ciratings.com Karti Inamdar E-mail: karti.inamdar@ciratings.com

For more information please visit www.ciratings.com

LEGAL AND REGULATORY Central bank The Central Bank of Oman began operating in 1975 in accordance with the Amiri Decree No. 23 of 1974
and the 1974 Banking Law, which was amended in 2000.

Bank supervision The Central Bank of Oman supervises the banking sector within the country. Resident/Non-resident status Corporate residence is not legally defined in Oman. Bank accounts Foreign exchange accounts can be held by residents domestically and abroad. Accounts in domestic
currency (OMR) cannot be held by residents abroad, but are convertible into foreign currency.

Non-resident bank accounts denominated in domestic (OMR) or foreign currency are permitted in Oman.
Non-resident accounts in domestic currency (OMR) are convertible into foreign currency.

Interest can be offered on savings accounts and time deposit accounts, but not on current accounts. Companies in Oman widely use overdraft facilities. Reporting
Reporting regulations Outward remittances by expatriates are reportable to the Central Bank of Oman. There are no balance of payments reporting obligations for residents. Balance of payments statistics are compiled using administrative data and surveys. Reporting method Banks generally report on behalf of their customers, but it is the customers responsibility to provide accurate information.

Anti-money laundering/terrorist financing* Oman has implemented a variety of anti-money laundering measures, the most recent of which are Royal
Decree No. 72 Money Laundering Regulations 2004 and Royal Decree No. 34 The Law on Money Laundering 2002. Oman is a member of FATF. It is also a founding member of MENAFATF. Oman will be establishing a financial intelligence unit (FIU) in 2005. All financial institutions must record and report suspicious transactions. At present, the Royal Omani Police (ROP) receives all reports of suspicious transactions and investigates money laundering. Account opening procedures require formal identification of all customers who open accounts indirectly. Financial institutions must also monitor closely certain types of transactions.

*To be read in conjunction with related article. All information supplied by BCL Burton Copeland (www.burtoncopeland.co.uk). Data as at May 2005.

Exchange controls The Omani rial (OMR) is Omans official currency. The unitary exchange rate is a conventional pegged arrangement The exchange rate of the OMR is pegged to the USD at a central rate of OMR1:USD2.6008. Commercial banks exchange rates for other foreign currencies are determined by the most recent market
quotations in London.

There is a forward exchange market. Exchange controls do not apply in Oman. All trade with Israel is forbidden. Prior approval from the Central Bank is required for both profits and dividend payments by commercial
banks.

Foreign investors are usually restricted to holding a 70% stake in Omani businesses, although, in certain
instances, 100% foreign ownership of businesses is permitted.

A commercial bank is not permitted to borrow more than 300% of its net worth from abroad. Banks cannot lend more than 30% of their local net worth to non-residents. An open foreign exchange position limit of 40% of local net worth applies to banks capital and reserves.

TAXATION Resident/Non-resident The term residency of a company is not defined in Oman. Tax year The tax year is the Gregorian calendar year, although the Secretariat General for Taxation may authorise a
company to use a different accounting year.

Corporate taxation All income realised or arising in Oman is subject to income tax. Whether income has so arisen depends on
whether it has derived from a permanent establishment in Oman. Permanent establishment is defined as a fixed place of business including a place of sale or management, a branch, office, factory, workshop, mine, quarry or building site (i.e. it broadly follows the OECD definition). Services provided by personnel visiting Oman are treated as taxable activities. The tax rate is 12%, with the first OMR30,000 at a nil rate for all Omani registered companies. Branches of foreign companies are taxable at rates from 0 to 30% on bands of profits, with the top rate of 30% applying to profits over OMR100,000.

Advance tax ruling availability These are not available in Oman. Wealth tax There is no religious wealth tax (Zakat) in Oman. Thin capitalisation There are no thin capitalisation rules. Transfer pricing There is no specific transfer pricing legislation. Capital gains tax Capital gains are treated as normal taxable income. Withholding tax (subject to tax treaties)
Payments to: Resident Companies Non-resident Companies Interest N/A N/A Dividends N/A N/A Royalties N/A 10% Other income N/A 10%

Foreign companies that do not have a permanent establishment in Oman for tax purposes and who derive
income from Oman by way of royalties, management fees, rent of equipment or machinery, transfer of technical expertise or in return for research and development are subject to a withholding tax at 10% of gross income from such sources. Any establishment in Oman which pays any of the above shall deduct the tax and deposit it with the taxation authorities.

Sales taxes/VAT (inc financial services) Other than municipal tax (see below), there are no consumption taxes. Other business taxes The vocational training levy of up to 7% of gross wages charged on expatriate employee salaries has been
withdrawn.

In the area of Muscat a municipal tax is charged, which includes 5% on hotel and restaurant bills, 3% on
property rents and lease rentals, 10% on leisure income, and 2% on electricity bills exceeding OMR50 per month. Municipal taxes are also charged in the region of Salalah.

Payroll and social security taxes Employers contribute 8% of Omani employees salaries for social security, while the employees contribute
5%. The employers must also pay 1% of salaries for occupational injury and disease.
All tax information supplied by Deloitte & Touche (www.deloitte.com). Data as at 1 January 2005.

BANKING Major banks

Bank Bank Muscat National Bank of Oman Oman International Bank Bank Dhofar Oman Arab Bank
* Figures from 31 December 2003.

Total Assets (USDm)31 Dec. 2004 4,811 1,865 1,864 1,434 956*
Source: www.bankersalmanac.com

Overview

There are around 14 commercial banks in Oman that also offer investment banking services. Five are local
banks and nine are branches of foreign banks. The total branch network in Oman stands at around 327.

There are also three specialised banks, which have a total branch network of around 26. Two of these
banks are state-owned (the Oman Housing Bank and the Oman Development Bank), while the Alliance Housing Bank is privately owned. In terms of both assets and capital, the Omani banking sector is dominated by three local commercial banks: Bank Muscat, National Bank of Oman and Oman International Bank. The Omani banking sector is undergoing further consolidation. The most recent development has been the purchase of Mejan International Bank in March 2003 by Bank Dhofar Al Omani Al Fransi (known as Bank Dhofar since January 2004).

PAYMENT INSTRUMENTS Credit transfers Credit transfers are used to pay wages and for high-value payments. Customer transfers can be initiated using banks e-banking systems, and bank-to-bank credit transfers can
be effected through the Central Bank via telex or SWIFT messages.

Direct debits Direct debits can only be used for accounts with the same bank. Direct debits are particularly used for regular, low-value payments. Cheques The cheque is the dominant cashless payment instrument in Oman, both in terms of volume and value. Cheques can be discounted and used as a short-term financing instrument. Cheques are exchanged manually and payments processed bilaterally between banks via the local clearing
house.

Card payments The usage of payment cards has increased rapidly over recent years. Debit cards are widely used in Oman. Visa, MasterCard, American Express and Diners Club are the principal credit card issuers in Oman. Each bank in Oman establishes its own individual clearing and settlement arrangements with the card
issuers.

ATM terminals were first introduced in Oman in 1988-1989. Approximately ten banks in Oman have their ATMs linked via the Oman Switch ATM network. Oman
International Bank is the only local bank yet to join.

PAYMENT SYSTEMS Type

There is no interbank clearing system operating in Oman at present. All payment instruments are processed
on a bilateral basis between banks, with the exception of cheque payments, which are cleared through the local branches of the Central Banks clearing house. However, the Central Bank of Oman has finished the first phase of the implementation of a national RTGS system which should be introduced in the near future.

Clearing cycle details

Central Bank clearing house Cheques are exchanged between banks that hold accounts with the Central Bank. Cheques must be deposited before the 12:00 cut-off time. Cheques denominated in OMR which are delivered before 10:00 Gulf Standard Time (GST) can be cleared on a same-day basis, while those equal to or below the threshold are usually cleared within two working days.

CASH MANAGEMENT Domestic

Notional pooling Notional pooling is permitted but not offered in Oman. Cash concentration At least one international bank offers a cash concentration solution using the zero-balancing technique.

Cross-border Only in-country pooling is permitted. Short-term investments Interest can be earned on savings accounts and time deposits but not on current accounts. Demand and time deposits are offered in domestic and major foreign currencies. Time deposits have
maturities of one week to two years.

Treasury bills are issued by the Central Bank with maturities of up to one year. Certificates of deposit are offered by commercial banks. Repurchase agreements are also available for short-term investment purposes.

ELECTRONIC BANKING Electronic banking products are now offered by at least three banks, but usage remains limited. There is no bank-independent electronic banking standard in Oman. Banks offer their own proprietary
system for corporate banking purposes.

Internet banking is also becoming increasingly popular among retail users and small companies.

TRADE FINANCE Trading partners

Import

UAE 21.6%, Japan 17.1%, USA 6.2%, UK 5.7%, Germany 4.4%, India 4.4%.
Export

South Korea 18.7%, China 18.5%, Japan 16.2%, Thailand 12.2%, UAE 7.8%, Iran 4.1%. Imports
Documents

In order to import goods into Oman, a customs declaration is required to be filed. The commercial
invoice must include a full description of the imported goods. A certificate of origin and bill of lading are also required. Licences

Licences are required for certain imports.

Taxes/Tariffs and other fees

Customs duties range from 5% for the majority of imports to 100% for alcoholic drinks. Government imports and imports from other GCC countries are exempt from customs duties.
Prohibited imports

A negative list (list of products that may not be imported) is in operation. It is prohibited to import certain commodities into Oman in order to protect the safety and health
of fauna and flora, national security and property.

Imports of specified products are prohibited if domestic production is deemed to be adequate for
companies in Oman trading in oil products.

Imports from Israel are prohibited. Exports

Documents

In order to export goods from Oman, a customs declaration is required to be filed including a
certificate of origin and bill of lading. Licences

Licences are not required for the majority of exports. Licences are required for exporting items of historical value and large consumer goods.
Taxes/Tariffs and other fees

There are no taxes charged on exports from Oman.

Prohibited exports

As with imports, there is a negative list of products that cannot be exported. Exporting items to Israel is prohibited. Financing imports and exports
Imports

There are no financing requirements for imports.

Exports There are no financing requirements for exports.

USEFUL CONTACTS
Central Bank of Oman Leading banks Bank Muscat National Bank of Oman Oman International Bank Ministry of National Economy Oman Chamber of Commerce and Industry Omani Centre for Investment Promotion and Export Development Muscat Securities Market www.cbo-oman.org www.bankmuscat.com www.nbo.co.om www.oiboman.com www.moneoman.gov.om www.omanchamber.com www.ociped.com www.msm.gov.om

HSBC CONTACT DETAILS

Global Payments and Cash Management HSBC Bank Middle East Limited HSBC Building Muttrah Business District PO Box 240 Postal Code 112 Ruwi Oman Tel +971 4 507 7251 Fax: +971 4 353 2878 Email: enquiriespcm@hsbc.com