# Regulations and Legal Framework for Operating in Sohar Freezone

> A guide to the rules for operating in Sohar Freezone: the legal framework, ownership, licensing, tax and Omanisation schedule, customs, leases, penalties and ongoing compliance.

URL: https://omanregister.com/regulations-and-legal-framework-for-operating-in-sohar-freezone-2026/
Updated: 2026-10-24
Publisher: Oman Register (omanregister.com) — company registration and residency services in Oman. Contact: +968 7733 3556, info@omanregister.com

## At a glance

- **Zone law:** Royal Decree 123/2010 (Sohar Free Zone)
- **Unified zones law:** Royal Decree 38/2025, Executive Regulations 81/2026
- **Zone regulations:** Ministerial Decision 35/2016
- **Regulator / operator:** OPAZ / SOHAR Freezone
- **Omanisation for tax holiday:** 15% → 25% → 35% → 50%
- **Maximum fine:** Up to OMR 5,000

Operating in Sohar Freezone is governed by the **Sohar Free Zone Law (Royal Decree 123/2010)**, the zone's working regulations (**Ministerial Decision 35/2016**) and, since 2025, the unified **Special Economic Zones and Free Zones Law (Royal Decree 38/2025)** with its **2026 Executive Regulations**, under the supervision of OPAZ. The key rules: 100% foreign ownership, activities limited to what your licence lists, customs-free movement between the zone and abroad, a tax holiday that depends on rising Omanisation, and lease and licence obligations that the operator can enforce with withdrawal or fines.

This article explains the *rules you must follow* once you operate. For setup steps see [Sohar steps and documents](https://omanregister.com/steps-and-documents-for-company-registration-in-sohar-freezone-2026-guide/); for budgets see the [Sohar cost guide](https://omanregister.com/cost-of-company-registration-in-sohar-freezone-2026-financial-guide/).

## The legal framework at a glance

| Instrument | Role |
|---|---|
| Royal Decree 123/2010 | Established the Sohar Free Zone and its basic incentives |
| Ministerial Decision 35/2016 | Working regulations: licences, Omanisation and tax, customs, leases, penalties |
| Royal Decree 38/2025 | Unified law for all special economic zones and free zones; replaced the 2002 Free Zones Law |
| OPAZ Regulation 81/2026 | Executive Regulations: one-stop shop, automatic licensing and renewal, decision timelines, grievances |
| Foreign Capital Investment Law (RD 50/2019) | Nationwide protections for foreign investors |
| Labour, tax, companies and environmental laws | Apply where zone rules do not provide otherwise |

**Transitional rule:** the 2025 law preserves the incentives, permits and approvals of existing zone companies until their terms expire. Until all implementing decisions are issued, existing regulations remain in force where they do not conflict with the new law. Rules from MD 35/2016 described below should therefore be checked against your own licence and agreement.

## Ownership and capital

- **100% foreign ownership** with no Omani partner or sponsor.
- **No fixed minimum capital**, though the capital you declare may need to be deposited in the company account.
- **Free transfer of funds:** the Foreign Capital Investment Law gives investors the right to transfer project-related money into and out of Oman.
- **Protection from expropriation:** projects cannot be seized, expropriated or frozen except by court decision, or expropriated for public benefit with fair compensation paid without delay.

## Licensing rules

- The zone issues working company licences (industrial, light manufacturing and assembly, logistics, general trade) and service provider licences.
- Each licence specifies the permitted activities; adding activities requires approval and may need an additional licence.
- Licences are renewed annually. Under the 2026 Executive Regulations, renewal can be automatic when the company's data is current and conditions are met.
- If an application is refused, you can **appeal within 60 days** of notification (or of first becoming aware of the decision, if earlier), or **reapply after six months**.
- The 2026 regulations require reasons for certain rejections and provide a grievance route.

## Tax holiday and Omanisation

Under MD 35/2016, a working company is exempt from income tax for **10 years** if it is registered and licensed in the zone, has a lease or investment agreement with the operator, operates in the zone and reaches **at least 15% Omanisation**. To extend the exemption it must reach:

| Period | Minimum Omanisation |
|---|---|
| Years 1–10 | 15% |
| Years 11–15 | 25% |
| Years 16–20 | 35% |
| Years 21–25 | 50% |

If the required level is missed in a year, that year's profit becomes taxable, the exemption cannot be extended for that year, and accumulated losses cannot be carried into that year's accounts. The exemption only takes effect once the operator issues a **tax exemption certificate**.

For **new enterprises**, Royal Decree 38/2025 provides a 10-year exemption from the start of commercial operations, extendable for two further periods for activities of a special nature, and excludes banks, financial institutions, insurers, telecoms, contracting and land and maritime transport companies. Outside an exemption, corporate income tax is 15%. From 1 January 2028, a 5% personal income tax applies to resident individuals' income above OMR 42,000 a year. See our [Oman tax guide](https://omanregister.com/navigating-omans-tax-landscape-the-ultimate-guide-for-investors/).

## Customs rules

- Goods may enter the zone freely and remain there without time limit.
- Goods exported abroad or to another free zone pay no customs duty.
- **Imports from abroad:** a transit statement is prepared at the border, a guarantee equal to the customs duties is provided, customs inspects, and the company or operator takes delivery.
- **Goods from mainland Oman** into the zone need a certificate of origin, the exporter's invoice and an export or re-export customs statement.
- **Exports from the zone** need an application to the operator with fees and invoice, inspection if customs requests it, a customs statement and the operator's approval.
- **Sales into mainland Oman:** goods leaving the zone into the customs territory are treated as foreign goods and pay import duty.
- **Made in the zone:** goods produced or assembled in the zone are treated as of Omani origin for export, which can help under Oman's free trade agreements (including with the United States and Singapore).
- **Prohibited goods** include narcotics, weapons and ammunition, explosives, certain chemicals and radioactive materials, harmful toxic waste and goods infringing intellectual property.

## Land, lease and sublease rules

- Premises are held under a lease or usufruct agreement with the operator.
- **Subletting** requires the operator's written approval, the subtenant must be registered as a working company, and you must give a written undertaking of joint responsibility for obligations to the operator.
- The operator may **terminate the lease if rent is six months overdue**.

## When a licence can be withdrawn

The operator may withdraw a licence or terminate a lease if, without acceptable justification:

1. building or site preparation has not started within six months of the licence;
2. the licensed activity has not started within six months of the licence;
3. the licensed activity has been suspended for six months;
4. rent is six months overdue;
5. prohibited goods are brought into the zone; or
6. the regulations are otherwise breached.

## Penalties

Penalties under MD 35/2016 include written warnings, **fines of up to OMR 5,000**, a one-year entry ban, suspension of work for three months, and a ban on removing goods until the violation is fixed.

## Labour, environment and other compliance

- **Labour:** employment contracts, wages, leave and end-of-service benefits follow Oman's Labour Law. Work visas for expatriates are processed through the zone's one-stop shop; see the [work permit guide](https://omanregister.com/work-permit-oman/).
- **Environment:** industrial and logistics projects need an environmental permit before construction; the category (no, limited or significant impact) decides whether a form or a full impact assessment is needed.
- **Banking:** Omani banks apply anti-money-laundering checks and normally require the authorised signatory to attend in person.

## Annual compliance checklist

- Renew the activity licence and commercial registration.
- Pay rent or land fees on time.
- Submit the **annual tax statement listing employees and the current Omanisation level**, as required by the zone regulations, and file the income tax return with the Oman Tax Authority.
- Keep audited accounts.
- Keep the activity within the licence scope; request approval before adding activities.
- Renew visas, labour cards and environmental approvals.

Oman Register can review your licence and agreement to confirm which incentive regime applies to you, and keep your renewals and Omanisation reporting on schedule. For the zone overview see the [Sohar Free Zone page](https://omanregister.com/free-zones/sohar-free-zone/); to compare with other zones read the [Duqm vs Sohar vs Salalah guide](https://omanregister.com/comparison-duqm-vs-sohar-vs-salalah-freezone-2026-guide/).

## FAQ

**Which laws apply to a company in Sohar Freezone?**

The Sohar Free Zone was established by Royal Decree 123/2010 and its working rules were set by Ministerial Decision 35/2016. Since 2025 the unified Special Economic Zones and Free Zones Law (Royal Decree 38/2025) and its 2026 Executive Regulations apply to all zones under OPAZ, while existing companies keep their earlier incentives until they expire.

**What Omanisation level is required in Sohar Freezone?**

Under the zone's published regulations, a company needs at least 15% Omanisation to qualify for the initial 10-year tax exemption, then 25% in years 11–15, 35% in years 16–20 and 50% in years 21–25 to keep it.

**Can a Sohar Freezone company sell in mainland Oman?**

Goods moved from the free zone into Oman's customs territory are treated as foreign goods and pay import duty. To sell directly to Omani customers on a regular basis, companies usually use a local distributor or set up a mainland company.

**Can the zone cancel my licence?**

Yes, in defined cases: for example if construction or the licensed activity does not start within six months without justification, the activity is suspended for six months, rent is six months overdue, prohibited goods are brought in, or the regulations are breached.

**Can I sublet my land in Sohar Freezone?**

Only with the operator's written approval, if the tenant is registered as a working company and you give a written undertaking to be jointly responsible with the tenant for obligations to the operator.

**Is the new 10-year tax exemption replacing the 25-year holiday?**

For new enterprises, the 2025 law sets a 10-year exemption from the start of operations, extendable for activities of a special nature. Companies already holding exemptions under the earlier Sohar rules keep them until their term ends.

## Sources

- [OPAZ — Sohar Free Zone](https://opaz.gov.om/en/zones/sohar-free-zone)
- [Curtis Oman Law Blog — Regulations for working in Sohar Free Zone (MD 35/2016)](https://omanlawblog.curtis.com/2016/09/regulations-for-working-in-sohar-free.html)
- [EY — Oman issues law on special economic zones and free zones](https://www.ey.com/en_gl/technical/tax-alerts/oman-issues-law-on-special-economic-zones-and-free-zones)
- [KPMG — Oman issues Law for Special Economic Zones and Free Zones](https://kpmg.com/om/en/home/insights/2025/06/oman-issues-law-for-special-economic-zones-and-free-zones.html)
- [Zawya — OPAZ issues Executive Regulations (Regulation 81/2026)](https://www.zawya.com/en/economy/oman-opaz-issues-executive-regulations-for-special-economic-and-free-zones-law-1020763)
- [Library of Congress — Oman's Foreign Capital Investment Law](https://www.loc.gov/item/global-legal-monitor/2020-04-13/oman-new-foreign-capital-investment-law-comes-into-force/)
- [Mondaq — Company formation in Sohar Port and Free Zone](https://www.mondaq.com/offshore-company-formation/748612/company-formation-in-sohar-port-and-free-zone)
- [PwC — Oman introduces Personal Income Tax](https://www.pwc.com/m1/en/services/tax/me-tax-legal-news/2025/oman-introduces-personal-income-tax.html)