In February 2026, the Oman Investment Authority (OPAZ) reported that total committed investment across Oman's economic, free, and industrial zones reached OMR 22.4 billion — a 6.8% increase year-on-year — with 325 new investment agreements signed across the zones in 2025 alone (OPAZ, "Total Committed Investment in Economic, Free and Industrial Zones Reached OMR 22.4 Billion", February 2026). A 0% corporate income tax rate for 25 to 60 years is one reason businesses keep coming.
What most finance teams don't realise is that the legal framework governing all four zones changed in April 2025. Royal Decree 38/2025 replaced the patchwork of zone-specific laws — Sohar under its own decree, Duqm under another, Salalah and Al Mazunah under separate ministerial orders — with a single unified regime. If your guidance predates April 2025, it needs a review.
This guide covers corporate tax exemptions, VAT treatment, sector exclusions, withholding tax, and the Pillar Two risk for all four zones under the current law.
Key Takeaways- All four Oman free zones offer 0% corporate income tax: Sohar for 25 years, Salalah and Al Mazunah for 30 years, Duqm SEZ for up to 60 years (30 + 30 renewal) under Royal Decree 38/2025 (OPAZ, April 2025)- Royal Decree 38/2025 replaced zone-specific laws with a unified framework from 13 April 2025; as of June 2026, Executive Regulations defining "special significance" activities remained unpublished past their April 2026 deadline- VAT at 0% applies to goods imported into free zones from outside Oman — but mainland-to-zone supplies are taxed at 5%; zones aren't VAT-free for all transactions- Withholding tax on dividends is currently suspended by Royal Directive (January 2023), but 10% WHT still applies to royalties and service fees paid to non-residents- MNEs with global revenue above EUR 750 million may see their free zone 0% CIT offset by Oman's Pillar Two top-up tax (effective 1 January 2025)
---
What Are the Corporate Tax Benefits in Oman's Free Zones?
In April 2025, Oman issued Royal Decree 38/2025, establishing a unified Law of Special Economic Zones and Free Zones that standardised the corporate income tax exemption across all four zones (KPMG Oman, "Oman issues law for Special Economic Zones and Free Zones", June 2025). Under the new law, qualifying enterprises receive a 10-year income tax exemption renewable twice for activities of "special significance," giving a maximum potential 30-year exemption for designated strategic activities. Existing operators retain their previously granted periods — those aren't cut back.
The headline incentive package across all four zones is consistent:
| Incentive | All Four Zones |
|---|---|
| Corporate income tax | 0% for the exemption period |
| Customs duties (zone imports) | 0% |
| Customs duties (zone exports/re-exports) | 0% |
| Foreign ownership | 100% permitted |
| Profit repatriation | 100% (no exchange controls) |
| Minimum capital requirement | None under RD 38/2025 |
The standard corporate income tax rate on the Oman mainland is 15% (PwC, "Oman – Corporate – Taxes on corporate income," Worldwide Tax Summaries, 2025). For a business earning OMR 2 million in net taxable income per year, the difference between 0% and 15% compounds to OMR 30 million over ten years — before factoring in customs savings and the 100% foreign ownership that mainland Oman typically restricts to a maximum 70% for GCC non-nationals.
For businesses incorporating in Oman as part of their free zone setup, see our Oman corporate tax registration guide for the OTA registration steps and timeline.
---
How Did Royal Decree 38/2025 Change Free Zone Rules?
Before April 2025, each zone operated under its own legislation — Sohar under the general Free Zones Law (Royal Decree 56/2002), Duqm under Royal Decree 119/2011, and Salalah and Al Mazunah under separate ministerial orders — with rules that varied zone by zone on exemption periods, Omanisation rates, and permitted activities (EY Global, "Oman issues law on special economic zones and free zones", April 2025). OPAZ supervised all of them, but advisers handling multi-zone investments had to track four different legal instruments.
Royal Decree 38/2025, effective 13 April 2025, replaced that patchwork with a single law. KPMG's June 2025 analysis identifies three material changes:
- Standardised exemption structure. The law establishes a base 10-year income tax exemption, renewable twice for activities of "special significance" — up to 30 years total. As of June 2026, the Executive Regulations defining "special significance" had not been published — the 13 April 2026 statutory deadline passed without a publicly available text. Definitional uncertainty about which renewal tier new investments can access remains in place until OPAZ publishes these regulations.
- Excluded sectors codified in primary legislation. The exclusions (banks, financial institutions, insurance and reinsurance, telecoms, construction, road transport, maritime transport) are now in the primary law rather than ministerial guidance. That makes zone-by-zone waivers for excluded businesses harder to obtain.
- 100% foreign ownership and no minimum capital are statutory rights across all zones — not zone-by-zone decisions subject to OPAZ discretion.
One implication of the outstanding Executive Regulations matters for businesses evaluating zone entry right now. As of June 2026, any investment signed after April 2025 carries some risk about which renewal tier applies — the regulations remain unpublished. The transitional provision protects existing operators — their current exemption periods are preserved. The uncertainty falls on post-April 2025 applicants who want to plan beyond the base 10-year period.
---
What Are the Specific Tax Terms for Each Oman Free Zone?
In February 2026, OPAZ reported OMR 22.4 billion in total committed investment across all free and economic zones (OPAZ, February 2026) — spread across four zones that differ significantly in exemption length, sector focus, and Omanisation rate. Duqm SEZ has the most flexible terms for long-horizon capital investment; Salalah has the most attractive Omanisation rate for labour-intensive operations; Sohar is strongest for port-adjacent logistics; Al Mazunah is optimised for Yemen and East Africa trade.
Sohar Freezone
Sohar Freezone sits adjacent to Sohar Port on Oman's northern coast, 220 kilometres north of Muscat. Its corporate income tax exemption runs for 25 years at 0% under the pre-RD 38/2025 framework, preserved by the transitional provisions (OPAZ, "Sohar Free Zone", retrieved June 2026). The new law's 10+10+10 structure applies to investments made after April 2025.
In 2024, the combined Sohar Port and Freezone complex secured USD 4 billion in new investment across 12 agreements — a figure covering both port operations and the freezone (Zawya, "Oman: Sohar Port and Freezone secures $4bln worth of new investments in 2024", January 2025). Freezone-specific cumulative committed investment stood at approximately USD 3.3 billion (OMR 1.3 billion) as of end-2024. Sohar's Omanisation rate is described as "relaxed" — no fixed statutory percentage is published for the zone as of June 2026.
Salalah Free Zone
Salalah Free Zone, adjacent to Salalah Port in the southern Dhofar region, offers a 30-year corporate income tax exemption at 0% — the maximum under the zone's original law, preserved under RD 38/2025 (OPAZ FAQ, retrieved June 2026). Cumulative investment has reached OMR 4.9 billion, with OMR 187 million added in H1 2025 across six new projects (Zawya, "Oman: Salalah Free Zone sees investment worth $486mln in H1 2025", H1 2025).
Salalah's Omanisation rate is among the lowest of Oman's free zones — a practical advantage for labour-intensive operations where the Dhofar national workforce pool is limited.
Duqm Special Economic Zone
The Duqm SEZ covers 2,000 square kilometres — one of the largest special economic zones in the Middle East — on Oman's central coast. It offers a 30-year corporate income tax exemption renewable for a further 30 years, giving a potential 60-year total at 0% (OPAZ, "Special Economic Zone at Duqm", retrieved June 2026).
Total committed investment in Duqm reached OMR 6.3 billion (USD 16.4 billion) as of October 2025, representing 5.3% year-on-year growth and 71.8% growth since the end of 2022 (Zawya, "Oman Duqm investments surpass $16.4bln as SEZAD cements global role", October 2025). In H1 2025, commercial registrations rose from 68 to 225; total workers reached 12,400 including 3,245 Omanis — a 26% Omanisation rate (Oman Observer, "Duqm SEZ rolls out strategy as investment projects accelerate", H1 2025). Duqm provides land on usufruct terms up to 50 years, renewable — relevant for energy and petrochemical projects requiring long land commitments.
Al Mazunah Free Zone
Al Mazunah Free Zone, established in 1999 on Oman's southern border with Yemen, covers 14.5 square kilometres and targets businesses serving Yemen and East Africa trade routes. Its 30-year corporate income tax exemption is granted "without need to provide income declaration" — OPAZ's description of the simplified compliance arrangement for the zone's trade-oriented tenants (OPAZ, "Al Mazunah Free Zone", retrieved June 2026). Omanisation at Al Mazunah is set at 20% — higher than Salalah but lower than most mainland sectors.
---
How Does VAT Work for Businesses in Oman's Free Zones?
In April 2021, OPAZ announced that all four zones — Sohar, Salalah, Duqm, and Al Mazunah — are classified as "Special Zones" under Article 102 of the Oman VAT Executive Regulations (Decision 53/2021), giving effect to Article 54 of the Oman VAT Law (Royal Decree 121/2020) (OPAZ, "SEZAD and Free Zones in Salalah, Sohar and Al Mazunah Are Classified Special Zones", April 2021). Goods entering these zones from outside Oman are treated as if they haven't entered Oman at all — hence 0% import VAT. But that's where the simplicity ends.
The OTA's VAT Guide for Special Economic Zones sets out a transaction-by-transaction framework that surprises most businesses when they first encounter it:
| Transaction | VAT Rate | Notes |
|---|---|---|
| Goods from outside Oman → Special Zone | 0% | Treated as not entering Oman |
| Goods from Oman mainland → Special Zone | 5% standard rate | NOT treated as an export |
| Goods from Special Zone → Oman mainland | 5% (treated as import) | Standard import VAT applies |
| Goods between two Special Zones (unaltered) | 0% | Goods must remain unaltered |
| Qualifying services within a Special Zone | 0% | Subject to Articles 101–107 of VAT Executive Regs |
The most important row in that table isn't the 0% — it's the 5% on mainland-to-zone supplies. A zone business buying raw materials from a mainland Omani supplier pays 5% VAT on those purchases. It can potentially recover that input VAT, but it needs to be VAT-registered, filing returns, and maintaining zone authority-certified documentation.
This creates a structural compliance asymmetry worth understanding before you model the economics. A business that operates entirely within the zone — importing internationally, manufacturing, and exporting internationally — will see 0% VAT on essentially all transactions. A business that trades heavily with the Oman mainland operates more like a standard VAT-registered taxpayer, with input and output VAT on every domestic transaction, even if its corporate income is sheltered by the exemption. The two businesses face very different compliance burdens despite being in the same zone.
Zone businesses must register for VAT with the OTA, file quarterly returns, and maintain all documentation to the same standard as mainland registrants. The Special Zone classification changes the rate on certain transactions — it doesn't remove the VAT registration obligation. For the full Oman VAT registration and return-filing process, see our Oman VAT guide.
---
Which Activities Are Excluded from Oman Free Zone Tax Exemptions?
Royal Decree 38/2025 codified the excluded activity list in primary legislation rather than ministerial guidance, making sector exclusions harder to waive on a case-by-case basis (EY Global, April 2025). This is a material change from the pre-2025 framework, where zone authorities had more flexibility on borderline cases.
Under RD 38/2025, the following activities do not qualify for the 0% corporate income tax exemption:
- Banking and financial institutions
- Insurance and reinsurance companies
- Telecommunications operators
- Construction companies
- Road transport operators
- Maritime transport operators
For qualifying activities outside this list, the exemption applies automatically once OPAZ grants the enterprise licence. There's no separate OTA filing or tax application — the exemption runs from the enterprise agreement date.
The exclusions apply to the *operator's registered activity*, not to whether physical road or maritime assets are used incidentally. A logistics warehouse operator that coordinates transport via third-party carriers may still qualify; a business whose primary registered activity is haulage or freight forwarding by sea may not. OPAZ's published guidance on edge cases is limited — confirm your activity classification with OPAZ before signing an enterprise agreement if there's any ambiguity.
---
Can Free Zone Businesses Repatriate Profits Without Withholding Tax?
In January 2023, a Royal Directive from Sultan Haitham bin Tarik suspended Oman's withholding tax on dividends and interest paid to non-residents indefinitely (PwC, "Oman – Corporate – Withholding taxes," Worldwide Tax Summaries, 2025). For free zone businesses distributing profits to foreign shareholders, that suspension means no withholding tax on dividends — for as long as the directive remains in effect.
That "for as long as" is the important qualifier. Oman's Income Tax Law sets a 10% withholding tax on dividends paid by joint-stock companies to non-residents. The suspension has held since January 2023, but a Royal Directive can be reversed without a legislative process. Plan on the basis that dividends are currently WHT-free; it's unreasonable to model a 30-year zone investment on that continuing indefinitely.
What applies regardless of the suspension:
- 10% WHT on royalties paid to non-resident rights holders
- 10% WHT on management and technical service fees to non-resident providers
- 0% on profit repatriation — Oman has no exchange controls and no capital transfer restrictions
Free zone status doesn't create an additional WHT exemption beyond what the Royal Directive already provides to all Oman-registered businesses.
---
Will Oman's New Personal Income Tax Affect Free Zone Employees?
In June 2025, Oman enacted Royal Decree 56/2025, making it the first GCC state to introduce personal income tax: a 5% rate on individual annual net income above OMR 42,000 (approximately USD 109,000), effective 1 January 2028 (EY Global, "Oman to introduce personal income tax from January 2028", June 2025). Free zone employees earning above that threshold are not exempt — the tax applies based on residency, not employment location.
The residency test is 183 days per year in Oman. An expatriate employee earning OMR 60,000 in Duqm SEZ owes 5% on OMR 18,000 (the amount above the threshold) — OMR 900 per year — on the same basis as a mainland employee at the same income level. The zone address changes nothing.
For free zone employers, any staffing cost model for 2028 and beyond needs to account for this. If employment contracts include tax gross-up provisions, you'll need to quantify the new cost before 2027. The OMR 42,000 threshold covers most blue-collar and mid-level roles; the PIT impact concentrates on senior management, technical specialists, and executives.
---
What Should MNEs Know About Oman's Pillar Two Rule?
In 2025, Oman introduced the Income Inclusion Rule (IIR) under Royal Decree 70/2024, effective 1 January 2025 — Oman's implementation of the OECD Pillar Two global minimum tax (PwC, Worldwide Tax Summaries, 2025). The rule applies only to multinational enterprise groups with global consolidated revenue exceeding EUR 750 million. If your group's global revenue falls below that threshold, Pillar Two doesn't change your free zone CIT position at all — and the vast majority of businesses operating in Oman's free zones fall well below it.
For those in scope, here's the mechanism. If an MNE's Oman entity pays 0% corporate income tax because of free zone status, and the group's effective tax rate in Oman falls below 15%, the parent jurisdiction's Income Inclusion Rule (IIR) may apply a top-up charge at the parent level — closing the gap between 0% and 15%. The free zone 0% rate remains on Oman's books; the top-up tax is collected in the parent country, not by the OTA. The result: the CIT saving is eliminated for Pillar Two-in-scope groups.
This is a structural change in the free zone value proposition that didn't exist before 2025. An MNE with EUR 750 million+ in global revenue considering Duqm or Salalah can't simply model "15% tax saving versus mainland" anymore. The customs duty exemptions, 100% foreign ownership, and unrestricted profit repatriation remain genuinely valuable — but the headline "0% corporate tax" is qualified for large groups.
If you're an MNE assessing free zone investment, the Pillar Two analysis needs to come before the zone agreement is signed — not during the tax return preparation phase. For a full picture of how Oman corporate tax applies outside the zone framework, our Oman corporate tax guide covers rates, deductions, loss carry-forward, and Pillar Two in detail.
---
Frequently Asked Questions
Which Oman free zone offers the longest corporate tax exemption?
Duqm Special Economic Zone offers the longest potential exemption at 60 years — 30 years base, renewable for a further 30 years subject to SEZAD approval. Salalah Free Zone and Al Mazunah Free Zone offer 30-year exemptions; Sohar Freezone offers 25 years. All four zones charge 0% corporate income tax throughout the exemption period. (OPAZ official zone pages; Royal Decree 38/2025, April 2025)
Do Oman free zone businesses pay VAT?
Partially. All four zones are classified as Special Zones under Article 102 of Oman's VAT Executive Regulations. Goods imported from outside Oman into the zones are treated at 0% VAT. However, supplies from the Oman mainland into the zones are taxed at the standard 5% VAT rate — zones are not VAT-free for all transactions. Zone businesses must register for VAT and file quarterly returns. (OTA VAT Guide for Special Economic Zones, October 2021)
What activities are excluded from Oman free zone tax exemptions?
Royal Decree 38/2025 (April 2025) lists the excluded sectors in primary legislation: banks, financial institutions, insurance and reinsurance companies, telecoms operators, construction companies, road transport operators, and maritime transport operators. These businesses pay the standard 15% corporate income tax regardless of free zone location. No case-by-case waiver process exists under the current law. (EY Global tax alert, April 2025)
Can foreign investors own 100% of a company in an Oman free zone?
Yes. Royal Decree 38/2025 (effective April 2025) confirmed 100% foreign ownership as a statutory right across all four Oman free zones — Sohar, Salalah, Duqm, and Al Mazunah. There's no minimum capital requirement and no restriction on repatriation of capital or profits. Oman has no currency exchange controls. The 100% foreign ownership right applies within free zones only and does not automatically extend to mainland Oman operations. (KPMG Oman, June 2025)
Does Oman's Pillar Two global minimum tax affect free zone businesses?
Yes, for multinational groups with global consolidated revenue above EUR 750 million. Oman's Royal Decree 70/2024 (effective 1 January 2025) introduced the Income Inclusion Rule, which can apply a top-up tax if the Oman effective tax rate falls below 15%. A free zone 0% CIT rate may trigger this top-up, reducing or eliminating the corporate tax benefit for large MNEs. Groups below EUR 750 million in global revenue are unaffected. (PwC Worldwide Tax Summaries, 2025)
---
Conclusion
Oman's four free zones offer a consistent and competitive tax package: 0% corporate income tax for 25 to 60 years, 0% customs duties, 100% foreign ownership, and unrestricted profit repatriation. Royal Decree 38/2025 standardised the framework in April 2025, replacing four separate legal instruments with one law — which improves predictability but introduced a new uncertainty around the definition of "special significance" activities that unlocks the 30-year maximum exemption period.
Three things finance teams most often miss: VAT on mainland-to-zone supplies still applies at 5%; withholding tax on dividends is suspended but not abolished by legislation; and large MNEs subject to Pillar Two may find the 0% CIT advantage reduced to zero before they factor in a single OMR of customs savings.
For a full picture of how Oman corporate tax applies across the standard and free zone frameworks — including rates, allowable deductions, and loss carry-forward rules — see our Oman corporate tax guide.
---
Sources
- OPAZ, "Total Committed Investment in Economic, Free and Industrial Zones Reached OMR 22.4 Billion," retrieved 2026-06-22, https://opaz.gov.om/en/media-center/news/2026/total-committed-investment-in-economic-free-and-industrial-zones-reached-omr-22-4-billion
- OPAZ, Royal Decree 38/2025 — Law of Special Economic Zones and Free Zones (English text), retrieved 2026-06-22, https://www.opaz.gov.om/upload/files/decisions/Royal_Decree38_2025_Issuing_the_law_of_Special_Economic_Zones_and_Free_Zones_English.pdf
- OPAZ, "Sohar Free Zone," retrieved 2026-06-22, https://opaz.gov.om/en/zones/sohar-free-zone
- OPAZ, "Salalah Free Zone FAQ," retrieved 2026-06-22, https://opaz.gov.om/en/support/faq
- OPAZ, "Special Economic Zone at Duqm," retrieved 2026-06-22, https://opaz.gov.om/en/zones/special-economic-zone-at-duqm
- OPAZ, "Al Mazunah Free Zone," retrieved 2026-06-22, https://opaz.gov.om/en/zones/al-mazunah-free-zone
- OPAZ, "SEZAD and Free Zones in Salalah, Sohar and Al Mazunah Are Classified Special Zones," retrieved 2026-06-22, https://opaz.gov.om/en/media-center/news/2021/sezad-and-free-zones-in-salalah-sohar-and-al-mazunah-are-classified-special-zones
- Oman Tax Authority, "VAT Guide for Special Economic Zones," retrieved 2026-06-22, https://tms.taxoman.gov.om/portal/documents/20126/1414820/VAT+For++Free+Zones.pdf/6bc21a32-209c-b348-e8b6-804f7458ad67?t=1733169612723
- KPMG Oman, "Oman issues law for Special Economic Zones and Free Zones," retrieved 2026-06-22, https://kpmg.com/om/en/insights/2025/06/oman-issues-law-for-special-economic-zones-and-free-zones.html
- EY Global, "Oman issues law on special economic zones and free zones," retrieved 2026-06-22, https://www.ey.com/en_gl/technical/tax-alerts/oman-issues-law-on-special-economic-zones-and-free-zones
- EY Global, "Oman to introduce personal income tax from January 2028," retrieved 2026-06-22, https://www.ey.com/en_gl/technical/tax-alerts/oman-to-introduce-personal-income-tax-from-january-2028
- PwC, "Oman – Corporate – Taxes on corporate income," Worldwide Tax Summaries, retrieved 2026-06-22, https://taxsummaries.pwc.com/oman/corporate/taxes-on-corporate-income
- PwC, "Oman – Corporate – Withholding taxes," Worldwide Tax Summaries, retrieved 2026-06-22, https://taxsummaries.pwc.com/oman/corporate/withholding-taxes
- Zawya, "Oman: Sohar Port and Freezone secures $4bln worth of new investments in 2024," retrieved 2026-06-22, https://www.zawya.com/en/economy/gcc/oman-sohar-port-and-freezone-secures-4bln-worth-of-new-investments-in-2024-u3pg1aei
- Zawya, "Oman: Salalah Free Zone sees investment worth $486mln in H1 2025," retrieved 2026-06-22, https://www.zawya.com/en/economy/gcc/oman-salalah-free-zone-sees-investment-worth-486mln-in-h1-2025-m6ea4gxf
- Zawya, "Oman Duqm investments surpass $16.4bln as SEZAD cements global role," retrieved 2026-06-22, https://www.zawya.com/en/economy/gcc/oman-duqm-investments-surpass-164bln-as-sezad-cements-global-role-xmir6mfs
- Oman Observer, "Duqm SEZ rolls out strategy as investment projects accelerate," retrieved 2026-06-22, https://www.omanobserver.om/article/1180071/business/economy/duqm-sez-rolls-out-strategy-as-investment-projects-accelerate