Libya remained closed to foreign investment for several decades.
Its socialist and centralized economic system prevented
virtually any external financing, except for oil partnerships
and the long period of international embargo, further
contributing to financial isolation. But a major change of
direction to reform the economy was introduced with the
appointment in June 2003 of a new Ministry of Economy, Mr.
Choukri Ghanem (appointed CEO of the National Oil Company NOC in
April 2006), a champion of economic openness holding a mandate
to “abolish the public sector” and make Libya attractive to
foreign capital. In line with this declaration of intent, the
General Board of Ownership Transfer director, Muhammad Ahmed al-Ftise,
declared that Libya would open in July the capital of 54 large
state-owned companies to foreign investors. He said that the
companies are large factories, each valued at a minimum of 150
million dollars. Foreign investors will be allowed to acquire
majority holdings in these companies. The largest among the
companies to be privatised will be sold to foreign investors,
while small and medium firms will be offered to Libyan
investors.
The lifting of international sanctions against Libya in 2003 led
to its return to the international fold. Hydrocarbon resources
and incentives to attract foreign investments are likely to
boost the attractiveness of the country even if administrative
reforms and a better businesses climate are likely to take
longer. Imports are no longer a State monopoly and foreign
investment is now possible in industry, health, tourism,
services, agriculture, and any other sector approved by the
National General People’s Committee (GPC).
Foreign investment is authorized under law n°5 (amended by law
n°7 in 2003) and supporting decrees relating to transfer of
technology, vocational training, regional development, industry,
health, tourism, agriculture, oil related services (except
drilling and exploration, covered by the Petroleum Law) and any
other sector specified by the GPC. Tourism is covered by law n°7
of March 6, 2004 and decree n°139 of August 26, 2004. Some
sectors are still closed to foreign investment.
Telecommunications and the financial sector, for example, remain
government monopolies. Retail and wholesale operations are
restricted to Libyan nationals.
In addition to numerous incentives, law n°5 established the
Libyan Foreign Investment Board (LFIB) to facilitate
implementation of foreign investment procedures. LFIB oversees
the application process and can be extended for a further three
years. Moreover, the law allows co-investment by Libyan and
foreign partners with no limit on foreign holdings, except in
the banking sector and state-owned companies. Foreign investment
is also exempt from the main legal requirements regulating the
activities of Libyan companies, in particular registration in
the trade or industrial registers. Decree n°178 allows for
commercial representation on behalf of a foreign company under
certain conditions.
The Foreign Investment Law provides many incentives for licensed
projects, such as a five-year exemption from corporate tax, with
a possible extension of a further three years if net profits are
reinvested in the project. It also provides exemption from
customs duties on import of machinery, tools, and equipment
needed for the project for a period of five years as well as
exemption from excise taxes on exported goods.
Foreign investors are allowed to repatriate invested capital in
case of total or partial sale or conclusion or liquidation of
the project, after five years from the date of release of the
license, or within six months of the release of the license if
independent difficulties or impediments emerge. They can
transfer profits, employ foreign workers if local supply is not
available, and purchase land for the project.
The Free Trade Act of 1999 created a legal framework for
establishment of offshore Free Trade Zones (FTZ) in Libya.
Fields of investment and economic activities in FTZs include :
- Storage of transit and domestic goods as well as goods
produced within the FTZs intended for export as well as goods
imported for re-export.
- Unpacking, cleaning, re-packing and similar operations within
the FTZs guaranteeing that manufacture meets market
requirements.
- Implementation of industrial processes.
- Provision of financial, banking, insurance, and the other
related services required by investors in the FTZ.
Initiatives in the FTZ enjoy the usual incentives, including tax
and customs exemptions, free repatriation of invested capital
and earned profits; movement of capital and products between the
FTZ and foreign countries without any monetary restrictions or
monitoring regulations. Earnings also enjoy the same exemption
if reinvested and there are legal guarantees against
nationalization of these initiatives, etc. Misurata is currently
Libya’s sole operating Free Trade Zone (FTZ), occupying 430
hectares including a portion of the Port of Misurata.
Foreign investors who want to do business in Libya have four
main options: 1) set up a branch office; 2) establish a joint
venture/joint stock company with a local firm; 3) establish a
representational office; and 4) enter Libya under the provisions
of investment law n° 5.
Trade activities and joint ventures fall under law n°65 of May
20, 1970 governing trade and commercial companies stipulates
that any person or entity that wants to carry out a trade
activity must have Libyan nationality. Partnerships are however
possible. Joint ventures must be at least 51 percent
Libyan-owned.
Joint venture holding companies are permitted under Libyan law.
The establishment of joint ventures (joint stock companies) is
governed by law n° 65 of 1970, amended by law n° 21 of 2000. The
establishment of branch offices is also covered by law n°65 as
well as the 1953 commercial code. In the
construction/contracting field as well as other longer-term
activities, formation of a joint venture or branch office is
virtually a requirement for operating in Libya. The minimum
capital investment for qualification has been raised to $50
million, which must be completely paid-up by the time the
company is created.
Representational offices through a local agent are governed by
law n° 6 of 2004. It stipulates that foreigners wishing to sell
direct to the Libyan market must employ the services of a local
agent. This law has been liberalized, with decree n°8 of January
9, 2005specifying that seven product groupings currently require
a local agent: passenger vehicles, motorcycles, copying
machines, ovens, refrigerators, washers & dryers, other major
household appliances, televisions, faxes, and computers, road
making and paving equipment, heavy agricultural equipment
(including pumps). Libyan nationals no longer need import
licenses to act as agents for foreign firms. The general
director of the office as well as all employees must be Libyan.
Agencies work under distributorship agreements, signed with a
local firm or registered agent. The Tripoli International Fair
held each year in April is an excellent marketing opportunity.
Opening of a branch office/local subsidiary of a foreign company
is covered by decree n°3 of January 3, 2005, which governs
creation of a foreign subsidiary company in Libya. The request
must be addressed to the Department of Business Registration at
the Ministry of Economy and Trade, including the name of the
designated agent. Minimum capital investment to qualify is
150,000 LYD and duration of the activity is five years
renewable. The scope of activities authorized for foreign
subsidiary companies in Libya is determined by decree n°13 of
January 9, 2005. Opening a representation office does not grant
a foreign company the right to sell or to market goods in the
country.
Entering Libya under the terms of law n° 5 dealing with
promotion of foreign investment stipulates that investment
decisions are taken by the Libyan Foreign Investment Board,
which approves proposals and grants licenses. Many of the
restrictions on foreign companies in the above categories do not
apply to foreign investments and majority Libyan ownership is
not required. Minimum capital investment for qualification under
law n°5 is $50 million.
Contracting with state-owned companies is governed by
legislation that requires a foreign supplier to pay a contract
registration tax equal to 2 percent of the amount of the main
contract or 1 percent of a sub-contract.
It should be noted that contractual payments can be settled
solely by irrevocable letter of credit, which can take up to six
months. Major construction contracts are often awarded under
turnkey or EPC
(Engineering-Procurement-Construction/commissioning)
arrangements. Build-Operate-Transfer (BOT) contracts are
extremely rare in the oil & gas energy sector.
Taxation and customs formalities have evolved, with licenses
abolished in 2003. However, Libya requires standard import
documentation including certificate of origin, tariff code, and
a customs declaration. The Libyan customs tariff adopted the
simplified harmonized nomenclature in January 1998 as a prior
condition to its application for WTO membership, Libya is
working to accredit its central Standards Bureau and to
implement a network of certified national testing laboratories.
The government significantly streamlined its customs tariffs and
eased restrictions on external trade by downsizing the negative
import list from 31 to 17 items designated “luxury”, or locally
manufactured. The Libyan Customs Administration cancelled duty
on more than 3500 product categories, effective August 1, 2005.
Approximately 80 products remain subject to duty of between 5
and 50 percent. The new tariff schedule has only two rates (10
percent for tobacco products and 0 percent for all other
products) and import duty was replaced by a 4 percent service
fee, which must be paid by importers on all products except 85
items. Additionally, they have to pay a 2 percent tax for
domestically produced goods and an excise duty of 25 or 50
percent. As mentioned above, duty rebates are available to
foreign investors importing merchandise under the terms of law
n°5 of 1997. In addition, the government has created an
investment fund to handle a portion of the government’s oil
revenues.
In the area of protection of foreign investments and dispute
settlement: Libya has ratified a number of international
conventions and signed bilateral agreements dealing with
investment protection, in particular with Tunisia, Morocco,
Egypt, Austria, Germany, Malta, Switzerland, Belgium, Bulgaria,
France and Croatia. Article 23 of law n°5 on foreign investments
stipulates that an investment initiative cannot be nationalized,
dispossessed, submitted to custody or sequestration or any
similar provisions without a legal decision and equitable
reimbursement. The Libyan legal system is quite effective in
dispute settlements and it is relatively easy to obtain an
equitable judgment, but execution of court decisions is not
always quick. As for international arbitration, Libya is not a
signatory of the UN Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (the New York
Convention). In the case of commercial disputes, foreign
entities currently opt for trials at the ICC, the International
Chamber of Commerce, since Libya has a history of respecting its
decisions. Libya is a member of the Multilateral Investment
Guarantee Agency (MIGA).
Libya is a member of the 1989 Arab Maghreb Union (AMU) linking
Tunisia, Algeria, Morocco, Mauritania, and Libya. The AMU’s
stated objectives include promotion of free movement of goods
and people, revision and simplification of customs regulations,
and movement towards a common currency. Nominally, AMU mandates
duty-free trade among its members.
Libya is part of the Greater Arab Free Trade Area (GAFTA), also
called PAFTA (Pan Arab Free Trade Agreement) and the Euro-Med
Partnership (EMP), also known as the “Barcelona Process”, a
dialogue between the European Union, and 12 Mediterranean
countries. The Barcelona Declaration of November 27, 1995 set
goals reducing political instability and increasing commercial
integration. In 1999, 27 European partners agreed to admit
Libya, contingent on Libya’s accepting the decisions already
made in that context. Libya has also applied for membership in
the World Trade Organization (WTO). A working group has been set
up to review and assist Libya in this process.
As for the income tax regime, authorities passed a new tax law
(n°11 of March 5, 2004) reforming the general income tax,
reducing the top tax rate on wages and salaries and increasing
personal tax exemptions. Corporate tax remains progressive, on a
sliding scale of from 15 to 40 percent, compared to 20 to 60
percent under the previous law.
There is an additional solidarity tax called jihad, amounting to
4 percent of taxable income. Foreign oil companies are subject
to a special tax regime, defined in the Petroleum Law of 1955,
currently being amended, with three tax brackets at 8, 10, or a
flat 15 percent of income instead of 25 percent previously. The
general tax on income has been abolished. Contracts must be
registered at the tax office within 60 days of signature, with
two percent of total amount or 1 percent of the sub-contract
payable at the time of registration. The income tax authorities
consider that any payment governed by a contract in Libya is
taxable and the total amount of the contract is taken into
account for calculation of taxable income. For service or
engineering contracts, tax authorities charge 25 percent or more
of taxable profits.
Currency and foreign exchange controls are more flexible than
before, managed by the foreign exchange control department of
the Libyan Central Bank. Libya unified its multi-tiered exchange
rate system (official, commercial, black-market) on June 16,
2003, effectively devaluing the country's currency. Among other
goals, devaluation was meant to increase the competitiveness of
Libyan firms and to help attract foreign investment. The current
exchange rate is approximately 1.6 LYD to the euro. The Libyan
dinar is not a convertible currency and thus is used only for
in-country current transactions. However, foreign investors can
open accounts in foreign currencies at one of the commercial
banks or the Libyan Arab Foreign Bank (LAFB). Non-residents
working in Libya can open domestic accounts, but Central Bank
approval is required for any other transfers to non-resident
accounts.
Foreign investors are allowed to repatriate invested capital in
case of total or partial sale, conclusion or liquidation of the
project, five years after the date of the licensing agreement,
or within six months of the date of the investment act if
difficulties arise.
Article source:
http://www.animaweb.org/en/pays_libye_pourquoiinvestir_en.php
