Libyan legal requirements on foreign companies present a number of obstructions to their freedom of operation. Thus, this advisory opinion highlights the legal framework pertinent to Libyan market accessibility, and the appropriate legal form and business organisation, by foreign investors under Libyan laws and jurisdiction.
Three key pieces of legislation are the 1954 Civil Code, the 1953 Code of Civil and Commercial Procedure, and the 2010 Commercial Code. In addition, there are numerous decrees from the Ghaddafi era regulating various aspects of the economy. In the past, these conflicting and opaque decrees have made it challenging for both foreign investors and local Libyan businessmen to navigate the Libyan legal system. Attempting to put Ghaddafi’s era behind, Libya is trying to focus on providing a more stable environment that will encourage foreign inward investment. The principal way in which it is doing this is by improving its legislation; a process that has begun, but one that will likely take some considerable time to complete.
In 2012, the structure of foreign businesses was reviewed, due to the 2011 revolution that ended Ghaddafi’s regime, by the new Libyan Ministry of Economy, and Decree No. (207) of 2012 ‘Regarding the Foreign Participation in Companies, Branches and Representative Office for Foreign Companies in Libya’ was passed. Currently, there are attempts towards encouraging investments in Libya. Therefore, some of the current regulations are under consideration by the Ministry of Economy and the Council of Ministries.
ESTABLISHING A PRESECENE IN LIBYA
For a new foreign entrant to establish themselves in the Libyan market, they are required to either obtain an Investment License, where such an establishment will be registered in the Company House, or to obtain a Commercial License where such an establishment will be overseen by the Ministry of Economy. Foreign companies operating in Libya tend to obtain a Commercial License in order to operate through one of the following options:
(1) Joint-Stock Company; (2) Branch for the Foreign Company; (3) Representative Office; (4) Commercial Agent, (5) Investment Funds; (6) Free Zones Trade; (7) Foreign Capital Investment, as detailed below.
- JOINT-STOCK COMPANY
The capital required to establish a joint-stock company is a minimum of one million (1,000,000 LYD) Libyan Dinars paid on establishment of the joint-stock company or a 30% of this capital to be paid on registration and the remaining shall be paid within five years. This capital can be withdrawn at any time.
The Ministry of Economy stated under Decree No. (207) of 2012, that the joint-stock company shall not be a holding company. The joint-stock company is permitted to conduct the majority of activities in energy, infrastructure, telecoms, agriculture and industry, etc., except for certain activities which are permitted for the Libyans’ solely (can be explained in detail upon request).
The joint-stock company used to be able to have a form of a limited liability company in certain areas (i.e., food, garment, furniture industry, etc.), provided that the minimum capital is Fifty Thousand (50,000 LYD) Libyan Dinars paid on the establishment of the limited liability joint-stock company. However, this has been repealed by the Ministry of Economy’s decision in 2013.
The shares of the Libyan investor and the foreign investor, in a joint-stock company shall be 51% and 49 % respectively.
While the maximum shareholding of the foreign investor in a joint-stock company is 49%, under particular circumstances, and subject to the Minister of Economy’s approval, this percentage could increase for particular activities to 60%.
There are a number of legal documents required from foreign investors, either natural or legal personalities, to establish a Joint-Stock Company.
Firstly: Legal Person
- Memorandum & Article of Association of the foreign and local company.
- Resolution of the Board of Directors of the foreign and local company for contribution in the joint-stock company and the value of its contribution.
- An up-to-date commercial extract from the competent body (Commercial Register or a Chamber of Commerce) of the foreign and local company.
- Certificate from a Bank operating in Libya indicating a transfer of the foreign investor’s share to Libya
- A document proving that the share in kind has been presented, whether this share in kind was presented by the Libyan partner or the foreign partner.
All documents submitted with respect to items under 1, 2 and 3 must be ratified by an Official Government Departments in the country of the company’s headquarters, and by the Libyan Embassy or a competent body; provided that the Arabic translation of such documents shall be conducted in Libya.
Secondly: Natural Person
- Investor’s valid passport.
- Proof of legal age to be able to exercise commercial activities in Libya in accordance with the Libyan Law.
- Clear criminal record; must not be bankrupt.
- Certificate from a Bank operating in Libya indicating a transfer of the foreign investor’s share to Libya.
- The share in kind has to be presented in accordance with Article (104) of law No. (23) of 2010.
The Joint-stock company shall comply with the following restrictions in exercising its activities in Libya:
- Transfer of knowledge and technology.
- Hiring Libyan personnel.
- Providing annual training programs for the Libyan personnel.
- Preparing annual programs for the replacing the foreign personnel with the Libyan personnel.
The Chairman of the Board of Directors of the Joint-stock company must be Libyan.
Moreover, Joint-stock companies are not allowed to practice the following activities:
- Retail and wholesale trade.
- Importation activities.
- Catering services.
- All types and fields of commercial agencies’ activities.
- Land transport services.
- Inspection activity on all the imported and exported commodities and goods unless by virtue of a prior permission of the Minister.
- Activity of handling, shipment and discharge in the airports.
- Legal and financial audit works.
- Packing and packaging activity.
- Stone crushing (breakers).
- Contracting and civil works including the activity of construction and building with regards to the contract whose value is less than (30,000,000) thirty million Dinars.
- Any other field whose exercise is limited to the Libyans by virtue of special laws. For example, the Council of Ministers’ Decree No. (248) of 2012 on Prohibiting the Entry of Foreign Security Companies into Libya.
The fees required for the establishment of a joint-stock company is the ratio of 1 to 5 of the capital value. Example: if the capital value is one million (1,000,000 LYD) Libyan Dinars the registration fees will be as follows:
- Tax fees: 5025 LYD
- License fees: 5025 LYD
- Commercial Registration fees: 175 LYD
- Chamber of Commerce fees: 700 LYD
- Notary fees: 10,000 LYD to 15,000 LYD
- Legal consultant fees: depends of the firms fees.
The Ministry of Economy along with the Ministry of Manpower are responsible for overseeing the process of establishing a joint-stock company in Libya. The Ministry of Manpower’s interference is with respect to the Libyan employees as 25% of the joint-stock company employees must be Libyan.
- FOREIGN COMPANY BRANCH
To be eligible to carry out work in Libya, it is essential for the company to be registered in Libya. Opening a branch for a foreign company in Libya is governed by the Commercial Code as to its substantial issues. The foreign companies may open branches in Libya after seeking the approval of the Ministry of Economy, as stated under Article (7) of the Decree No. (207) of 2012. The branch shall operate for five years, renewable more than once; renewable fees will be paid at each time, whereas the joint-stock company has the privilege to operate for an unlimited period without paying any fees other than the registration fees. Also, foreign company branches are under more supervision by the Tax Department as opposed to joint-stock companies.
The foreign company branch shall not be established unless the following documents are submitted along with the application form:
- Memorandum & Article of Association of the mother company.
- Resolution of the Board of Directors of the foreign company to establish a branch in Libya including the following:
a) a description of the activity that shall be practiced in Libya. Such activity should be among the activities allowed for branches of foreign companies to perform in Libya;
b) appointment of the foreign company’s Branch Manager and his deputy; one of them MUST be Libyan;
c) allocation of an amount of establishing and administrating the branch, which shall consist of a minimum of 250,000 LYD (Two Hundred and Fifty Thousand Libyan Dinars);
- Certificate(s) of experience of the company’s work.
- An up-to-date commercial extract from the competent body (Commercial Register or a Chamber of Commerce) where the company is registered.
- An undertaking by the foreign company that it shall prepare a balance sheet and profit and loss account of the branch in Libya, which balance sheet shall be approved by a Libyan accountant audit.
- Certificate from a bank operating in Libya indicating a transfer of the amount allocated for opening the Company’s Branch.
All documents submitted with respect to items under 1, 2, 3 and 4 must be ratified by an Official Government Departments in the country of the company’s headquarters, and by the Libyan Embassy or a competent body; provided that the Arabic translation of such documents shall be conducted in Libya.
Other registrations with other administrative departments will have to follow, such as the Chamber of Commerce, Tax Department, Social Security Fund, Manpower Departments and Immigration Department.
Activities permitted for performance by foreign company branches in Libya are:
- Construction & Civil Work more than LD 50 Million; this financial limitation was stated in general; hence the Ministry of Economy’s interpretation will be for this limitation shall be for the public sectors and private sectors.
- Oil Services.
- Communication supply.
- Survey & Planning.
- Environmental protection.
- Information Technology.
- Health services.
- Aviation services.
The resolution issued by the Ministry of Economy shall only approve one of the above activities. Each activity shall have a separate resolution.
Furthermore, the registration fees for a foreign branch company are as follows:
- Ministry of Economy: 100,000 LYD
- Various fees (Tax, Chamber of Commerce, etc,.): 25,000 LYD
- REPRESENTATIVE OFFICE
Having a Representation office by a foreign company is permitted by virtue of Law No. (23) of 2010 and by virtue of Decree No. (207) of 2012. The purpose of the representative office of the foreign company is to study the market, collect as much information as possible and facilitate the procedures to exercise its activity in Libya without having the authority to enter into contracts. The Representative Office shall operate for two years renewable for the same period, but for one time only.
There are number of legal documents which have to be submitted to the Ministry of Economy along with the application form, which are:
- Memorandum & Article of Association of the mother company.
- Resolution of the Board of Directors of the foreign company to establish a Representative Office in Libya.
- An up-to-date commercial extract from the competent body (Commercial Register or a Chamber of Commerce) where the company is registered.
- Appointment of the Representative Office Manager (whether it is stated in the Resolution of the Board of Directors or in a seperate resolution).
- Opening a bank account in a bank operating in Libya; provided that the minimum balance in this account shall be 150,000 LYD (One Hundred & Fifty Thousand Libyan Dinars).
All documents submitted with respect to items under 1, 2, 3 and 4 must be ratified by an Official Government Departments in the country of the company’s headquarters, and by the Libyan Embassy or a competent body, provided that the Arabic translation of such documents shall be conducted in Libya.
The registration fees for a representation office is Twenty Thousand Libyan Dinars (20,000 LYD) for a 2 years licence paid to the Ministry of Economy plus Ten Thousand Libyan Dinars (10,000 LYD) for various fees (Tax, Chamber of Commerce, etc,).
- COMMERCIAL AGENT
Commercial agencies were initially permitted under Law No. 6 of the year 2004, this law was replaced by law No. (23) of 2010. The Executive Regulation that was referred to under chapter 14 of this law has not been approved yet. Therefore, until the Executive Regulation is approved, the commercial agencies in Libya are governed by a Decree that was passed in 2007. A Libyan agent should be appointed by entering into an Agency Agreement that shall be approved by the Ministry of Economy. The parties entering into a commercial agreement can agree on their own terms and conditions, but some restrictions have been risen by the Ministry of Economy, which are:
- the commercial agency agreement shall not include a clause of exclusivity.
- the principal must be from the mother company and not from a regional
Under article (375) of this law, a foreign investor who is a natural person is not allowed to market his goods/merchandises and services in Libya unless via a local agent. In the case of a legal personality, it should be wholly owned by Libyan shareholders.
Moreover, a new decision on commercial agencies is in the process of being drafted and is yet to be approved.
- INVESTMENT FUND
The investment fund was initially introduced under Article (379) of law No. (23) of 2010 and was established under Article (2) of law No. 11 of 2010 on the Stock Market. The investment fund may not be established until attaining prior permission from the Public Monetary and Supervisory Board for Non-Banking Financial installments. The founder may establish more than one fund.
The investment fund established under this form of fund has the leverage of up to 10 times of the paid capital. An investment fund could be established by all entities including Banks, Insurance Co. and Financial Institutions.
The foreign investor may invest in commercial notes as stated in Article (16) of Law No. (11) of 2010. On the other hand, the foreign investor is restricted from investing commercial notes in banking activities such as providing loan or guarantees. The foreign investor is not allowed to set up a new company or purchasing shares outside the Libyan Stock Market as well.
This type of fund is tax free as stated in Article (24) of the Law No. (11) of 2010, but this privilege is subject to certain conditions.
However, both law No. (11) of 2010 and Article (395) of Law No.23 of 2010 refer to an executive regulation, which shall govern the establishment of the investment fund, this executive regulation has not been issued yet. Despite that, Law No. (46) of 2012 amending Law No.(1) of 2005 on Banks, gave the Central Bank of Libya the authority to regulate investment funds. This, consequently, has caused an overlap with the authority given to the Ministry of Economy, which needs to be untangled by amending the current regulations.
In practice, two funds licences have been granted by the Libyan Stock Market, but they have not been launched.
- FREE ZONE
The concept of establishing free zones in Libya was initially introduced under law No. (9) of 2000. This law sets out the legal framework of the establishment of free zones in Libya, but it did not create any free zone areas itself; it delegated such authority to the Prime Minister based on the request of the Minister of Economy. In the same year the Prime Minister Decree No. (495) was issued which declared the foundation of Misurata as a free zone in Libya (this law was amended by Decree No. (32) of 2006). In 2006, Zwara-Abu-Kemmash was also declared a free zone under Decree No. (215) that was converted into law No. (9) of 2010.
However, the Misurata and Zwara-Abu-Kammash free zones are established free zones and therefore any foreign company can establish a branch or a company in both zones – the registration fees for such establishment shall be one hundred (100.000 USD) Dollars – whereas the Benghazi free zone is still under establishment.
- FOREIGN CAPITAL INVESTMENT
Law No. (9) of 2010 “Investment Promotion” is a continuous attempt by the Government, which begun in 1997 under Law No. (5), to encourage foreign capitals investment. Law No. (9) of 2010 aims to attract national and foreign capitals to establish and set up investments within the Libya’s framework of the general policy and the objectives of economic and social development, particularly to:
- assist the transfer of modern technology.
- build up Libyan technical cadres.
- accelerate the diversification of income sources.
- encourage the development of national products to infuse these into the internal markets; and
- achieve regional development.
This law governs investments of foreign and national capitals involved in the formation project capital by one of the following forms:
- Local currency and foreign convertible currencies.
- Machinery, equipment, plants, installations, spare parts and raw materials necessary for the project.
- Moral rights such as patents, licenses, trademarks, trade names.
- The part reinvested from the project profits and revenues, whether in the same project or any other project.
The capital value of investment project shall be Five million Libyan Dinars (5,000.000 LYD) for foreign investors and Two million Libyan Dinars (2,000.000 LYD) for national investors. As stated in this law, the licence to start the project shall be issued by the Investment Promotion Board and the Minister of Economy. The investment project shall be registered in the Commercial register and the Investment register.
Sectors targeted under this law include – but are not limited to – Industry, Health, Tourism, Services, Agriculture, or any other field specified by a decision of the Ministry of Economy.
The provisions of this law attempt to lower the tax and customs fee on qualifying companies. Under the law, imported machinery, tools, and other capital equipment are exempt from all customs duties and taxes; any equipment, spare parts, or primary materials needed for the project operation are exempt for a period of five years; the affected project is exempt from income tax on its activities for a period of five years from the date of the commencement of work; this period may be extended for an additional period of three years. Losses incurred during the exemption years can be carried forward to the subsequent years. Goods directed for export are exempt from excise tax and from the fees and taxes imposed on exports; stamp duty tax on commercial documents are exempt; and finally, profits from a project will enjoy the same exemption if reinvested. On the other hand, this law presents challenges with respect to real estate; foreign investors are not allowed to own land but alternatively this law allows for foreign rental of land for setting up or operation of the project.
The Ministry of Economy shall issue a decision where to specify the fees due and payable by the investor against the services rendered.
In case where a dispute may arise in an investment capital project, Libyan courts and Libyan law were to be applied unless there was a bilateral or multilateral agreement that indicate otherwise.
Under law No. (24) of 2001, It is prohibited to use a non-Arabic language in all transactions, such as names of private business, shops, institutions, etc., tourism, trading names and trading marks were exempted from this law as set out under Article 2 of the Decree No. (3) of 2007. On the contrary, the foreign investor could submit an application form to the Arabic Language Centre requesting to use a foreign name, such request could be approved or disapproved by this centre.
APPLYING / TIMEFRAME
The foreign investor that wishes to invest in Libya, whether as a joint-stock company or a branch or a representative office shall submit its application form to the Companies Department & Commercial Registration Office of the Ministry of Economy.
The application form shall include the authorized representative for the process, profession and the contact address. In addition to the documents required under Article (491) of Law No. (23) of 2010, the foreign investor shall submit a (ii) resolution to establish a joint-stock Company or opening a branch or having a representative office in Libya (ii) certificate from a Bank operating in Libya indicating that the foreign partner or the foreign company has transferred the required amounts for establish a joint-stock company or opening a branch or having a representative office.
It might take a period of two months at most, if all the legal documents and procedures for the establishment of a Joint-Stock Company or registering a branch or having a representative office are set.
The manager of the branch must obtain a work visa to be able to enter Libya. With respect to employees from the mother company, they must apply for a visit business visa to perform work in Libya. However, the branch may utilize experts from abroad (non- Libyans) to carry out work in Libya via the Immigration Authority.
Foreign investors are not allowed to bring in foreign employees to practice any work in Libya only after obtaining a work permit from the Ministry of Manpower, as stated under law No. (12) of 2010. Subsequently, a work permit is required from the date of commencement of the work of the foreign employee in Libya. The Ministry of Manpower issues an annual list called the ‘Negative List’, which experts are allowed to get hold of in order to obtain a work permit.
Also, a joint stock company or a branch to a foreign company, etc., which has more than ten (10) employees working in Libya must have a work permit number. The latter is obtained from the Ministry of Manpower.
Under Law No. (7) of 2010, the principle taxes in Libya are Corporate Income Tax, Salaries and Wages Tax and Jihad Tax.
Corporate Income Tax: This type of tax shall be imposed on the income arising in Libya and abroad for companies and foreign company affiliates (governed by the provisions of the Libyan Commercial Code), whatever the type their activity or purpose may be; the income is generated from Libya. Any company securing work in Libya should pay tax in Libya on its income generated from Libya, whether the company is registered or not. Corporate Tax is levied on corporate profits at a flat rate of 20%. No tax is payable if the company’s profit and loss account shows loss. Furthermore, projects undertaken within the scope of the Law No. 9 of the year 2010 shall be exempted from income tax for a period of five years from the date of commencement. This period may be extended for an additional period of three years. Losses incurred during the exemption years can be carried forward to the subsequent years.
Therefore, a foreign employee working in Libya under an official contract shall be subject to this type of tax from the date of commencement in Libya. On the other hand, foreign employees who are working in Libya under a secondment contract and for less than six months shall not be subject to the income tax.
However, any foreign employee whose period of residence in Libya exceeds six (6) months shall be subject to Income Tax.
Stamp Duty: The stamp tax/duty is fixed or relative, and shall be imposed on the papers, documents, publications, advertisements, registers and other writs, as well as acts, transactions, and the rates/prices indicated in the annexed table. If one paper includes more than one writ, act or transaction, the tax shall be due on each of them. If, however, the writs, acts or transactions are connected with each other in an indivisible manner, they shall be considered as one writ, act or transaction, and the tax shall be due on thereon as the highest value rate. In the cases where the writ tax is imposed on the paper, the paper shall be considered as two pages. Nevertheless, the tax shall not be due on the photocopies of the commercial papers or copies thereof.
Moreover, projects undertaken within the scope of Law No. (9) of 2010 shall be exempted from stamp duty specified on commercial writs and documents.
Jihad Tax: Jihad Tax is payable under Law No. (44) of 1970 and is levied on personal incomes at 3% and corporation profits at 4%.
A joint stock company or a branch to a foreign company etc., must have a tax registration number, which shall be obtained from the Tax Authority. Moreover, a company in receipt of an invoice from a contractor should ensure that the invoice has been registered with the Tax Department. The company could become liable to the registration tax if this is not paid. The company should further ensure the contractor is registered with the Tax Department and should sign the tax certificate periodically.
The export of goods to Libya is not subject to tax if the supplier’s commitments end before Customs clearance and the supplier is not registered in Libya.
Furthermore, in an effort to encourage foreign investors to conduct business in Libya, the foreign investors have no limits to investment loans. In the past a foreign investor was granted up to 50% in loans from local banks. Also, local and foreign currencies are accepted.
Law No. (1) of 2013 on Usurious Dealings prohibits interests in all civil and commercial transactions whether between natural or legal persons. This law stipulates that any usurious interests resulting from any transaction are null and void. This applies to all interests even the ones resulting from civil or commercial transactions due before the date on which this law came into effect, and which has not been paid yet. However, the Libyan Supreme Court’s judgment (Civil Appeal No.476/ 64 dated on 16/6/2019) allowed Delay Penalties of 5% on commercial transactions, and 4% on civil transactions. This judgement means that Payment Penalties are considered an exception to the rules of Law No. (1). This rule remains effective unless the parties’ agreement prevents such penalties or is otherwise provided by the law.
It shall not be permissible to practice any commercial activity within Libya, until obtaining a Commercial or an Investment licence. Furthermore, under Article (1355) of the Law No. (23) of 2010, the foreign investor may need to be granted a particular permission prior to issuing the licence, if the activities require so; the foreign investor is still obliged to register at the Ministry of Economy even after obtaining this permission. The benefits of obtaining this permission are: (i) facilitate and speed up the registration process; (ii) guarantees the approval of the Ministry of Economy for the proposed registration. However, this exemption was not referred to under Decree No. (207) of 2012. As a result, this remains a confusing point that needs further clarification by the Ministry of Economy.
The Ministry of Economy is currently working on amending regulations, in order to redevelop a friendly investment environment. Perhaps in the foreseeable future we will see development in investment regulations. Moreover, while many embassies left Libya in recent years because of the civil war, there are many signs after the appointment of the National Unity Government, which demonstrate a serious inclination to reopen embassies in Libya soon, especially if the recent stability continues to flourish.
Prepared and reviewed by Albudery Shariha & Huda Tulti.