By Adrian Creed.
Tripoli, 20 February 2013:
As Libya celebrates the two year mark of the February 2011 revolution, the momentum for economic . . .[restrict]reform has largely stalled. This is the result of the introduction of new rules that have significant implications for foreign investors.
The old Libyan regime had been taking steps to improve the investment climate in the country since the early 1990s. In 1997, the Law for Encouragement of Foreign Investment, (commonly known as Law No.5) was introduced. Under the circumstances, this was a reasonable law and certainly encouraging of foreign direct investment (FDI). The legislation detailed the investment procedures, new duties and incentives including income, import, and capital gains tax concessions. It also allowed foreign investors to own 100% of the company.
In 2006, Decree No. 171 was issued. This law was a significant step forward in making it easier for foreign investors to do business in Libya. It allowed foreign investors to form joint stock companies (JSC) with Libyan shareholders and with a minimum capital of LYD 1 million. It also permitted foreign shareholding of up to 65%, thereby allowing the foreign partners to hold majority control in the entity. Decree No.171 also states that a minimum of 35% of the capital of the company must be owned by Libyans for the lifetime of the company.
In 2010, Law No.9 on investment promotion (Investment Law No.9) came into effect and the Privatisation and Investment Board (PIB) was created. The new law allowed 100% foreign ownership across a wide range of sectors. Companies established under Investment Law No.9 are also able to benefit from a number of advantages, particularly tax reliefs for investments in specific projects in Libya. Under this law, foreign companies may also have a minimum of 2 (rather than 10) shareholders However, the practical effect and application of Investment Law 9 remain to be seen as this law was not fully implemented prior to the 2011 revolution.
Since the overthrowing of the old regime in 2011, the new Libyan government has issued four ministerial decrees which contain measures affecting FDI in the country. Table 1 provides an overview of those decrees.
Under the latest ministerial decrees, foreigners are precluded from establishing a Limited Liability Company (LLC) in Libya. In addition, the Libyan authorities have given a broad interpretation to the current regulations concerning JSCs stating that no one, whether Libyan or foreign entity, or whether a natural person or a company, can have more than a 10% shareholding in a JSC.
Adrian Creed is partner at Clyde & Co.
For detailed information on the FDI Decrees in Libya contact Adrian Creed at [email protected] [/restrict]