Libya-Diversification drive
Libya is a controlled economy but the private sector is being encouraged to grow. with hydrocarbons forming the economic backbone of the nation there are numerous opportunities for investors

Libya is situated on the southern Mediterranean coast between Egypt and Tunisia. Its economy is heavily dependent upon the oil & gas industry with few other natural resources or industries. Agriculture is the second sector in the economy; the development of the tourism industry is also a priority. The financial, legal and commercial sectors are developing and structural reforms have been and are being implemented.

There is a widespread road network which supports an efficient distribution of goods to major urban centres throughout the region. Population is based along the coast and is centred in the major cities of Tripoli in the west and Benghazi in the east. Libya is a controlled economy but the private sector is being encouraged to develop. Arabic is the official business language but English and Italian are widely understood.

Economic overview
Current major economic activity is centred around hydrocarbons but Libya is seeking to diversify and develop other sectors and at the same time develop its infrastructure. In the past two years it has signed major contracts for the building of a new airport, roads, housing and mixed use developments.

The government recognises the need to attract foreign investment and has made progress on economic reforms as part of a broader campaign to reintegrate the country into the international fold. It has been successful in attracting foreign direct investment especially in the energy sector.

Incentives
Investment by foreign oil companies in exploration is governed by the terms of the current EPSA IV (Exploration and Production Sharing Agreement). Investment in other sectors is undertaken within the framework of the Investment Law which provides for a minimum five year corporate tax holiday for projects which fulfill one or more of the following objectives:

Production of goods for export

Make available positions of employment for Libyan manpower

Contribute to the enhancement or development of the economy

Make use of local raw materials

Contribute to the growth and development of underdeveloped areas

Approved tourism projects are granted a 10 year corporate tax holiday.

Foreign investment is welcomed in any business sector approved by the cabinet. Approval for a project is required from an Investment Board and a minimum investment of LYD 5 million is required (LYD 2 million if the foreign interest in the investment is less than 50 per cent).

Structure of business entities
All foreign companies seeking to work in Libya must establish a corporate body. Historically, foreign companies established branches and they may still do so under the Investment Law if they undertake a limited number of permitted activities. However, in all other cases a Libyan joint stock company must be established in order to operate in Libya.

1. Libyan joint stock company
These companies must have a minimum share capital of LYD 1 million and the foreign shareholder may own a maximum of 65 per cent of the share capital. Governance of the company by its directors and the requirement to report to the shareholders at the annual general meeting are similar to international requirements. The chairman of the Board of Directors, comprising a minimum of three members, must be a Libyan.

2. Branches of Foreign Companies
A branch must bring in the foreign currency equivalent of LYD 150,000 as branch capital. The company must appoint a Libyan as branch manager.

Structures used by foreign investors
The form of business entity which is set up in Libya by foreign investors can be different and is often driven by their different commercial operations and needs. Nevertheless, a company structure is commonly used for most types of businesses by foreign investors.

Branches and joint stock companies are both subject to all laws of General Application. A branch and a company are formed by filing memorandum and articles of association, together with certain specified forms and resolutions, with the Secretariat of Economy. Registration of a branch normally takes a minimum of three months but would normally be less for a company. Annual formalities include the requirement to prepare annual financial statements and to have them audited by a Libyan Public Accountant. Such financial statements should be filed with the Secretariat of Economy and Trade but are not available for inspection by the public.

Tax implications
Under the Income Tax Law, tax rates are progressive and increase to 40 per cent of profits above LYD 2 million plus Jihad Tax of 4 per cent of profits. There are no other corporate taxes on profits.

Withholding taxes
There is no withholding tax on dividends or on the remittance of branch profits to a foreign head office. Resident and non-resident branches and companies, that receive royalties or similar payments or interest payments, are subject to Libya taxes. Foreign individuals are subject to tax only from income arising in Libya.

Individual Income Tax
Individual income tax is levied at progressive rates, with a maximum marginal rate of 15 per cent plus 3 per cent Jihad Tax. Payments are deducted by the employer at source and paid to the authorities monthly.

Double tax agreement
There is no Double Tax Agreement between the Sultanate of Oman and Libya.

Labour availability
Libya has an available, educated, and literate workforce but in certain sectors it lacks skills. The Libyan manpower department therefore requires that foreign companies undertake to employ and train national employees as a condition of working in Libya.

Social security
Libya has a general social security system. Social security is payable by all national and foreign residents at the rates of 3.75 per cent of gross salary for the employee and 11.25 per cent of gross salary for the employer.

Exchange control
The repatriation of funds from Libya is governed by exchange control regulations issued by the Central Bank of Libya. The Libyan dinar is generally not a transferrable currency but provisions exist in the Investment Law to transfer profits earned in Libyan dinars. In other circumstances, where the receipts under a contract are in a foreign currency, profits are in essence freely remittable.

Import regulations
Libya has applied for membership to the World Trade Organisation (WTO) and follows the Harmonised System (HS) of import classification. Traders are subject to exchange control approval, administered by the Central Bank of Libya. Most goods may be imported into Libya though there is a list of prohibited items. Import permits are required and Libya complies with the Arab Boycott of Israel.

Summary
In summary, Libya, as a developing economy provides a number of opportunities for Omani investors and exporters.
 

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