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LIBYA: An Introduction to General Business Law

Contributors:

Essra H Sherwi

Malak Ejledi

Hajer Khafafa

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Libya: General Business Law 

Outlook
Libya’s international profile is rising as it approaches what its leading practitioners describe as the zenith of its economic transformation.

Efforts toward improving the country, ongoing since mid-2020, have contributed to achieving macroeconomic stability with regard to Libya's overall economic activity and financial situation. As well as improved fiscal trade and current account balances, day-to-day working circumstances are back to normal; at the time of writing, Libyan airports and ports are fully operating, with routine traffic between Libya's cities.

The financial review of the Central Banks by accountancy firm Deloitte has been finalized, with unification of the branches under a single decision-making authority ongoing. This has had the intended effect of overcoming the financial and banking crisis that had been ongoing in the country. The positive impact of the unification is visible with the exchange rate devaluation, unification of exchange rates, and the abolishment of the foreign exchange tax in January 2021. Business clients now have access to improved liquidity and letters of credit, and may make local and international financial transfers quickly and easily.

These improvements offer signals of encouragement to investors, and with the international community’s eye on Libya’s strategic location as a trading link between Africa and Europe, Libya’s hydrocarbon sector is seeing a significant comeback.

Investment
Following the lifting of the oil blockade in 2020 and what have proven to be globally resilient oil prices, Libya’s profile as an Africa/Europe energy nexus is rising. This is observable clearly as Libya has made it a priority to funnel foreign capital, technology and expertise toward examining project financing and investment opportunities in a diverse range of industries, including in oil and gas, power provision, transport, infrastructure and agriculture. This diversification is further strengthened by a series of reforms enacted by policymakers with the objective of increasing efficiency across sectors such as oil production. Libyan oil output topped 1.3 million bpd at times in 2021, and production is forecast to continue rising in 2022, supporting NOC’s oil output target of 2.1 million barrels per day by 2024.

Proactive collaboration between vital state organs such as the Ministry of Foreign Affairs, Ministry of Oil and Gas, the NOC and the General Electricity Company of Libya (GECOL) have resulted in sectoral revitalization, particularly in energy infrastructure, as a catalyst for broader growth.

Potential stakeholders therefore need to know that while the Libyan Investment Law is designed with the aim of attracting both domestic and international capital to invest in Libya, those companies looking to contribute to the diversification of the local economy, the development of rural regions, the expansion of jobs and so on are considered eligible for certain benefits.

To that end, key information includes the relevant institutions, namely the Ministry of Economy, the Privatization and Investment Board (PIB) and the Tax Authorities. Exemptions to note include a five-year exemption from income tax; an exemption from tax on distributions and gains arising from a merger, sale, or change in the legal form of the enterprise; an exemption for profits generated from the enterprise's activities, provided the profits are reinvested; an exemption from customs duties on machinery and equipment; and an exemption from stamp duty. These exemptions are all available to companies registered and governed by the Investment Law.

In Misrata, a free zone has been formed (in the Qasr Ahmad port area), and the Misrata Free Zone Administration has enacted regulations streamlining the company establishment process to encourage foreign commercial investors to set up within the Misrata Free Zone.

Corporate
The most common commercial entities for setting up and “doing business” in Libya are joint stock corporations, branches and representative offices. Libyan nationals are the only ones who may form a limited liability company (LLC). Generally, non-Libyans can only own up to 49% of a Libyan corporation; however they can own up to 100% of a Libyan company. Clients should consider that the constraints on a joint stock company's minimum number of shareholders and maximum percentage shareholding (which were formerly set at 10% per person) have been removed as a matter of practice (rather than legislation), making market entrance into Libya via a joint stock company smoother.

Increasingly accessible information, available through highly qualified legal and commercial practitioners developing their collaboration in the legal and business communities in Libya, further enables a more straightforward experience. Most embassies and international companies have returned to Libya, with a host of new foreign companies looking to initiate deals.

Dispute Resolution
International arbitration continues to gain momentum as a popular method of resolving disputes between foreign investors and Libyan parties. Although Libyan parties have tended to favor the familiarity of local litigation rather than international arbitration, when dealing with foreign investors they usually agree to arbitrate. Many recent international energy deals hold dispute resolution clauses calling for dispute resolution through arbitration in Paris under the ICC's rules of arbitration. In 2016 the Libyan Board for International Commercial Arbitration drafted arbitration legislation, and as early as 2010 the Ministry of Economy mandated a panel of experts to draft an international arbitration law. While both bills are as yet unenforceable, many major contracts such as export and production-sharing agreements (EPSAs) or development and production-sharing agreements (DEPSAs), as well as engineering procurement and construction agreements, will usually refer disputes to arbitration in Paris under the ICC.

As the growing need for legislative adjustments to further stimulate and regulate an increasingly competitive Libyan market are recognized, current and potential stakeholders are nonetheless continuing to look toward Libya with resilient optimism.