Amended law ref Participation of Foreigners, Branches and Representative Offices of Foreign Companies in Libya

On 13 October 2022, the Libyan Ministry of Economy and Commerce enacted Decree 944/2022 on the Participation of Foreigners, Branches and Representative Offices of Foreign Companies in Libya (Decree 944/2022). Decree 944/2022 upholds the principle that any commercial activity in Libya requires the establishment of a presence – either through setting up a joint venture with a Libyan partner, or through registering a branch or representative office. Decree 944/2022 has also updated the prerequisites and capitalization requirements for establishing a presence in Libya. 

General Principles 

Decree 944/2022 repeals Decree 207/2012 that so far regulated the activity of foreign enterprises in Libya. Decree 944/2022 is based on the same regulatory philosophy, however introduces several important amendments.

Most importantly Decree 944/2022 raises the permitted foreign participating in Libyan companies to 75% (and, with the permission of the Ministry, to 89%).

Decree 944/2022 imposes several new obligations on foreign companies active in Libya, among them to transfer technology, hire locals and train the workforce (Article 4). While these obligations existed in a diluted form under Decree 207/2012, Decree 944/2022 gives the responsible authorities the tools to ensure compliance with such obligations. Furthermore, Decree 944/2022 appears to grant no exception from the mandatory required percentage of local workforce (set at 75%).

Decree 944/2022 maintains certain “exempted industries” in which foreign companies (and joint venture companies with a foreign participation) may not partake, which most significantly includes distribution, commercial agency, and wholesale activities (Article 5). Decree 944/2022 has also introduced rendering of security services as an exempted industry.

On the other hand, Decree 944/2022 now permits joint venture companies with a foreign participation to engage in construction projects of any value which was limited under Decree 207/2012. Previously, joint venture companies with foreign participation were permitted to take on construction projects only where the contract value was LYD 30 million or more (Article 6 [11] Decree 207/2012). A contract value limitation remains for branches of foreign companies, where the limit set for contracting construction projects is LYD 50 million (Article 21 [2]).

An additional permitted activity under Decree 944/2022 is cargo handling in airports, which was limited to Libyan nationals in the past.

It is important to note that operating under the “umbrella” of a Libyan company is illegal. Article 8 of Decree 944/2022 contains a standard “anti-concealment” rule that prohibits a foreign company from operating under the license of a Libyan company (and thereby circumventing the restrictions of Decree 944/2022).

Decree 944/2022 also affirms the new obligations for foreign companies to dedicate 1% to 2% of their net income in Libya for the benefit of CSR-objectives (Article 7 [2] of Decree 944/2022 in conjunction with Article 3[2] of Decree 494/2022 on Adopting the Code of Conduct for Companies).

Participating in a Joint Venture Company 

A joint venture company (JVCo) is a Libyan company with a permitted foreign participation. Contrary to the usual understanding of term “joint venture”, a JVCo is not a separate company classification in Libya. The term JVCo in Libya generally refers to a joint stock company (or limited liability company) that has a permitted foreign participation.

A JVCo in the form of a joint stock company must have a minimum capital of LYD 1 million of which 30% must be paid in upon incorporation (Article 17).

The law allows the possibility to set up a JVCo in the form of a limited liability company (LLC) rather than a joint stock company, provided that all shareholders are natural persons, and that the company is active in specific sectors (including medical products, foodstuff, wood, recycling, clothing and electronic systems). This option previously existed under Decree 207/2012 but was suspended six months later by Decree 22/2013. Decree 944/2022 now reintroduces the possibility of establishing a JVCo in the form of an LLC, however, raises the minimum capital significantly. The minimum capital for the LLCs with foreign participation is LYD 500,000 (as opposed to LYD 50,000 under Decree 207/2012), of which 50% must be a contribution in cash to be paid up upon incorporation.

Among the most significant amendments is raising the permissible foreign participation to 75% (and, with the permission of the Ministry, to 89%) (Article 18). In the past, the foreign shareholding was limited to 49%, which made participating in a JVCo less attractive, given the lack of foreign control. This amendment appears to be part of a strategy to make the establishment of JVCos more attractive for foreign investors.

Registration of a Branch 

So far, many foreign companies operate in Libya through a dependent branch. In contrast to a JVCo, a branch can be wholly foreign owned. The downside is that branches can only be active in certain selected areas of business.

A branch can be registered for the following activities:

• Civil works (in certain areas only for contracts with a volume in excess of LYD 50 million)
• Electricity
• Oil
• Telecommunication
• Industry
• Planning
• Environmental protection
• IT
• Technical studies and training
• Healthcare
• Air transport
• International cooperation.

The permissible activities remain largely similar to those under Decree 207/2012, aside from the additions of manufacturing computers and electronic chips as well as international cooperation.

Among one of the most significant amendments for branches are the raising of the designated capital to an amount of LYD 2 million for the registration with one field of activity and LYD 4 million for the registration for two fields of activity (Article 22). Note that previously, branches were not able to be active in more than one field of activity.

Designated capital is the funds to be paid into a Libyan bank account upon registration of the branch to ensure that the branch operations are properly funded. In the past, the amount was merely LYD 250,000 and the – comparatively – low capital commitment was among the advantages of the branch set up. This change has resulted in the capital commitment required for a branch significantly exceeding that for the establishment of a JVCo (as seen above).

Decree 944/2012 also relaxes the validity of a branch registration to be between two to five years (Article 20) as opposed to rigid validity period of five years in the past.

Temporary Branch

In addition, Article 26 of Decree 944/2022 for the first time introduces the concept of a “temporary branch”. A temporary branch is a branch with a designated capital of LYD 200,000 and a registration period of maximum 18 months not subject to renewal.

Given that Libyan law requires that any activity in Libya on the ground legally requires a registered presence, a temporary branch is a good alternative for foreign companies engaged in limited number of projects in Libya. Establishing a temporary branch is permitted as long as the foreign company is a party to maximum three contracts with Libyan entities and the duration of such contracts does not exceed 18 months.

Representative Offices 

The activity of a representative office is limited to market exploration only (Article 31). The required capital commitment is LYD 150,000. A representative office may not engage in any commercial activity in Libya.

NGOs and Companies Active in International Cooperation

In an attempt to restrict the activities of NGOs operating in Libya under the umbrella of branches of foreign companies, Decree 944/2022 now explicitly provides that foreign companies cannot pursue non-profit activities in Libya (Article 9 [9]).

Furthermore, Decree 944/2022 regulates the activities of “companies active in the sector of international cooperation” and defines these as “companies implementing programs and projects funded by donor organizations and countries in agreement with the Libyan Government” (Article 1 [8]). Companies active in international cooperation are required to establish a branch in Libya.

In addition to the above-mentioned requirements, the registration of the branch requires (i) an agreement between the Libyan foreign ministry and the donors and (ii) approval from the Ministry of Foreign Affairs. Companies active in international cooperation already operating in Libya must align their affairs with Decree 944/2022 within three months of 13 October 2022 otherwise their activities shall be suspended (Article 30).

Dormant Establishments 

The issue of dormant branches and JVCos is common in Libya, reason being that many foreign companies have not renewed their registrations since the 2011 due to political and economic conditions. Decree 944/2022 now introduces a procedure for striking off dormant branches (Article 34) that is modeled in accordance with the Libyan Commercial Code. Any establishment that is inactive for a period of six months or more must notify the commercial register. If the establishment does not resume its operations within six months as from the notification, the Commercial Register may apply to the court to strike the establishment off. It remains to be seen how this will be applied in practice.

Blacklisting

Decree 944/2022 further explicitly provides for a mechanism of “blacklisting” non-compliant foreign companies (Article 44). Reasons for blacklisting include, for instance, non-compliance with tax or other fiscal obligations, engaging in corrupt practices or fraud, operating without a license or the breach of obligations under project contracts.