LIBYAN INVESTMENT LAW: FOREIGN OIL COMPANIES
By Dr. Mohamed Karbal
Libya is not only notorious of being one of the toughest Middle East countries in enacting oil regulations but also is known for its rigorous negotiation tactics. The Libyan Petroleum Law no. 25 of 1955 divided concession areas into small exploration sections not exceeding 75,000 square kilometers.
As a result of this planned Libyan strategy, in contrast to other Arab countries, many large and small companies commenced exploring the Libya desert. This enabled the Libya government to deal with many investors rather than dealing with monopolistic domination by one or two investors with control of the entire concession areas.
In the 1960’s and 1970’s, the Libyan government began negotiations with various companies regarding a percentage amendment of the Libyan royalties. Many companies agreed to increase the royalties percentage which resulted in a subsequent profitable production-sharing agreement with the government. Yet, others refused and faced the axe of partial nationalization. Forty-two years of the Kaddafi regime’s apathetic attitude and incoherent economic development strategies left Libya as one of the least developed of the oil producing countries. Further, the Kaddafi’s regime’s obliteration response to the February 2011 Libyan uprising resulted in even more devastation of the already dilapidated infrastructure.
In this atmosphere of underdevelopment, ignorance and destruction which was inherited by the New Libya leaders, they were required to seek quick solutions to hasten the rebuilding and rushed to enacting new economic laws. Yet, there was hesitation by the lawmakers for their decision concerning the legal framework under which foreign companies will operate in the New Libya.
However, in July 2012, the Libyan Minister of Economics issued decree no. 207 for year 2012, slightly amending 2012 decree no. 103. Decree no. 207 of 2012 organizes the legal framework of foreign investment in Libya. Foreign investment is allowed in all economic sectors except certain areas which are strictly limited to Libyan citizens. For foreign companies, the decree also details the form of the legal entities, i.e. limited liability, joint venture, branch of a foreign company and representative offices.
As for the oil and gas sectors, the Ministry of Economics decree no. 207 of 2012 granted oil and gas companies the right to directly open a branch in Libya. A branch of a foreign office means that the shares of the company are totally owned by the mother company. The only restriction is that a manager of Libyan branch of the foreign company, or his deputy, must be a Libyan citizen. Decree no. 207 of 2012 allowed oil companies to open a branch offices engaging in the following activities:
1. Oil exploration including ground surveys by various means such as geological, geophysical and geochemical.
2. Examination and analysis of data and provision of geological and reservoir studies.
3. Oilfields drilling and maintenance, which includes oil drilling equipment and submersible pumps maintenance and installation.
4. Cementation, mud works and drilling fluids.
5. Construction, maintenance and cathodic protection of storages, pipelines and pipelines transportation and pumping stations.
6. Construction of offshore rigs.
7. Installation and maintenance of oil refineries and petrochemical plants.
8. Maritime transport services of materials, equipment and machinery for offshore drilling operations.
9. Mines removal from oil fields and other sites.
As for taxes regulations, the New Libya witnessed a change in both personal and corporate tax laws. Before the revolution and subsequent downfall of the old regime, corporate tax was set at a flat rate of 20% of the net profit as per the Income Tax law no. 7 of the year 2010. The new government, in 2012, has amended the same law by cancelling a 4% tax on the net profit which was known as the Jihad tax. All tax returns should be filed with the Tax Department no later than four months from the end of the company’s fiscal year. Tax filling should be certified by an external auditor (certified accountant).