Malta: Doing Business In Libya Through Malta

When Malta obtained its independence from Great Britain in 1964 its first embassy as a sovereign state was opened in Tripoli, Libya. This was a clear sign of the close ties and warm relationship between the two countries, not only then, but for centuries since the time of our mutual earliest known occupiers, the Phoenicians, those prolific traders or latter day businessmen. Malta and Libya have always been of assistance to each other, such as when Malta received preferential rates for its oil over many years and when Malta served as Libya's front door during the period when U.N. sanctions were in force. Now, that Libya's rapprochement with the rest of the world is complete, its relationship with Malta is entering a new phase from which both countries can benefit if the tremendous business opportunities are fully exploited. It has restored trading links and political relations with its international partners so as to prosper in today's global world.

Libya

Libya is located in the middle of North Africa bordering the Mediterranean Sea, 356 kilometres south of Malta, and has a population of just over 5.8 million (some 1.65 million being non-nationals). Comprising an area of 1,760,000 square kilometres, it has a typical Mediterranean climate along the coast in the north and a desert climate in the south. It enjoys valuable historical and natural resources. It has precious archaeological sights, including Roman remains, and some of the most beautiful stretches of beaches in the world.

Libya's economy depends largely upon revenues from the oil sector, which contributes practically all export earnings. These oil revenues have allowed the government to accumulate foreign exchange reserves worth $45 billion on annual oil sales now running at $20 billion. Libya is a major oil and gas producing country, with a daily oil production of around 1.7 million barrels a day, and the plan is to increase this to 3 million barrels a day within 10 years. Since only a quarter of the country has been explored, this remains an achievable target.

Libya's natural gas production amounts to six billion cubic metres annually, while its refineries produce over 16.5 million tons annually.

Libya has also completed the biggest water project in the world, the Great Man-Made River, which consists of more than 1300 wells, most more than 500 metres deep, and supplies 6,500,000 m³ of freshwater per day to the cities of Tripoli, Benghazi, Sirt and elsewhere.

Libya has a coastline of 2000km on the pollution-free Mediterranean Sea, providing large quantities of fish, including shell fish and tuna, as well as ample opportunities for touristic development. Its arable land covers two million hectares and has over seven million heads of livestock, while its raw materials comprise iron and steel, petrochemicals, silica sands, gypsum, salts, carbonate rocks, clay, decorative stones, tiles and metallic raw materials

Libya's GDP for the year 2007 was estimated at over $73 billion, with a real growth rate of 6.1% annually. Italy with $14.5 billion in imports is Libya's closest trading partner. Other major trading partners include Germany, France, Spain, China, Turkey and Tunisia. Total exports in 2005 amounted to some $30.8 billion and imports to approximately $10.8 billion. There is an estimated work force of only 38.5% of the Libyan population and an expatriate work force of some 450,000. The banking sector is made up of the Central Bank of Libya (CBL), five state-owned commercial banks, one private commercial bank (Bank of Commerce and Development), and 48 national banks. The largest of the state-owned commercial banks, the Libyan Arab Foreign Bank (LAFB), has subsidiaries and affiliates in more than 30 countries. 16 airports and the same number of commercial, industrial and petroleum seaports, while there are over 20,000 university and technical institute graduates each year.

Foreign Capitals Investment

Libya is a challenging but potentially rewarding market. It requires adaptability and persistence. There are clear signs that Libya is moving away from a state-controlled economy towards a free market.

Libya is crying out for investment and business opportunities are abundant. Opportunities exist in almost every sector, from oil and gas to agriculture to telecommunications and tourism. There are vast projects to be taken by foreign companies, particularly in the areas of infrastructure and tourism. First class hotels need to be built and managed, for both business and touristic purposes. The number of tourists and business visitors is expected to increase substantially and the necessary facilities do no not exist. There is need for an extensive road building programme, as well as waste management, including an efficient drainage system, just to mention two projects. There are also plans for wide spread privatisation, in schools, hospitals and existing hotels, for example. All this is just the tip of the iceberg.

Libya is embarking on a new era of world relations and is opening up to foreign investment, but finds itself in a position where it has to undo a great deal of what was done during the "Great Revolution." Against this background Libya has embarked on a series of legal reforms. As part of this reform policy, it began enacting various laws, chief amongst these being Foreign Investment Law No. 5 for the Year 1997, concerning Encouragement of Foreign Capitals Investment. This law, together with its amendments and implementing regulations, together create the most liberal legal framework for attracting foreign direct investment ever adopted by the Libyan government.

The Foreign Investment Law attempts to cover not only pure foreign investment, but also Libyan private capital abroad. It opens up many sectors that were previously closed to the private sector and to foreign investment.

This law targets a number of projects in Libya, such as:

• Production of goods or services for export or import substitution
• Creation of new jobs and employment opportunities and provision of advanced technical training
• Transfer of know-how, modern technology and technical expertise
• Making use of local raw materials
• Contribution to the growth of the economically underdeveloped regions

The Law provides the following exemptions and benefits for investors:

• Imported machinery, tools, equipment, spare parts and raw materials are exempt from all duties and taxes for a period of five years
• The project is exempt from all income tax on its activities also for a period of five years, which period can be extended for a further three years
• Exported goods are exempt from all taxes
• No stamp duty is imposed on commercial documents in connection with the project

Rights and privileges accorded to investors include the following:

• Net profits and dividends are freely transferable
• Expatriate personnel can be freely employed in the absence of Libyan substitutes
• Long term leases for land for production facilities are available
• Bank accounts in convertible currencies can be freely opened
• Ownership of the project may be transferred in whole or in part to another investor
• The investor can freely re-export his invested capital

Law No. 5 guarantees and protects the investor against nationalisation, dispossession, seizure, expropriation or any other action of a similar nature. There is a Libyan Foreign Investment Board which promotes investment projects and provides a one-stop shop for investors, providing all the required services, including the processing of applications and the granting of licences and permits.

The Foreign Investment Law provides the opportunity for 100% foreign equity ownership of companies licensed under the law. It provides for various preferences for licensed projects such as an exemption from corporate income tax for 5 years with a possible extension of 3 years provided that the net profits are reinvested in the project. It also provides for an exemption from customs duties on imports of machinery, tools and equipment needed for the execution of the project which will continue for a period of 5 years during the operation of the project. It also provides for an exemption from excise taxes on exported goods.

Investors are permitted to open an account in convertible currency, to repatriate profits, to employ expatriates when there is no qualified local labour and to own and lease property. They are protected against expropriation and permitted access to arbitration.

The Foreign Investment Law may be clearly interpreted as a positive step towards improving the buisness environment. Its tone is encouraging. So is Libya's willingness to negotiate further Investment Protection and Double Taxation Agreements with new partners. Malta and Libya entered into a Double Taxation agreement on Taxes on Income in 1973¹. Libya is also making a concerted effort to clear outstanding sovereign debt issues.

Malta

What can Malta offer as a base for business in Libya?

• Understanding business culture
• Good relations and trust
• Close proximity
• Residence, schools and hospitals
• Favourable tax regime
• Duty free storage facilities

Situated in the centre of the Mediterranean, Malta is a mere half an hour's flight from the Libyan capital Tripoli. There are daily flights provided by both Air Malta and Libyan Arab Airlines. The only 5-star hotel de luxe in Libya for the time being is on the coast of Tripoli and is owned and managed by the Maltese Corinthia Group. Relations between the two countries are as strong as ever on a political as well as a personal level.

The culture of doing business in the Mediterranean can be very different from that which entrepreneurs from northern Europe and other continents are used to. Maltese businessmen are part of this Mediterranean culture and can understand and therefore comfortably do business with their Libyan counterparts. They are ideal as business partners for non-Mediterranean entrepreneurs who want to invest or provide services in Libya. They will introduce them to the right people and find it easy to communicate and commute between the two countries. The centuries of close ties and friendship have built up a strong mutual respect and trust between Maltese and Libyans.

Foreign entrepreneurs can do their business in Libya through a Maltese company and benefit from the prevailing tax regime on the island when bringing in their dividends from Libya, where there is no restriction on exporting such. Malta can also provide all the necessary professional and clerical skills, with an abundance of well trained lawyers and accountants, as well as clerical and secretarial staff. The island has a state of the art telecommunications system and daily airline connections with Europe's major cities.

During the sixties many expatriate executives in Libya, particularly in the oil business, found it comfortable to establish their family's residence in Malta, renting a villa or apartment and sending their children to school on the island. This option remains available today. It is easy to commute between Malta and Libya, with daily flights to Libya lasting a mere half an hour. Malta is a European country and indeed a member of the European Union and has very good hospitals and schools and one of the oldest universities and provides many places of recreation and relaxation. All this may cause expatriates to feel more at home than in Tripoli – at least for the time being. Furthermore, entrepreneurs may choose to store equipment and supplies at Malta's duty free Freeport and transfer them to Libya as necessary. This is a very efficient and convenient facility.

Contractual Terms

Maltese or Malta-based entrepreneurs might feel happier to tie a contract or project to be carried out or executed in Libya to non-Libyan law and jurisdiction. Accordingly, the interpretation of a contract could, for example, be made subject to Maltese law and the jurisdiction of the Maltese courts. It would also be advantageous to submit any dispute to mediation and arbitration, successively, before resorting to litigation. Mediation would avoid the application of points of law and, therefore, not create any conflict between different laws. Mediation is picking up in Malta, as is the Malta Arbitration Centre. Language is also important. Should a contract be in both, say, English and Arabic, it would be best if the English language is made to prevail. These are contractual terms which could be crucial to a smoother resolving of disputes.

Footnote

1 http://docs.justice.gov.mt/lom/legislation/english/subleg/123/03.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.