Investments play a pivotal role in shaping national economies, driving both economic and social progress. Recognising this, Libya’s policymakers have increasingly focused on attracting foreign investments through the enactment of laws and regulations designed to create a favorable investment climate. These legal frameworks are essential for drawing investors, as they outline interests, define obligations, and safeguard rights.

The primary legislation governing investment in Libya is Law No. 9 of 2010 on Investment Promotion (the “Investment Law”), along with its executive regulations enacted by Executive Regulation (Decree No. 499 of 2010). This law was introduced to provide a range of incentives aimed at stimulating private investment. Since its enactment, no significant amendments or new investment laws have been introduced.

This article explores Libya’s Investment Law, offering foreign investors valuable insights into the investment climate and how this legal framework impacts business opportunities in the country.

Investment Scope and Restrictions

Article 2 of the Investment Law specifies that the law applies to national, foreign, or joint venture capital investments in the areas targeted by the law. Foreigners are allowed to invest in most production and service activities in Libya, as confirmed by Article 8 of the Investment Law.

However, Article 27 excludes oil and gas projects from the scope of foreign investment. The Executive Regulation further elaborates in Article 4 by reserving three specific oil and gas activities—exploration, extraction, and marketing—exclusively for Libyan investors. This opens the possibility for foreign investment in other segments of the oil and gas industry, such as petrochemicals, fertilizers, and refineries.

Foreign investors in the oil and gas sector must ensure compliance with these restrictions to avoid legal complications.

Minimum Capital Requirements

Under Article 5 of the Executive Regulation, the minimum investment capital required for a foreign investment project is five million Libyan Dinars (LYD). In contrast, Libyan investors are required to invest a minimum of two million LYD for their projects.

These capital thresholds are designed to ensure the financial stability of investment projects and promote sustainable economic development.

Eligible Commercial Entities for Foreign Investors

According to Article 8 of the Executive Regulation, foreigners can register an investment project through any of the legal forms outlined under the Commercial Law of Libya. The registration must be done with the Investment Board, and follow the procedures outlined in Article 9 of the Executive Regulation.

Allowed Legal Entities:

• • Branches of foreign companies
  • Joint stock companies
  • Limited liability companies

However, Article 8 explicitly excludes the following forms of business for foreign investors:

• Individual activities
• Partnerships (Partnership companies)
• Joint venture companies

These legal forms are reserved for Libyan nationals, meaning foreign investors must operate within the allowed commercial entities to ensure legal compliance.

Incentives and Privileges under the Investment Law 2010

The Investment Law offers a comprehensive range of incentives designed to attract and support foreign and domestic investors. These include operational flexibility, financial rights, tax exemptions, and sector-specific benefits that help reduce the cost of doing business and promote long-term investment. The key incentives and privileges are outlined in Articles 12, 10, and 15 of the law.

1. Operational and Financial Incentives (Article 12)

Article 12 provides investors with significant operational flexibility and financial rights to facilitate the smooth functioning of investment projects:

• Banking Access: Investors can open bank accounts in local or foreign currencies with banks operating in Libya. They are also eligible to obtain financial loans from both local and foreign banks, in accordance with applicable laws.
• Capital Repatriation: If a project is terminated, liquidated, or sold (in whole or in part), foreign investors are entitled to re-export their invested capital. Additionally, if unforeseen circumstances prevent investment within six months of capital importation, the capital may be transferred abroad in the same manner it was originally brought in.
• Profit Transfer: Investors have the right to transfer annual net profits derived from their foreign capital investments.
• Employment of Foreign Workers: When no suitable national workforce is available, investors may recruit foreign workers. These workers are eligible for renewable five-year residence visas, along with multiple-entry and exit privileges.

These incentives ensure that investors have the operational freedom and financial flexibility necessary to efficiently manage their projects in Libya, with support for banking, capital mobility, and workforce management.

2. Tax and Duty Exemptions (Article 10)

Article 10 outlines a series of tax and customs duty exemptions aimed at reducing the initial and operational costs of investment projects. These exemptions are key to promoting business growth and reducing financial barriers:

• Machinery and Equipment: Projects are exempt from taxes, customs duties, and similar fees on the import of machinery, equipment, and devices necessary for project execution. This helps reduce the upfront capital required for setting up a project. However, certain fees, such as port and handling charges, are excluded from this exemption.
• Operational Inputs: A five-year tax exemption is granted on operational inputs such as spare parts, raw materials, and advertising items essential to project management. This gives investors financial breathing room during the early years of their operations.
• Export Benefits: Goods produced for export are exempt from production taxes and customs duties, making Libya a competitive location for manufacturing and exporting on the international stage.
• Income Tax Exemption: Income generated by the project is exempt from income tax for five years from the date of licensing. This is a key incentive, as it allows investors to enjoy tax-free earnings during the critical initial years of their business.
• Profits from Shares and Equities: Profits generated from shares, mergers, sales, or changes in the project’s legal structure are also exempt from taxes, provided these changes occur within the tax exemption period. This encourages flexibility and adaptability without the burden of additional taxes.
• Reinvestment Incentives: Interest earned from project activities is exempt from taxes if reinvested into the venture, promoting a cycle of reinvestment that benefits both the investor and the local economy.
• Stamp Duty Exemptions: All project-related documents, transactions, and agreements are exempt from stamp duties, further minimizing bureaucratic costs.

These tax and duty exemptions significantly reduce both initial capital outlay and ongoing operational expenses, making investment projects more financially viable and competitive.

3. Additional Sector-Specific Privileges (Article 15)

Article 15 provides for additional exemptions and incentives for projects that contribute to Libya’s national development goals, subject to approval by the General People’s Committee (which is today the Cabinet of Ministers) upon the proposal of the Secretary. These include:

• Food Security Projects: Investment projects that contribute to Libya’s food security may receive extended tax exemptions for up to three additional years.
• Environmental and Energy-Efficient Investments: Projects that utilize energy-efficient methods or support environmental sustainability may also qualify for further tax benefits, promoting eco-friendly business practices.
• Regional Development: Projects that contribute to the economic or social development of underdeveloped regions in Libya are eligible for additional incentives. This encourages investment in less-developed areas, aligning private sector growth with national development objectives.

The provisions in Article 15 offer tailored incentives to promote projects that align with Libya’s broader economic, environmental, and social development goals, creating a synergy between private investment and national interests

Expropriation and Compensation

Article 23 of the Investment Law guarantees protection for investors against nationalization, expropriation, forcible seizure, confiscation, freezing, and other similar actions. It explicitly prohibits these actions unless permitted by law or a valid court ruling, in which case the investor is entitled to fair and adequate compensation.

• Non-discrimination: Any expropriation or similar measure must be applied without discrimination, ensuring that foreign investors receive the same level of protection as local investors.
• Fair Compensation: In cases where expropriation is legally justified, compensation must be provided. This compensation should reflect the market value of the expropriated asset at the time of expropriation and should be paid promptly in a transferable and freely convertible currency.

Article 43 of the AExecutive Regulation further reinforces these protections, ensuring that any actions involving seizure or expropriation comply with the legal framework and protect investors from arbitrary or unfair treatment.

These provisions align with international standards on investor protection, providing foreign investors with a legal safeguard against unlawful expropriation, as well as a mechanism for receiving fair compensation if such measures are lawfully applied.

Observations:

While Libya’s Investment Law provides a promising framework for attracting foreign investment, certain areas exhibit potential shortcomings that may affect investor confidence. These issues arise primarily from inconsistencies between the law and its executive regulations, as well as challenges posed by local legal mechanisms. Two notable concerns include:

1. Article 24: Dispute Resolution

In the absence of applicable bilateral or multilateral agreements, jurisdiction defaults to Libyan courts. This reliance on local judicial systems may present challenges for foreign investors, particularly given that Libya’s judicial mechanisms still require significant development and improvement. As a result, the domestic legal framework may not offer the efficiency or reliability that foreign investors typically seek for dispute resolution.

2. Article 12 of the Investment Law & Article 34 of its Executive Regulation: Repatriation of Unused Foreign Capital

A notable inconsistency exists between the Investment Law and its Executive Regulation concerning the repatriation of unused foreign capital. Article 12 of the law grants investors the clear right to transfer capital abroad after six months if unforeseen circumstances hinder its use. However, Article 34 of the Executive Regulation imposes additional requirements, obliging the investor to seek approval from the relevant authority for the transfer, which may be granted or denied at the authority’s discretion. This divergence could be seen as contradictory to the intent of the law, which aims to protect and facilitate investor rights. Imposing such discretionary conditions may undermine investor confidence, as restrictions on capital repatriation should be based on clear legal grounds without contradicting the overarching principles of the law.

Conclusion

Libya’s 2010 Investment Law offers a wide range of incentives and protections designed to attract foreign investment. However, as outlined in this article, certain gaps in the legal framework and inconsistencies between the law and its regulations may create challenges for investors looking to capitalise on Libya’s economic potential. Navigating these complexities requires a deep understanding of the legal landscape and strategic planning to ensure compliance and protect investments.

At FS Legal Services, we specialise in providing tailored advice and guidance to foreign investors seeking to operate in Libya. Our expertise in Libyan law, combined with a practical approach, ensures that our clients are well-prepared to seize business opportunities while minimszing legal risks. If you need assistance with understanding Libya’s investment regulations or require support in structuring your investments, we invite you to get in touch with us for personalised, expert advice.