Introduction

In our previous article, we explored Libya’s Investment Law (Law No. 9 of 2010), which offers attractive incentives for foreign investors. Building on that foundation, this article examines the practical aspects of setting up a business in Libya, focusing on entities available under the Libyan Commercial Code (Law No. 23 of 2010) and Decree No. 207 of 2012. We categorise these structures based on whether a Libyan partner is required, providing foreign investors with a clear understanding of their options.

Entities Requiring a Libyan Partner

Certain business structures in Libya require foreign investors to partner with local entities. Joint Stock Companies (JSCs) and Limited Liability Companies (LLCs) are two such structures, permitting foreign ownership only within defined limits.

1.Joint Stock Companies (JSCs)

A Joint Stock Company is ideal for large-scale investments, requiring at least five shareholders and a significant capital commitment. Foreign ownership is generally capped at 49%, although it can extend to 60% with Ministry approval for ventures involving specialised expertise.

1. • Minimum Capital Requirement: One million LYD or 30% of subscribed cash capital, whichever is higher.
   • Board Requirement: The Chair must be a Libyan national.
   • Documentation Requirements:
     • Memorandum of Association and Articles of Association of the parent company.
     • Parent company’s Registration Certificate or Commercial Extract.
     • Board Resolution approving the JSC setup in Libya, detailing the company name, activities, capital commitment, and shareholder information, and appointing a Libyan Chair.
     • Financial statements and certificates of experience from clients relevant to the JSC’s proposed activities.
     • Notarised and legalised documents through the Libyan Embassy in the parent company’s country.
    
2. Limited Liability Companies (LLCs)

Limited Liability Companies are a flexible choice with a lower capital requirement, suitable for small- to medium-sized investments. An LLC must be formed by natural persons (Libyans and foreigners). Foreign ownership is capped at 49%, extendable to 60% with Ministry approval.

1. • Minimum Capital Requirement: 50,000 LYD.
   • Management Requirement: The Director must be a Libyan national.
   • Documentation Requirements:
     • Memorandum of Association and Articles of Association of the parent company.
     • Board Resolution detailing the capital contribution and the appointment of a Libyan Director.
     • Financial statements and relevant certificates of experience.

These entities provide structured entry points into the Libyan market, facilitating compliance while meeting Libyan regulatory requirements.

3.Entities Allowing Full Foreign Ownership

For investors seeking complete ownership, Libya permits branches of foreign companies and representative offices. These options allow foreign companies to operate in Libya with full ownership and direct control.

Branches of Foreign Companies

A branch allows foreign companies to retain 100% ownership while operating within approved sectors, such as telecommunications, oil services, environmental protection, and construction.

1. • Minimum Capital Requirement: 250,000 LYD, transferred from foreign currency to Libyan dinars.
   • License Duration: Branch licenses are valid for up to five years and may be renewed if the branch’s sector remains permitted.
   • Management Requirement: The branch must have a Manager and a Deputy Manager, with one position filled by a Libyan national.
   • Documentation Requirements:
     • Memorandum and Articles of Association of the parent company.
     • Parent company’s Registration Certificate or Commercial Extract.
     • Board of Directors Resolution authorising the establishment of a branch in Libya, specifying branch name and intended activities, capital (at least 250,000 LYD, converted from foreign currency), desired license duration, and details of the appointed Branch Manager and Deputy Manager, including the Libyan national’s role.
     • Financial statements, profit and loss accounts, and records as required by Libyan authorities.
     • Passport copies of the Branch Manager and Deputy Manager.
     • National ID copy for the Libyan-appointed manager or deputy.
     • Three Certificates of Experience from former clients related to the parent company’s activities.
     • Latest financial statements of the parent company (preferably for the last two years).
     • A declaration confirming the parent company does not hold any Libyan bank accounts.
     • Note: All documents must be notarised and legalised through the Libyan Embassy in the parent company’s home country.

Benefits: Branches allow foreign companies full operational control in Libya and are particularly suited to sectors vital to Libya’s development goals.

4.Representative Offices

Representative Offices provide a non-commercial presence, allowing companies to conduct market research, build relationships, and promote the parent company’s business without direct commercial activity.

1. • Activity Restrictions: Representative offices cannot engage in revenue-generating activities.
   • Purpose: Primarily used for market research, promotion, and networking.
   • Documentation Requirements:
     • Parent company’s Memorandum and Articles of Association.
     • Board Resolution authorising the representative office.
     • Parent company’s Registration Certificate or Commercial Extract.
     • Financial statements and relevant certificates of experience.

Benefits: Representative offices offer a low-commitment option for companies evaluating the Libyan market before establishing a commercial presence.

5.Setting Up in the Free Zone

Establishing a company within Libya’s free zones, specifically the Misurata Free Zone (MFZ), offers foreign investors a strategic advantage.

Key Benefits:

1. • Tax Incentives: 0% rate on personal and corporate income taxes, as well as VAT.
   • Customs Advantages: Exemption from customs duties on imports and exports.
   • Full Ownership: Foreign investors can retain 100% ownership within the free zone.
   • Repatriation Rights: Unrestricted repatriation of capital and profits.
   • Labour Flexibility: No restrictions on recruiting labour.
   • Infrastructure: Reliable, affordable power and available land for development.

Steps to Establish a Company in the MFZ:

• Determine business activity within the MFZ.
• Prepare documentation, including the parent company’s Memorandum and Articles of Association, a Board Resolution for branch establishment, and financial statements.
• Submit application to the MFZ authority with the required documentation.
• Obtain necessary approvals from Libyan authorities.
• Register the company within the MFZ, adhering to regulatory requirements.

Considerations:

1. • Capital Requirements: Be aware of any minimum capital requirements.
   • Legal Assistance: Legal guidance from experts in Libyan commercial law can ease the process and ensure compliance.
   Tax Obligations for Foreign Entities

Foreign entities in Libya, including branches, JSCs, LLCs, and companies in the free zone, are subject to a 20% corporate tax plus a 4% Jihad tax. Additionally, companies must contribute to Libya’s social security system (employer contribution of 20.5%) and comply with annual tax filing requirements.

Conclusion

Libya offers a variety of corporate structures, allowing foreign investors to choose entities with full ownership or those requiring a local partner. Each option, branches, joint stock companies, or opportunities in the Misurata Free Zone, entails specific compliance and documentation requirements. FS Legal Services provides comprehensive assistance to foreign investors, guiding them through registration, compliance with Libyan regulations, and supporting strategic growth in Libya’s dynamic market.