International Tax Services Keeping the Libyan Taxman happy Gerry Slater, Ernst & Young and Partners

Keeping the Libyan Taxman happy  Underlying legislation:  Stamp Duty Law 12/2004  Income Tax Law 11/2004  Stamp Duty  Examples  Corporate income tax  Other taxes  Underlying legislation:  Stamp Duty Law 12/2004  Income Tax Law 11/2004  Stamp Duty  Examples  Corporate income tax  Other taxes

Keeping the Libyan Taxman happy Stamp Duty Law - obligation to register contracts  All contracts are registerable under Stamp Duty Law if any document is to be ‘used or ‘executed’ in Libya.  National and International clients will generally demand contract registration for all but ex-works supply. Invoices submitted under a contract must be stamped as registered and delivered in Arabic.  Must be registered within 60 days of first date in contract, not necessarily date of signature.  Duty is 2% of contract value for a main contract and 0.1% for a subcontract.  Duty of 5/1000 of the Duty, also payable.  Penalty for failure to register is 2% of the Duty payable, per month or part 15 days, up to a maximum of 50% of the Duty.  Requirement to register contracts under Stamp Duty Law results in the need to properly structure contracts (split contracts – ‘force of attraction’). Stamp Duty Law - obligation to register contracts  All contracts are registerable under Stamp Duty Law if any document is to be ‘used or ‘executed’ in Libya.  National and International clients will generally demand contract registration for all but ex-works supply. Invoices submitted under a contract must be stamped as registered and delivered in Arabic.  Must be registered within 60 days of first date in contract, not necessarily date of signature.  Duty is 2% of contract value for a main contract and 0.1% for a subcontract.  Duty of 5/1000 of the Duty, also payable.  Penalty for failure to register is 2% of the Duty payable, per month or part 15 days, up to a maximum of 50% of the Duty.  Requirement to register contracts under Stamp Duty Law results in the need to properly structure contracts (split contracts – ‘force of attraction’).

Keeping the Libyan Taxman happy Case 1 Consignor is unregistered foreign company Consignee is Head Office of foreign company with Libyan Permanent Establishment (PE) A foreign company without a Permanent Establishment (PE) in Libya supplies equipment or materials to a foreign company that has a PE in Libya. Best case - Supply is offshore to Head Office The Libyan PE then imports the equipment or materials and receives a charge from its Head Office through inter-company account. The contract is offshore and the supply to the Libyan PE is seen to be from its Head Office. We confirm that there is no Libyan tax liability arising from the above transactions because the sale occurs outside the Libyan Jurisdiction. Case 1 Consignor is unregistered foreign company Consignee is Head Office of foreign company with Libyan Permanent Establishment (PE) A foreign company without a Permanent Establishment (PE) in Libya supplies equipment or materials to a foreign company that has a PE in Libya. Best case - Supply is offshore to Head Office The Libyan PE then imports the equipment or materials and receives a charge from its Head Office through inter-company account. The contract is offshore and the supply to the Libyan PE is seen to be from its Head Office. We confirm that there is no Libyan tax liability arising from the above transactions because the sale occurs outside the Libyan Jurisdiction.

Keeping the Libyan Taxman happy Case 1 A Co B Co HO B Co HO B Co Libya Branch B Co Libya Branch Supply

Keeping the Libyan Taxman happy Case 2 Consignor is unregistered foreign company Consignee is national entity or branch of foreign company A foreign company without a PE in Libya supplies equipment or materials to a National entity or PE of a foreign company. There is no local service associated with the supply. Supply should be ex works or cif etc. and imported in the name of the customer. In our opinion there should be no Libyan tax liability arising from the above transactions because the sale occurs outside the Libyan Jurisdiction, despite the aggressive position that can be taken by the Tax Department. But Consignee may, and frequently does, request registration. Case 2 Consignor is unregistered foreign company Consignee is national entity or branch of foreign company A foreign company without a PE in Libya supplies equipment or materials to a National entity or PE of a foreign company. There is no local service associated with the supply. Supply should be ex works or cif etc. and imported in the name of the customer. In our opinion there should be no Libyan tax liability arising from the above transactions because the sale occurs outside the Libyan Jurisdiction, despite the aggressive position that can be taken by the Tax Department. But Consignee may, and frequently does, request registration.

Keeping the Libyan Taxman happy Case 2 A Co B Co HO B Co HO B Co Libya Branch B Co Libya Branch Supply

Keeping the Libyan Taxman happy Case 3 Consignor is Head Office that has a Libyan PE A foreign company may make direct supplies from abroad without those supplies passing through it’s PE and avoid those supplies being included in the PE’s profits. This will require splitting a contract between offshore supply and onshore services. Supply should be ex works or cif etc. and imported in the name of the customer. During the course of a tax audit of the PE the Tax Department will directly request certification of income from customers. In order to avoid the possibility of a customer inadvertently identifying supply billings with services billings under different contracts, supply should be in the name of a different Group Company. We confirm that there would be de facto force of attraction if the Tax Authorities identified Supplies made by a company performing Services in Libya. Case 3 Consignor is Head Office that has a Libyan PE A foreign company may make direct supplies from abroad without those supplies passing through it’s PE and avoid those supplies being included in the PE’s profits. This will require splitting a contract between offshore supply and onshore services. Supply should be ex works or cif etc. and imported in the name of the customer. During the course of a tax audit of the PE the Tax Department will directly request certification of income from customers. In order to avoid the possibility of a customer inadvertently identifying supply billings with services billings under different contracts, supply should be in the name of a different Group Company. We confirm that there would be de facto force of attraction if the Tax Authorities identified Supplies made by a company performing Services in Libya.

Keeping the Libyan Taxman happy Case 3 A Co B Co HO B Co HO B Co Libya Branch B Co Libya Branch Supply A Co Libya Branch A Co Libya Branch Service

Keeping the Libyan Taxman happy Case 4 Consignor is local PE The supply of equipment or materials within Libya, if anything other than incidental to the provision of a service, is restricted to Libyan Nationals and registered Libyan Agents. The branch of a foreign company, or a Libyan joint stock company with a foreign shareholder, may not supply equipment within Libya though we are aware that occasionally at a desert location a company may sell equipment to ‘help out’ eg occasional sale of drill bits. Supply of materials must be associated with the provision of the service that the branch or joint stock company is licensed to undertake. Supply of equipment and materials within Libya is taxable in Libya. Case 4 Consignor is local PE The supply of equipment or materials within Libya, if anything other than incidental to the provision of a service, is restricted to Libyan Nationals and registered Libyan Agents. The branch of a foreign company, or a Libyan joint stock company with a foreign shareholder, may not supply equipment within Libya though we are aware that occasionally at a desert location a company may sell equipment to ‘help out’ eg occasional sale of drill bits. Supply of materials must be associated with the provision of the service that the branch or joint stock company is licensed to undertake. Supply of equipment and materials within Libya is taxable in Libya.

Keeping the Libyan Taxman happy Case 4 A Co B Co HO B Co HO B Co Libya Branch B Co Libya Branch Supply A Co Libya Branch A Co Libya Branch Service

Keeping the Libyan Taxman happy Corporate Tax  Tax legislation comprises Income Tax Law 11/2004: -top rate of 40% on profits > LD 2m (GBP 1 million) plus 4% Jihad tax.  Law is on a normal ‘add-back’ basis but, in practice, all foreign service companies are assessed on a deemed profit basis (percentage of turnover).  Oil service companies range is 15% to 20% and depends upon the nature of the business; consultancy and design up to 35%.  Appeals process – fair judiciary.  DTT with UK signed 18 November. Corporate Tax  Tax legislation comprises Income Tax Law 11/2004: -top rate of 40% on profits > LD 2m (GBP 1 million) plus 4% Jihad tax.  Law is on a normal ‘add-back’ basis but, in practice, all foreign service companies are assessed on a deemed profit basis (percentage of turnover).  Oil service companies range is 15% to 20% and depends upon the nature of the business; consultancy and design up to 35%.  Appeals process – fair judiciary.  DTT with UK signed 18 November.

Keeping the Libyan Taxman happy Other taxes Taxes and other deductions –Jihad tax (4%) –Personal income tax (progressive from 8% to 15%; 15% above GBP 5,000) –Jihad tax (3%) –Social Security (INAS) (11.25% %) –Social Unity Fund (1%)  Statute of limitations –Perpetuity for tax Other taxes Taxes and other deductions –Jihad tax (4%) –Personal income tax (progressive from 8% to 15%; 15% above GBP 5,000) –Jihad tax (3%) –Social Security (INAS) (11.25% %) –Social Unity Fund (1%)  Statute of limitations –Perpetuity for tax

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