Libya has a progressive taxation system. Capital gains tax is calculated using the same tax base and at the same tax rate as income tax. Particular attention should be paid to the so-called Jihad tax, which is levied in favor of the country’s Ministry of Defense. It is 4% of taxable income. It should also be noted that there are no tax incentives and tax deferrals for individuals, no special tax regime for expatriates, inheritance and gift taxes, and local taxes.
Exports to Libya are not taxed if the exporter’s obligations end before customs clearance and the exporter/supplier is not registered in Libya. Law No. 12/2004 on Stamp Duty applies to all contracts entered into in Libya. All contracts must be registered with the IRS within 60 days of signing. The contract registration fee is 2% of its total value, plus 0.5% of the stamp duty itself. Subcontract registration fee – 0.1% of the total contract value, plus 0.5% stamp duty. Delay in payment of stamp duty is subject to a fine of 2% for every 6 months of delay (but not more than 50%). There is no statute of limitations for the payment of stamp duty. In the event of termination of the contract (even on the unilateral initiative of the Libyan side), stamp duty is non-refundable.
Features of stamp duty rates
Corporate taxes are paid in two stages:
- Pre-assessment (when the company provides invoices)
- Final assessment (where the IRS verifies the submitted invoices, usually within two years of their submission).
The taxpayer can accept the IRS assessment and can appeal to the Arbitration Committee or in court. In the event of a delay in the payment of taxes, the taxpayer pays a fine of 1% of the tax plus collection costs.
Tax on salaries, bonuses, and benefits varies from 8% to 15%. Foreign nationals working in Libya can transfer 50% of net wages in foreign currency to their country. The share rises to 75% in special cases. For example, when an employee is working in a desert environment.
Withholding Tax – 0.5% is levied by governments on all payments they make, plus 0.2% on official receipts.
Foreign income tax
Foreign companies in Libya are subject to the following taxes:
Income tax (law no. 11/2004). Each taxpayer (including a branch of a foreign company) must register with the Tax Office (according to Form No. 1) within 30 days from the date of registration. The head of the branch is responsible for registration. The taxpayer receives from the Tax Administration a notification (in form No. 11) with a preliminary calculation of the income tax, which he must pay during the year (4 quarterly payments). Income tax return for companies or branches of foreign companies (according to Form No. 10) is submitted within 1 month from the date of approval of the company’s balance sheet (but no later than 7 months after the end of the financial year). The declaration is accompanied by supporting documents, including a balance sheet, transaction accounts, profit and loss statement, depreciation documents, a list of property, detailed breakdown of expenses. In addition, the taxpaying company must constantly keep a journal reflecting the daily movement of accounts, the state of assets, and the budget (following Articles 58 and 60 of the Law on Commerce), a register of goods. The IRS may oblige branches of foreign companies to attach to the declaration the accounts of the parent company abroad. After submitting the annual return to the Tax Office, the taxpayer receives a notification of the final calculation of income tax. In case of refusal to submit a declaration or indicating inaccurate information, the tax is paid based on the calculations of the Tax Office. The head of a company (or a branch of a foreign company) is personally responsible for the implementation of the Income Tax Law. Foreign companies must notify the IRS of the appointment or change of branch manager within 30 days.
Income tax (law no. 11/2004). Applies to all companies, including branches of foreign organizations. Employers must file tax returns (Form No. 8) and withhold and pay income tax from their employees within 60 days of the earning income (or hiring). The declaration must include the worker’s full name, status, withholding income tax (8 to 15%), Jihad (Holy Struggle) tax, Palestinian aid tax, stamp duty, and social security contributions. The income tax rate is progressive: the first 200,000 l.d. – 15%, the next 300,000 l.d. – 20%, the next 500,000 l.d. – 25%, the next 500,000 l.d. – 30%, the next 500,000 l.d. – 35% and over 2,000,000 – 40%. Taxation largely depends on the status of the foreign company. So, for example, if the activities of a company are regulated by the investment law, then the company is exempt from paying taxes for five years from the date of registration. If a foreign company operates in an offshore zone in Libya, it is exempted from the tax burden permanently (Law No. 9/2000 “On the Regulation of Transit Trade and Free Zones”). Income tax on companies in the construction sector can be as high as 40%.
Jihad tax (Law 44/1970) is 3% of earnings if it exceeds 100 liv. dinars per month. For foreign companies – 4% of the profits are determined for taxation.
Stamp duty (Act No. 12/2004). The objects of payment of stamp duty are invoices, documents, publications, advertisements, registrations, acts, and other transactions. The obligation to pay arises at the time of registration of the document or at the time of the transaction. Oral contracts are also subject to the law. If the amount is not specified in the document or contract, then a similar document or contract is taken as the basis for paying stamp duty. If the contract is concluded abroad, but the subject of the contract (real estate or property) is located in Libya, then stamp duty must be paid to the Internal Revenue Service within one year after the conclusion of the contract. Stamp duty is also levied on contracts or acts that are automatically renewed. In this case, the fee must be paid within 60 days from the date of automatic renewal.
Social insurance contributions are made by both the employee and the employer and account for 16% of the total salary, of which the employee pays 4.75% and the employer 11.25%. The transfers to the social insurance fund must be made by the 10th day of the next month.
