Libya is notorious for being one of the most stringent countries in the Middle East in enacting oil regulations and is also known for its rigorous negotiation tactics. The Libyan Petroleum Law No. 25 of 1955 divided concession areas into small exploration sections, each not exceeding 75,000 square kilometers.
As a result of this planned Libyan strategy, unlike in other Arab countries, many large and small companies began exploring the Libyan desert. This enabled the Libyan government to engage with many investors rather than cope with monopolistic domination by one or two investors who controlled the entire concession areas.
In the 1960s and 1970s, the Libyan government began negotiations with various companies to amend the percentage of Libyan royalties. Many companies agreed to increase the royalty rate, resulting in a profitable production-sharing agreement with the government. The evolution from concession systems to production-sharing is analyzed in detail in our discussion of Libyan oil contracts and the future generation of EPSA agreements. Others refused and faced the ax of partial nationalization.
Forty-two years of the Kaddafi regime’s apathetic attitude and incoherent economic development strategies left Libya among the least developed oil-producing countries. This pattern reflects broader challenges addressed in Libyan investment law and political developments. Furthermore, the Kaddafi regime’s obliteration response to the February 2011 Libyan uprising caused further devastation to already dilapidated infrastructure.
In this atmosphere of underdevelopment, ignorance, and destruction, which the New Libya leaders inherited, they were compelled to seek quick solutions to accelerate rebuilding and rushed to enact new economic laws. Yet the lawmakers hesitated to decide on the legal framework for foreign companies operating in New Libya. These regulatory uncertainties are closely tied to the ongoing politics of the Libyan oil industry.
However, in July 2012, the Libyan Minister of Economics issued Decree No. 207 of 2012, which slightly amended Decree No. 103 of 2012. Decree No. 207 of 2012 establishes the legal framework for foreign investment in Libya. Foreign investment is permitted across all economic sectors, except for certain areas strictly reserved for Libyan citizens. The decree also specifies the forms of legal entities for foreign companies, namely limited liability companies, joint ventures, branches of foreign companies, and representative offices. Structuring these entities typically requires specialized corporate and commercial legal services under Libyan law.
Regarding the oil and gas sectors, the Ministry of Economics decree No. 207 of 2012 granted oil and gas companies the right to establish a direct branch in Libya. A branch of a foreign office indicates that the parent company owns the company's shares. The only restriction is that the manager of the Libyan branch of the foreign company, or their deputy, must be a Libyan citizen.
Decree No. 207 of 2012 allowed oil companies to open branch offices engaged in the following activities:
1. Oil exploration, including ground surveys using geological, geophysical, and geochemical methods.
2. Examination and analysis of data, and provision of geological and reservoir studies.
3. Oilfield drilling and maintenance include oil drilling equipment and submersible pump installation and maintenance.
4. Cementation, mud works, and drilling fluids.
5. Construction, maintenance, and cathodic protection of storage facilities, pipelines, pipeline transportation, and pumping stations.
6. Construction of offshore rigs.
7. Installation and maintenance of oil refineries and petrochemical plants.
8. Maritime transport services for materials, equipment, and machinery used in offshore drilling operations.
9. Mines removal from oil fields and other sites.
10. Companies engaged in these activities must also comply with sector-specific energy law regulations in Libya.
With respect to tax regulations, Libya experienced changes in both personal and corporate tax laws. Before the revolution and the subsequent downfall of the old regime, the corporate tax rate was set at a flat 20% of net profit under Income Tax Law No. 7 of 2010. The new government amended the same law in 2012 by abolishing a 4% tax on net profit, known as the Jihad tax. All tax returns should be filed with the Tax Department no later than four months after the end of the company’s fiscal year. The filing should be certified by an external auditor (certified accountant).
