Executive summary

Libya’s Presidential Council issued, on 12 September 2018, Decision No. 1300 relating to fees on the sale of foreign currency. With effect from 15 January 2019, its terms have been applied to contracts when settlement is by letter of credit, or when the contract includes a bank guarantee. Among other matters, this affects the calculation of stamp tax on legalized documents.

Detailed discussion

Background

To legalize a contract to validate it for use in Libya, it is necessary to register it with the Tax Department by payment of stamp duty of 1% of its value. A contract’s value, stated in foreign currency, is translated into Libyan dinars for registration purposes at the official rate of exchange.

As a result of the application of Decision No. 1300, when settlement under a contract is by letter of credit or when the contract includes a bank guarantee, the exchange rate to be used will be adjusted by 183% of the official rate of exchange.

Example

A contract with a value of US$10m includes a bank guarantee. Before the application of Decision No. 1300, if the official exchange rate were US$1.000 = LYD1.400, it would have been converted to LYD14m. Stamp duty thereon would have been LYD140,000.

The contract will now be converted at US$1 = LYD3.962 (i.e., 1.400 + 1.400*183%) and valued at LYD39.62m. Stamp duty, therefore, will be LYD396,200.

Implications

The Decree introduces a significant increase to the cost of legalizing contracts involving letters of credit or bank guarantees.

Detailed instructions on the new rules are yet to be issued.

For additional information with respect to this Alert, please contact the following:

Ernst & Young and Partners for Financial Services, Tripoli

• Gerry Slater | gerry.slater@ly.ey.com
• Mouad Aoun | mouad.aoun@ly.ey.com

Ernst & Young LLP, Middle East Tax Desk, Houston

• Gareth Lewis | gareth.lewis1@ey.com

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