Libya adopts new mechanism to regulate foreign transactions

The Ministry of Economy and Trade of the Government of National Unity announced the adoption of a new mechanism to regulate the ceiling of foreign trade transactions of companies, as reported by LY Witness on August 21st. 

The new mechanism aims to link documentary credits and foreign transfers to real economic activity, and the level of contribution of companies to production, operation and the national economy. 

The mechanism stipulates setting the annual ceiling for foreign transactions for each company according to financial and tax indicators, so that it is the equivalent to 30 times the average general income tax paid during the last three tax years, alongside 10 times the average salary and wage tax through the same period. 

The Ministry explained that the mechanism shows a shift from granting ceilings for foreign transactions based on the volume of demand, to linking them to indicators reflective of the companies’ activity, the extent of their contribution to public revenues and the volume of their operations. 

Its implementation aims to provide importance to the salary and wages tax as a way to show the actual volume of employment, which encourages companies to expand employment and disclose all registered labour. The mechanism also aims to link the use of foreign exchange to the volume of Libya’s economic activity. 

The ministry confirmed that the benefit of the new ceilings will be limited to companies that are commercially active on a regular basis, which limits inactive companies’ access to foreign exchange. 

It was pointed out that the mechanism aims to provide enhancement to the efficiency of foreign exchange allocation, alongside the raising of the level of tax compliance. The mechanism also seeks to encourage employment, and general improvements in the justice and transparency in the distribution of foreign trade transaction ceilings. The change marks a transitional stage in preparation of an integrated system for classifying the financial solvency of companies according to regulatory standards. 

LY Witness, Maghrebi.org