Trade and Investment
The Encouragement of Investment Law, No. 10 of May 1991, was enacted to encourage investments in economic and social development projects, approved by the Supreme Council of Investment, which is composed of various government ministers. Applications for approval of projects must be filed with the relevant ministry that will forward them to the Council for approval.
Approved projects may then import all equipment and supplies needed, without limitation, in order to establish, develop or enlarge the project. Such importation is exempt from taxes, customs and any other duties. Nonetheless, taxes and duties are levied on all imported equipment that is used to operate the project on a continuing basis.
Depending on the type of project, certain tax exemptions are granted for periods ranging from five to seven years. Furthermore, all projects covered under Law No. 10 are exempt from Syrian foreign exchange control. After five years, the portion of foreign investment equal to the amount of shares held in such a project may be repatriated to the foreign investor, based on the actual value of the project. The amount transferred may not exceed the initial currency investment. Should circumstances that are beyond the control of the investors arise, repatriation may begin within the first six months of the project. Annual profits and interest earned, through the use of foreign capital, may be transferred abroad.
The Investment Law's main provisions are as follows:
-The project must correspond to the government’s aim for the relevant sector;
-Import of production inputs such as machinery, equipment and vehicles is free of customs duty;
-Mixed-sector companies in which the Syrian government's stake is at least 25 percent or companies that export 50 percent of their products receive a seven year tax holiday;
-Private-sector companies receive tax incentives five years;
-Foreign exchange capital can be repatriated after five years, and, if the project fails through circumstances out of the investor’s control, such capital can be repatriated after six months;
-Profits can be transferred freely;
-50 percent of expatriate salaries and 100 percent of expatriate severance pay can be repatriated.
A 1996 decision by Syria's Supreme Council for Investment states that the expansion, modernization and development of projects under the 1991 Investment Law No. 10 will not receive any new tax benefits. Seven years after the law's implementation, it has not achieved its goal of attracting foreign investment. Businessmen complain that the law is irrelevant under current business conditions. Most foreign investment in Syria has come from expatriates or businessmen from Arab countries. Furthermore, many projects approved under this law were never executed because of marketing and other bureaucratic problems.
Several laws provide incentives for the tourism industry and certain other industries. These incentives, under Decision 186, include a seven year exemption from all taxes on the operation of tourist establishments, an exemption from paying income tax on up to 50 percent of the profits, certain import and customs exemptions, and some exemptions allowing bank accounts to be maintained in foreign currency.
According to Decrees 46 and 162 and Law No. 36, investments in hotels, restaurants and approved tourism projects enjoy certain benefits which may include an exemption from tax for between five to seven years, for example, hotels, restaurants and entertainment areas having a deluxe or first class rating.
Imported building materials, furniture and installations for these tourism businesses are also exempt from customs duties if such imports are used in order to enable a hotel or restaurant to maintain its deluxe or first rate rating.
Before 1990, Syrian policy was geared to substituting imports with domestically produced goods. The government, however, has eased regulations to the point that advance deposits for imports of food and industrial inputs have been abolished. The most significant change has been in financial transactions. According to statistics by the Syrian government, 95 percent of exported and imported goods are priced at the neighboring countries’ rate, which has gradually replaced the alternative rates for different goods. Furthermore, exporters do not have to exchange their foreign exchange earnings with the Commercial Bank of Syria if they then want to finance imports. The 25 to 30 percent share in foreign export proceeds that must be exchanged at the commercial banks are now also subject to the neighboring exchange rate.
All documentary transactions for imports must be by a letter of credit opened at the Commercial Bank of Syria. Typically, the bank requires the importer to cover 100 percent of the transaction from his own resources offshore or from funds generated by exports. Syrian importers often use free-of-payment or 180-day-credit facilities clauses. In this case, the importer pays through his offshore bank either cash in advance or via L/C, and the bill of lading is then sent to the Commercial Bank of Syria. Alternatively, an importer may use foreign exchange earned from exports and deposited in the Central Bank of Syria.
Free trade zones have been established in Damascus, Aleppo, Tartus, Latakia, the Damascus international airport and in Adra. Article 6 of Decree 84 of 1972 encourages certain kinds of investments in free trade zones, authorizes the importation of foreign goods to these zones, and permits re-exportation that is not subject to the laws on foreign trade, customs duties or taxes. The Ministry of Economy and Foreign Trade may authorize the establishment of warehouses in a free trade zone.
Up to 20 percent of imports to such warehouses may be granted an exemption from the usual limitations imposed on imports into the Syrian market, provided they do not compete with local industries or with a state-run monopoly. Priority in establishing an operation in a free trade zone is given to industries that use components or raw materials produced in Syria, complement existing industries in Syria, satisfy a local demand or employ a large number of Syrian workers.
A cooperation agreement has existed between Syria and the EU since 1977 that sets preferential tariffs for a wide range of agricultural produce as well as import ceilings for crude oil, petroleum products and cotton fabrics. These ceilings are above normal customs duties applicable to third countries. Syria is also included in the EU plan that allows industrial products to enter the EU market duty free. There are special regulations to the agreement, regarding technical and financial cooperation, which were renewed in 1991 and are now focused on supporting Syrian economic reform measures, especially in private sector development in agriculture, manufacturing, science and technology, as well as external trade.
Syria entered an agreement for Economic and Social Cooperation and Coordination with Lebanon in September 1993, which regulates the general framework of bilateral relations between the two countries in such areas as trade, movement of people and capital, residence, employment and transport. The sale of agricultural products in both countries is conducted by a joint Syrian-Lebanese marketing company. Other later concluded bilateral accords regulate water sharing in the Orontes river, labor relations (addressing the legalization of an estimated 500,000 or more Syrian workers in Lebanon), tourism and cultural relations.
Trade agreements with other countries, especially Arab countries specify products that can be traded in both directions under preferential terms. Such trade is often limited to specific transactions, such as the importation of equipment under a particular contract or tender. No formal trade relations exist with Israel, although illegal trade has become more prominent since the peace process began.
While the political sector is characteristically hesitant and reserved, the existing illegal trade indicates that the private sector seems interested in entering into trade and general business relations with Israel as soon as the political barriers will be removed.
Customs duties can range from 1 percent to over 100 percent on certain items. Law No. 1 of 1980 created a Unified Tax on Imports which ranges from 6 percent for goods exempt from customs, and from 35 percent for goods subject to customs tariff, to more than 100 percent. Machinery and materials imported for new industrial investment, under certain circumstances, may, upon application to and approval from the government, be exempt from import duties.
The customs procedures require that goods imported be accompanied by invoices that list the producer of the goods and their country of origin in Arabic. The invoice must also include an Israeli boycott clause and, in some cases, a health declaration.
Until the 1990s, private sector involvement in industry was limited by a number of regulations. In the past decade, the relaxation of certain restrictions allowed the private sector to import parts, equipment and other industrial inputs. Currently, private sector involvement is significant in the textile, food, leather, paper, and chemicals sectors, while heavy industry remains state-dominated. The Syrian government, however, has started to open up these industries to private-sector investment as the public sector cannot meet rising demand. There are plans to open the country's first privately-run sugar factory, and a private Saudi-Syrian joint venture has plans to open a cement factory.
In agriculture, the private sector dominates approximately two-thirds of cultivable land, with state-farms and cooperatives accounting for the remainder.
Public sector procurement in Syria is regulated by Decrees No. 195 of 1974 and No. 349 of 1980, which set forth regulations governing contracts and tenders for public establishments, companies and enterprises. The decrees impose a number of regulations requiring the buying entity to solicit bids by announcing requirements through the Daily Bulletin of Official Tenders. The announcement of tenders with deadlines of less than forty-five days is not uncommon, however, suggesting that in certain cases, the contest may have already been decided beforehand.
Foreign companies may bid directly or through the use of a duly-registered Syrian agent. Offers, accompanied by a bid bond of 5 percent of the offer value may be submitted. Before an L/C is obtained, the supplier must submit a 10 percent performance bond. The Commercial Bank of Syria requires that all bonds be issued according to the Syrian Official Text.
© 2000 Mena Report (www.menareport.com)
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