Investing in the Supply Chain : Requirements
and Expectations of International Investors
from a Legal and Business Perspective
Rindala Beydoun- Managing Partner
Tribonian Law Advisors
Dubai-Beirut-Riyadh
Introduction
• Open economies with skilled workforces and
good growth prospects tend to attract larger
amounts of foreign direct investment than closed,
highly regulated economies
• Foreign investors favor jurisdictions with
economic and political stability, ease of entry into
the market, attractive tax system, no restrictions
on repatriation of funds, low corruption,
availability of finance and efficient dispute
settlement mechanisms
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
2
Risk Factors
– Foreigner investors aim to limit, as much as possible, their risks
and seek to mitigate them contractually
– Common risks include:
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Political instability
Economic slowdown
Changes in law
Adverse changes in tax regulations
Legal risks (enforceability, cross jurisdiction issues etc.)
Force Majeure (such as earthquakes, floods, etc.)
– Such risks may have a material adverse effect on the value,
trading or financial position or profits of the foreign investor
– However, they can be mitigated by shifting them contractually
to the local government or local party
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Ease of Entry
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Foreign investors look for limited restrictions on their entry into the market
Ease of setting up
– Minimum incorporation costs:
• In Lebanon, approximately USD 2,000, this varies depending on the company's capital
– Low minimum capital requirements:
• In Lebanon, S.A.L., holding company, offshore company USD 20,000; S.A.R.L. USD 3,333
– Ease and speed of obtaining relevant trading license:
• In Lebanon, incorporation of a company can be accomplished in 24 hrs
– Ability to invest/conduct business through a branch or representative office:
• In Lebanon, no minimum capital requirements for both; representative office is restricted
to promotion of head office’s services
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Foreign ownership restrictions will dictate an investor’s appetite to invest in a
foreign jurisdiction
– Is there a requirement for ‘local’ shareholders to have a minimum shareholding?
• In Lebanon, there are no such requirements and foreigners have the right to form
companies and even to participate in public tenders without the need for a local partner
(except for commercial representation activities)
– Are there free-zones?
– Do sector-specific exemptions exist? Limited “negative lists”
• Restrictions on foreign investment in Lebanon are very few, with all sectors open to
foreign investors with the exception of weapons, media and to a certain extent, real
estate ownership
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Workforce
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Foreign investors are more likely to invest in countries with skilled workforce and
minimal labor restrictions
Local talented/skilled workers
– Attractive to foreign investors as it avoids the need to employ expensive skilled workers
from abroad
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Requirement to employ ‘national’ employees
– Certain jurisdictions have local laws requiring the percentage of the overall workforce to
include a minimum number of nationals (this is done to encourage the employment of
nationals in the private sector)
• There are no such requirements in Lebanon. However, a draft law is currently being
discussed in the Lebanese Parliament in relation to the oil and gas industry and it
remains to be seen whether it will include such a provision
•
Cost of labor
– Visa requirements for expatriates
• In Lebanon, naturally there are visa requirements for all foreign employees (except
for Syrian employees). However, a draft law is currently being discussed in order to
facilitate the visa procedure in the oil and gas sector
– Average wage for both skilled and unskilled labor
– Minimum wage requirements
• In Lebanon, all employees benefit from minimum wage requirement. However,
according to a draft law currently being discussed, the employees in the oil and gas
sector will be subject to a higher minimum wage requirement
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Workforce (continued)
• Unions
– Existence of labor unions (e.g. General Confederation of Lebanese Workers)
– Strength of labor unions (e.g. in Lebanon labor unions do not enjoy much power)
• Employment at will
– Freedom to employ and terminate employment for no cause
• In Lebanon, employers may terminate an employment contract with notice period and 212 months compensation if no cause or for no compensation if cause (cause is defined
broadly to include competence and performance, although employees terminated for
such cause may complain at the Labor Ministry)
• National Security Fund
• In Lebanon, employers are required to register in the National Social Security Fund (NSSF)
all their Lebanese and foreign employees and pay the relevant monthly contributions
(being 23.5% of monthly salary) to NSSF to cover their employees’ family and medical
allowances and end of service gratuities. As far as foreigners are concerned, they are
entitled to social security benefits, provided their countries of origin offer equal
treatment to Lebanese workers
Dec 3 and 4, 2012
Lebanon International Oil and Gas Summit
(LIOG 2012)
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Repatriation of Funds
• Ease of returning profits to home jurisdiction
– Common for foreign investors to send a portion of profits made abroad back to their
home jurisdictions
– A number of jurisdictions have restrictions on or regulations governing the repatriation
of funds
– Repatriation may have tax implications in one or both countries; foreign investors hope
for zero or minimal tax
• In Lebanon, no restrictions or tax implications exist regarding the repatriation of
funds
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Availability of Finance
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Foreign investors consider the ease and cost of borrowing from international
organizations and/or local banks
International organizations that provide financing/insurance to foreign
investors include:
– International Finance Corporation (IFC) promotes private sector investment in
developing countries through loans and equity financing without government
guarantees
– Overseas Private Investment Corporation (OPIC): a US government agency that helps
companies investing overseas analyze and manage risks and promotes development in
emerging markets, supports projects, offers political risk insurance for investors as
protection from expropriation risks, political violence and other country risks
•
Local banks are another source of finance:
– Foreign investors consider the attitude of local banks when it comes to providing
financing, whether they adopt conservative or liberal policy as well as bank secrecy
regulations
• In Lebanon, the criteria used by local banks to provide financing depends on various
factors including the investor’s nationality, the investment sector etc.
• Lebanon has strict bank secrecy regulations
Dec 3 and 4, 2012
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Bilateral Investment Treaties
• Objective
– A bilateral investment treaty (BIT) is an agreement between two countries that governs
the terms upon which foreign direct investment is made by nationals or companies of
one country in the other country
– BITs are crucial for any foreign investor as they ensure fair and equitable treatment on a
non-discriminatory basis, and full protection and security of foreign investments in both
countries
– There are currently more than 2500 BITs in place worldwide
• Guarantees
– BITs provide contracting states with a number of key guarantees, including:
• Fair and equitable treatment
• Protection from expropriation
• Free transfer of funds
• Protection and security of investment
– BITs also allow for recourse for a foreign investor by way of international arbitration
• Lebanon has entered into more than 53 bilateral Agreements for the Promotion and
Protection of Investments. The oil and gas sector is generally included in said
agreements
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Tax Regime
• Favorable Tax Regime
– A favorable tax regime attracts foreign direct investment
– Highlights of favorable tax regimes include:
• Zero/low corporate tax
• In Lebanon, taxable income of non-residents is at 15% of total revenues
generated in Lebanon
• Zero/low withholding tax
• In Lebanon, corporations and limited liability companies are subject to a
withholding tax at the flat rate of 10%
• Zero/low capital gains:
• In Lebanon, capital gains arising from the disposition of immovable assets are
taxed at a rate of 10%
• Zero/low tax on profits from sale of shares, bonds etc.
• Lebanese Joint Stock Companies (S.A.L) are exempted from tax on profits
relating to sale of shares
• A draft law is currently being discussed in order to promote foreign
investments in the oil and gas industry by granting certain tax exemptions to
foreign investors
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
10
Tax Regime (Continued)
• Double Taxation Treaties
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Tax treaties entered into between two nations facilitate trading across borders and
foster and encourage international business
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Tax treaties promote the exchange of goods and services, the inflow of capital and
technology by avoiding double taxation
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Tax treaties aim to prevent fiscal evasion through administrative assistance between the
contracting parties
• The Lebanese double taxation treaty network is one of the widest in the Middle East
region with more than 30 treaties
Dec 3 and 4, 2012
Lebanon International Oil and Gas Summit
(LIOG 2012)
11
Anti-Corruption/Bribery
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Foreign investors are subject to anti-corruption/bribery regulations in their
home jurisdiction aimed at combatting international bribery, e.g.:
– United States Foreign Corrupt Practices Act (FCPA)
– U.K. Bribery Act (UKBA)
– E.U. Anti-Corruption Conventions
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FCPA
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UKBA
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Prohibits the making of payment or a gift (or an offer) of money or anything of value, directly
or indirectly, to any foreign governmental official, to any foreign political party or candidate
Penalties include fines ranging from USD 10,000 to USD 25,000,000 and/or prison terms
The UKBA applies to public and private sector functions, prohibiting the offering of a bribe to
any private person or foreign public official
Penalties include fines (unlimited) and prison terms of up to 10 years
E.U. Anti-Corruption Conventions
– The Criminal Law Convention on Corruption is aimed at coordinating the criminalization of
active and passive bribery of domestic and foreign public officials as well as active and passive
bribery in the private sector
– The Civil Law Convention on Corruption is designed to ensure that effective remedies and
compensation are provided for in E.U. members’ national laws for those who suffer damages
as a result of corruption
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Legal System/Dispute
Settlement Mechanisms
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Choice of law and forum
– In many circumstances when contracting with government or quasi-government entity,
foreign investors have no choice but to have the local law as governing law
– Investors consider how developed and efficient the legal system is in the relevant
jurisdiction
– Does law/legal system work to protect foreign investor rights?
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Enforceability of Foreign Judgments
– Refer to local courts enforcing final judgments made by foreign jurisdictions:
• In Lebanon (i) according to the Lebanese Code of Civil Procedure, foreign
judgments are enforceable provided that certain standard conditions are
fulfilled; and (ii) Lebanon has entered into several treaties/conventions to
facilitate the enforceability of foreign judgments provided that said judgments
dot not contravene the public order/policy
– Certain jurisdictions may refuse to enforce foreign judgments when a government or
quasi-government entity is involved in the dispute
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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Legal System/Dispute Settlement
Mechanisms (Continued)
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Enforceability of Foreign Arbitral Awards
– The New York Convention requires courts of contracting states to give effect and to
recognize and enforce arbitral awards made in other contracting states
– Foreign investors consider whether the relevant jurisdiction in which they are investing
is a party to the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards
• Lebanon is one of the many states to have adopted the New York Convention
Dec 3 and 4, 2012
Lebanon International Oil and Gas Summit
(LIOG 2012)
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Tribonian Law Advisors
Contact Details
RIYADH OFFICE
Capricorn Tower
Level 6
Sheikh Zayed Road
P.O. Box 72545
Dubai, UAE
Tel: +971 4 381 2000
Fax: +971 4 351 7746
Altakhassusy Street
across Prince Sultan Street
Alhakbany Buildings
Building No 5, 1st Floor
P.O. Box 67677
Riyadh, Saudi Arabia
Tel: +966 1 482 3733
Fax: +966 1 4811042
BEIRUT OFFICE
Starco Bldg, Block B
11th Floor
Omar Daouk Street
P.O. Box 14-6137
Mina Al Hosn
Beirut, Lebanon
Tel: +961 1 376 016
Fax: +961 1 376 018
PARTNERS CONTACTS
Rindala Beydoun
Managing Partner
T: +961 70 847 487
E: rbeydoun@t-lawadvisors.com
Carlo Pianese
Partner
T:+971 56 603 4543
E: cpianese@t-lawadvisors.com
Emile Boulos
Partner
T: +971 50 621 9590
E: eboulos@t-lawadvisors.com
Mothanna El-Gasseer
Managing Partner, Riyadh Office
T:+966 50 628 6942
E: melgasseer@t-lawadvisors.com
4-5 Dec 2013
Lebanon International Oil and Gas Summit
(LIOG 2013)
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