LIBYA Law and Practice Contributed by: Salaheddin El Busefi, Heba Gedwar and Mahmud Zahaf, Zahaf & Partners
companies with several common entities under a group or partnership, the tax authority may accept consolidated accounts. In such instanc - es, tax consolidation may be considered where it can be demonstrated that the ultimate benefi - ciaries of the entities are the same. 5.5 Thin Capitalisation Rules and Other Limitations Thin capitalisation is not an active practice in Libya’s financial and tax system, therefore no thin capitalisation rules apply per se. This is probably due to the fact that interest is not con - sidered tax-deductible and the fact that usuri - ous transactions, including charging interest, are actually prohibited under the law. 5.6 Transfer Pricing Libya does not currently have specific transfer pricing laws. However, the existing tax legisla - tion contains anti-evasion provisions that may be applied in cases where transactions between related parties involve pricing that deviates from market norms. If such pricing results in a lower taxable income, the Libyan Tax Authority may treat the conduct as an attempt to evade tax, particularly where there is evidence that the pricing was structured to reduce the tax bur - den. Although there is no formal transfer pricing regime or documentation requirement, trans - actions must still reflect their true economic substance. Therefore, related-party dealings, especially cross-border transactions, should be priced in a manner consistent with market rates to mitigate the risk of reassessment or penalties. 5.7 Anti-Evasion Rules Libyan tax law comprises anti-evasion rules that focus on tax declaration compliance and the accurate submission of information, accounts and records to determine attempts to hide any amounts that would be subject to taxation.
The Libyan Tax Authority has a Tax Evasion Department tasked exclusively with implement - ing the full effect of the law as it relates to the investigation and recovery of taxable income. Furthermore, Libyan tax legislation grants the Libyan state a strong and enduring right to claim taxes that are legally due. Specifically, the law provides that the state’s right to recover taxes does not lapse with the passage of time, even in cases where a statute of limitations would nor - mally apply. This means that if a taxpayer has failed to disclose income or has underreported tax obligations, the Tax Authority retains the right to pursue the recovery of such amounts, regard - less of how much time has passed. 5.8 Tariffs Since Libya is not a manufacturing nation and relies heavily on imports, applied tariffs are relatively low. The country’s customs authority applies low-based duties across the vast major - ity of imported goods, with a large selection of goods, particularly certain foodstuffs, benefit - ting from complete exemptions. However, cer - tain categories of goods, such as exotic animals and birds, attract high tariffs. For health reasons, products like cigarettes and other tobacco prod - ucts also carry premium tariffs. As an import-reliant nation, Libya does not have a focused reciprocal tariff regime with other countries. However, with the recent global developments that we have witnessed lately with US trade tariffs, Libyan exports to the USA faced a 31% imposed tariff with a reciprocal 61% tariff imposed on US imports into Libya. While quite high, these tariffs will unlikely have a direct impact on Libya, which is not a major trading partner with the USA. However, there is potential for indirect repercussions, particularly for regional partners in Europe and the Mid -
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