Legal Briefing- March 2019

Finance

  • The Damascus Securities Exchange launched its first ever stock market index DLX to measure the performance of its five leading companies, which are Al-Aqeelah Takaful Insurance Co., Al-Baraka Bank – Syria, Cham Bank, Qatar National Bank – Syria and Syria International Islamic Bank.
  • Bahrain’s United Gulf Holding Company purchased approximately 22 million shares in Syria Gulf Bank, thus increasing the bank’s capital.
  • Questions are being asked as to whether Syria International Islamic Bank lent out SYP 135 billion to several companies associated with the same owner who is a current shareholder in the bank when the bank’s share capital is approximately SYP 15 billion and its assets in 2018 amounted to SYP 365 billion. There is speculation that the provision of such a loan would contravene Central Bank Resolution 395/2008 as it violates the permissible loan to capital ratio.
  • An Aleppo MP in the People’s Assembly who is also a leading industrialist called for banks to make use of the large deposits they have to loan out capital to businesses. His argument is that the deposits risk devaluation from sanctions and currency fluctuation and therefore should be used to stimulate markets to increase salaries, production and exports.
  • The Monetary and Credit Council, which governs the operations of the Central Bank, raised interest rates to attract deposits in foreign currencies.
  • The Central Bank issued resolutions to increase the amount of foreign exchange that banks can utilize in an attempt to facilitate the financing of imports.
  • Some criticism is being levelled at both the Central Bank and the Ministry of Internal Trade and Consumer Protection because there are merchants who exploit the Central Bank’s official exchange rate to obtain import financing only to sell their goods at the black market rate. Merchants buy Dollars at the Central Bank rate of SYP 435 per Dollar to import goods which they then sell to Syrian consumers at the black market rate ranging from SYP 550 to SYP 560 per Dollar to significantly increase their margins. The Ministry is being called upon to protect consumers in this respect.
  • A source in the Immigration and Passports Directorate in the Ministry of Interior stated that revenues in 2018 amounted to $2 billion (US) collected within Syria and $900 million (US) collected outside Syria from its various consulates around the world.

Taxation

  • Before the Customs Bill was withdrawn from the People’s Assembly by President Bashar Al-Assad and remitted back to the Council of Ministers to undertake a further review of its provisions, MPs had already begun voting on clusters of articles within the bill. During deliberations, they had given the green light for the provisions concerning the imposition of import and export controls on the trading of goods. They also voted on parts of the bill that would permit the temporary importation of goods into customs warehouses or free zones for a period of one year. The time period would be renewable without the need to pay customs duties and other taxes and fees as long as the goods are re-exported or used to manufacture products that would be exported. Meanwhile, some MPs criticized the number of potential exemptions that the bill allows as they contradict with the recent policy adopted by the government to put an end to pre-existing exemptions granted by Syrian laws in general. Moreover, MPs alluded to the wide set of powers enjoyed by the Director of Customs and whether the new independent Customs Authority should exercise certain powers instead. The activities of the Customs Directorate have come under greater scrutiny and the bill appears to be a policy priority for the government. The withdrawal of the Customs Bill from the People’s Assembly, which was confirmed by an MP, may to be part of a plan to rewrite articles to curb the powers of the Director of Customs and the Minister of Finance especially since the government has adopted a policy to prevent any official from granting exemptions permissible under pre-existing legislation.
  • Merchants have been complaining about the practices utilized recently by the Customs Directorate. Apparently, the customs officials enter a merchant’s premises and request to see a customs declaration for any stock that was imported. If the customs declaration cannot be found because it is located in an area that was formerly a conflict zone, the customs officials may order that the stock be confiscated and an excessive fine levied against the merchant. In recent years, the customs officials have apparently refused to accept customs declarations that are more than two years old as valid with the rationale being that there is very little likelihood that the stock has been sitting there for two years without being commercialized. The practices allegedly adopted by the customs officials are viewed as adopting the stance of presuming guilt until innocence is proven in order to raise revenues, which is frustrating merchants. There are calls for the new Customs Bill to curtail the powers of the customs officials in this respect.
  • According to the Customs Directorate, the number of customs cases under investigation to date amount to approximately 500 whose values are worth around SYP 2.1 billion.
  • The People’s Assembly is studying ways to help local councils increase their revenues by proposing amendments to the Local Finance Law. Taxes and fees could be raised on restaurants, hotels and amusement parks. The current Law was issued in 1938 and was amended several times, most recently in 2007. The Local Administration Committee in the People’s Assembly further proposed imposing a one percent tax on gasoline and a 0.5% tax on diesel as part of deliberations focusing on the Local Finance Law. The move is meant to help improve revenue streams for local councils by giving them the power to levy such taxes.
  • The General Commission for Taxes and Fees is adopting new standards and conditions to classify large and medium-sized taxpayers to reach a more equitable formula that takes into consideration the current economic climate and significant inflation.

Corporate

  • As the bill that would encourage family businesses to convert to joint stock companies reaches its final stages in the drafting process, economists estimate that approximately 80% of all businesses in Syria are family-owned and could stand to benefit from the new legal regime.
  • Kuwait-Syria Holding, which is developing the Park Residences project in the Yaafour suburb outside Damascus, made plans to elect a new board of directors.

Commerce

  • The Minister of Local Administration and the Environment issued a resolution setting out new technical and regulatory conditions for the licensing of malls.
  • As a consequence of the war, the value of Syrian exports dropped by more than $11 billion (US) in a space of seven years.
  • The Ministry of Finance issued Resolution 2390/2019 imposing an attachment order against a number of Kuwaiti and Egyptian investors for alleged export violations concerning goods whose total fines amounted to SYP 1.3 billion. The Kuwaiti businessman in this case chairs a company that is overseeing a real estate development project outside Damascus. Reports now suggest that the attachment order may have been revoked. The following day after the attachment order was levied an expatriate Syrian businessman based in Kuwait who is an investor in Marota City was apparently arrested by Kuwaiti authorities though it is not clear whether he is still reprimanded in custody or whether the two incidents are linked.
  • Following his visit to Damascus, the Iraqi Army Chief-of-Staff provided assurances that the Iraqi border with Syria would reopen soon to trade and visits between citizens of both countries. Technical teams have been assessing the most optimal routes to use as the international highway linking Damascus with Baghdad and Tehran prepares to open.
  • The Ministry of Interior in Jordan has announced plans to reactivate the Syrian-Jordanian Joint Free Zone on the Syrian-Jordanian border, which ceased operations in 2015 after it was overrun by rebels. Although located within Jordanian territory and measuring approximately 6.5 square kilometers, the free zone is governed in accordance with Syrian law. Jordanians comprise 90% of the investors in the free zone while Syrians, Iraqis, Libyans and others make up the rest. The rehabilitation of the free zone will be undertaken by the Syrian-Jordanian Free Zone Company at its own expense. The free zone was established in 1975 in accordance with agreements signed between the Syrian and Jordanian governments. Its operations peaked in 2010 before setting into decline following the outbreak of conflict in Syria. The reactivation of the free zone is a natural next step following the reopening of the Nassib border crossing on the Syrian-Jordanian border in October 2018 after it was shut in 2015 due to rebel activity in the area.
  • The smuggling of gold and high consumption taxes imposed on consumers are exhausting jewelers in Damascus who are finding it difficult to maintain profitable businesses.

Industry

  • The government is proceeding with its new industrial policy that seeks to facilitate operations for factory owners. The objective is to stimulate a return to production of Syrian goods which is essential for exports, improving the status of foreign reserves and filling shortages of quality goods caused by a policy of import controls. The government’s new industrial policy is aimed at complementing its anti-smuggling campaign launched earlier this year in order to support national industries and the local currency. It was after all the import controls that led to the smuggling of goods which in turn affected the value of the local currency. A return to production and exports of Syrian goods is perceived to be a solution to the current economic crisis. As for merchants, they have been criticizing the methods the Customs Directorate has adopted in enforcing the government’s campaign against smuggling. Furthermore, merchants are demanding that the quality of Syrian goods improve if import controls are to continue.
  • A leading businessman incorporated a company to produce cement after securing a license last month from the Syrian Investment Authority to set up a factory for the production of soft drinks and juices.
  • The Syrian Investment Authority licensed the establishment of a factory owned by Lebanese investors to manufacture prefabricated buildings. It will benefit from import facilities and tax and customs exemptions granted by the Investment Law. The project will be implemented within three years and provide 193 job opportunities.
  • The Syrian Investment Authority licensed a project for the production of baby food and powdered milk in the city of Hama in accordance with the Investment Law.

Agriculture

  • The People’s Assembly agreed to merge all public entities concerned with the production of grains into one company. Consolidation within the public sector has been taking place over the course of the last few years.

Energy

  • A fuel shortage in Syria has been brought about by two main contributing factors. The first is an advisory notice issued in November 2018 by the Office of Foreign Assets Control (OFAC) linked to the US Department of the Treasury that sanctions could be imposed on any supplier of oil products to Syria. The second is the cessation of the credit line extended by Iran to Syria. In response, the Syrian government began turning to the private sector to help it fill in the distribution gaps. The Council of Ministers initially formally approved the recommendation of its Economic Committee to permit private sector industrialists linked to the Chambers of Industry to import fuel and diesel into Syria. Consequently, merchants associated with the Chambers of Commerce began demanding that the government grant them the same right to import fuel and diesel as well. On the recommendation of its Economic Committee, the Council of Ministers subsequently gave both private sector industrialists and traders the right to import fuel and diesel for a period of three months. However, the Chairman of the Federation of Syrian Chambers of Industry criticized the terms and conditions set by the Ministry of Petroleum and Mineral Resources for the private sector to import fuel and diesel, explaining that only a handful of merchants would qualify and therefore benefit from them and in turn likened them to the effects of Western sanctions.
  • The decision by OFAC to target any party involved in the shipment of oil products to Syria was a deliberate attempt to stoke a gas shortage crisis for the Syrian population to bear and well timed to coincide with the start of the cold winter season. OFAC updated its advisory notice with respect to the shipment of petroleum destined for Syria and included petroleum of Iranian origin, which falls within the US secondary sanctions regime imposed on Iran. However, the measures as a whole have the effect of attempting to impose secondary sanctions on the oil and gas sector in Syria.
  • As part of the smart card program whereby every family or automobile is allocated a predetermined amount of diesel and petrol at subsidized prices respectively, gas has been added to the initiative alongside both types of fuel.
  • The Economic Committee linked to the Council of Ministers approved the contract signed between the Ministry of Electricity and Iran’s Mapna Group for the construction of a power plant in Lattakia near the October Dam with a capacity to produce 526 megawatts.
  • The Ministry of Electricity is preparing the terms and conditions that will allow for the establishment of power plants that produce electricity from waste and animal waste while negotiating with banks to provide financing to citizens to benefit from renewable energy projects.
  • Following the People’s Assembly’s ratification of the relevant investment agreement, the General Establishment for Chemical Industries has two months to deliver the three fertilizer factories in Homs to the Russian company Stroytransgaz.
  • Syrian, Lebanese and Jordanian investors incorporated an oil services company in Damascus.

Property

  • Al-Baraka Real Estate Development and Investment Co. is working with Hama City Council to undertake a significant real estate development project in Hama province in accordance with the Real Estate Investment Law. The Wadi Al-Joz project is anticipated to be valued at SYP 40 billion and will sit on approximately 30 hectares of land, which will include 2,400 housing units. Due to its size, the project will benefit from incentives and facilities permitted under the Real Estate Investment Law.
  • Construction works have begun on the Yelbagha Complex in Damascus after the decades old stalled project was overtaken by a new investor. Priority will be given to building a luxury hotel.
  • The Governorate of Damascus has received the new zoning plans for the industrial zone of Qaboun, a district of the capital.
  • Damascus Provincial Council terminated Resolution 4 M.D./2018 which implements the provisions of the Real Estate Development Law on the plots located in Region 101 in Marota City. The move was intended to grant owners of these plots an extension of one more year to procure their building permit without incurring fines. When issued last year, the Resolution obliged plot owners in Marota City to procure building permits within one year or start facing annual fines equal to 10% of the property values. The plot owners will now have until the beginning of next year to procure their mandatory building permits without any fines being imposed for the time being.
  • The Engineers Syndicate has approved the design and works structure for one of the towers in Marota City and the building permit was expected to be subsequently issued. It appears that the foundational works for the tower have been completed.
  • Reports emerged that the government is withdrawing two key concessions from Souria Holding including the management of Lattakia Port in favor of an Iranian company towards the end of the year and the Souria Towers project in the Baramkeh district of Damascus.
  • The state-owned Roads and Bridges Co. has begun construction on a project to build 10 residential towers in the Rural Damascus suburb of Dimas for its client the General Housing Establishment and the contract is valued at SYP 4.6 billion.
  • Russian and Iranian companies intend to play a key role in housing and construction projects in Syria. A number of projects are already under consideration in this respect.
  • Lattakia City Council requested residents and returnees whose properties were damaged during the conflict to file requests for compensation.

Tourism

  • Tourists from France, Canada and Switzerland visited the ancient southern Syrian city of Bosra, including its theater and archaeological sites.
  • An expatriate Syrian investor signed an investment agreement with Aleppo City Council to convert a technical services building into a four-star hotel.
  • A building permit was granted to an investor for the development of a tourism complex outside Damascus worth SYP 2.5 billion.
  • The Ministry of Tourism granted a preliminary license for the establishment of a public beach in Lattakia that provides services to visitors in accordance with Ministerial Resolution 653, which prescribes the specifications for public beaches.
  • Three Chinese investors incorporated a tourism company in Syria that is 100% owned by them. Top foreign investors in Syria include Lebanese, Russian, Chinese, Jordanian, Egyptian and Iranian nationals.
  • The Council of Ministers requested the Ministry of Tourism to compile a database of stalled touristic projects that were being executed by the public and private sectors, including those undertaken by foreign investors before the war.

Transport

  • Syrian Arab Airlines resumed flights between Lattakia and Abu Dhabi.
  • Jordanian airliner Fly Jordan resumed using Syrian airspace to fly between Amman and Beirut.
  • Jordanian authorities exempted the owners of Syrian automobiles present in Jordan from certain fees.

Employment

  • The Ministry of Social Affairs and Labour is proposing amendments to 26 articles of the Employment Law 17/2010, one of which would provide for an increase in salaries to employees in the private sector by nine percent every two years.

Education

  • The Ministry of Internal Trade and Consumer Protection ratified the articles of association of Al-Shahba Private University Co. LLC, which shall be headquartered in Aleppo. 70% of the shares in the company are owned by a Bahraini investor while the remaining 30% are held by a Syrian national. The company will own and operate a university according to the regulations laid down in Decree 192/2005. There are 22 private universities currently operating in Syria.

Local Councils

  • Aleppo City Council approved the incorporation of a holding company to manage and invest its assets in accordance with Legislative Decree 19/2015 along the same lines as Damascus Cham Holding although its name is not determined yet. Therefore, real estate development projects in Aleppo along the lines of Marota City are now a possibility.
  • Governor of Damascus Adel Olabi launched a reshuffle of posts within the capital, including the replacement of all mayors except the Mayor of Qaboun. The Governor also appointed a range of new department heads within the provincial authority in Damascus.

Public Sector

  • A former Syrian government official called for abolishing a number of unproductive ministries that only add to the layers of administrative bureaucracy while keeping the essential ones intact. He also called for converting public sector companies into joint stock companies.

Military Affairs

  • President Bashar Al-Assad issued Legislative Decree 4/2019 which raises pension payments to the parents of martyred officers in the Internal Security Forces (one or both of them) so that they are equal to the pension payments paid to the parents of martyred soldiers in the Syrian Arab Army.

Criminal Law

  • Awareness of the Cybercrime Law dating back from 2012 is gaining traction as more citizens engage with social media and start experiencing circumstances and offences that are covered by the Law. At the same time, the judiciary has received extensive training to deal with cybercrimes.
  • The People’s Assembly studied a bill that would increase criminal sanctions against those individuals who encourage children to beg on the streets as such incidents have increased significantly during the war.

International

  • Syrian Speaker of the People’s Assembly Hammoudeh Sabbagh attended an annual Arab inter-parliamentary summit for the first time since 2011, indicating another move that Arab states are preparing to normalize relations with Damascus and a potential precursor to Syria’s eventual return to the Arab League.
  • Syria is refusing to pay financial contributions demanded by the Arab Parliament for the previous years because it was not even invited to attend the annual summits during the years of the war.
  • Restoring Syria’s membership in the Arab League was considered one objective that would have helped make the Arab League summit in Tunisia a success according to a former Tunisian foreign minister. However, an Arab League spokesman beforehand confirmed that the subject of Syria’s return to the Arab League was not even included on the agenda of the Tunis summit.
  • In a meeting between the Foreign Ministers of Russia and the UAE, the UAE was quoted as clarifying that it wants Syria to play its role in the Arab world.
  • Jordanian businessmen and politicians are angered by recent threats from US officials that they run the risk of severe consequences if they consider dealings in Syria.
  • The US State Department initially decided to drop the term “occupied” in its Global Human Rights Report when referring to the Syrian Golan Heights. Rather, it used the terms “Israeli-controlled”. Consequently, US President Donald Trump went ahead and violated international law and UN Security Council Resolution 497 by recognizing Israeli sovereignty over the Golan Heights. While formally rendering the Madrid Peace Process obsolete, the measure may also make legal under US law the alleged exploration for oil in the Golan Heights by US company Genie Energy. The move was also interpreted as an attempt by Trump to help boost Israeli Prime Minister Benjamin Netanyahu’s chances of victory in the parliamentary elections.
  • The EU sanctioned an additional seven Syrian ministers.
  • According to the Syrian Ministry of Foreign and Expatriate Affairs, the US, the UK, France and Germany are not invited to take part in the reconstruction process in Syria.
  • The UK’s hawkish point man on Syria Alistair Burt resigned from the British government over disagreements concerning the Brexit process.
  • A former Lebanese minister expects a new wave of Syrian refugees to migrate overseas as a result of increased Western sanctions imposed against Syria, which continue to affect the economy negatively.