The Legal Framework for the Industrial Sector in Syria
Manufacturers intending to establish factories and pursue industrial activities in Syria must first obtain their standard industrial licenses to do so from the Ministry of Industry in accordance with Law 21/1958. They should also consider registering with their respective provincial chamber of industry, which is overseen by the Federation of Syrian Chambers of Industry. Law 21/1958 was issued by President Gamal Abdel-Nasser on April 29, 1958, a few months after the formation of the United Arab Republic comprising Syria and Egypt, against the backdrop of socialist restructurings within Syria’s economy.
Industry was always a main component of the Syrian economy, alongside agriculture, dating back to the post-independence era when it was mainly driven by the private sector. From the 1970s onwards until the beginning of the new millennium, the state was overseeing a national industrialization strategy as evidenced by the multitude of public sector companies in existence by that time. The economic balance between the public and private sectors began to shift once again towards the latter during the first decade of Bashar Al-Assad’s presidency.
In an attempt to further build and develop Syrian manufacturing capabilities which could draw in private sector investment and compete on a global scale, three industrial parks furnished with the necessary infrastructure were constructed in the provinces of Rural Damascus, Aleppo and Homs as mandated by Legislative Decree 57/2004. The main ones set up in accordance with this Law are located in the towns of Adra, Sheikh Najjar and Hassia respectively while a fourth one was built in the province of Deir Ez-Zor in 2007. The construction of the factories was left to the industrialists who had to complete them in their allocated plots within a defined timeframe as required by the terms and conditions of their licenses and building permits.
Before the conflict erupted in 2011, numerous local and foreign investors launched their factories in these industrial parks. Some have already resumed production in Adra and Sheikh Najjar following the return of stability to western Syria. As the war progressed in the early to mid-2010s and the industrial parks were caught up in the clashes, there were ongoing discussions between manufacturers and the government on the subject of constructing a new industrial park in the coastal region to cater for businesses located there. Many of them had relocated to the provinces of Lattakia and Tartous from the industrial powerhouse of war-torn Aleppo for safety reasons and due to the presence of nearby seaports for export purposes.
Certain measures were adopted by the government with the declared aim of mitigating war-related hardships on investors in the industrial parks. Law 6/2015 exempted manufacturers, craftsmen and artisans based in the industrial parks from paying the applicable renewal fees for their building permits. The Law applied to those parties whose permits expired but who intended to renew them, and to those who were unable to complete the construction of their facilities due to the unstable conditions caused by the conflict.
The Board of Commissioners of the Sheikh Najjar Industrial Park in Aleppo presided over by the Governor of Aleppo more recently granted a deadline to manufacturers and freight businesses until March 2021 to obtain building permits for their allocated plots. There are reportedly 660 industrial establishments in the Sheikh Najjar Industrial Park and 4,208 plots as of October 2020, 411 of which were allocated during 2020. Total investment in the Sheikh Najjar Industrial Park amounted to SYP 257.9 billion, of which SYP 19.7 billion was invested in 2020.
Each industrial park is managed independently through its own board of commissioners and provides sizable amounts of land with the required infrastructure for businesses to establish factories, industrial plants, housing for workers and other services. Additionally, there is a one-stop shop that facilitates the licensing process for investors. Moreover, 100% foreign ownership is permitted in the industrial parks in accordance with both the Companies Law provided for in Legislative Decree 29/2011 and the Investment Law provided for in Legislative Decree 8/2007. It is a critical point to mention because there are some legal restrictions on the ability of foreign nationals to own real estate property in their individual capacities, which can be overcome by resorting to the Companies Law and the Investment Law.
The Companies Law provided for in Legislative Decree 29/2011 permits the establishment of certain business entities, the most important of which are joint stock companies, limited liability companies and partnerships. Such entities are firstly licensed by the Ministry of Internal Trade and Consumer Protection, which approves and ratifies their articles of association. It is essential to point out that there are no foreign ownership restrictions to incorporating any one of them. They can be 100% owned by foreign nationals. Companies formed in Syria possess Syrian nationality and can own as much real estate property as they desire in the country regardless of the nationalities of their shareholders. Branches and offices of foreign companies are licensed by the Ministry of Economy and Foreign Trade pursuant to Law 34/2008. Law 34/2008 also regulates commercial agency agreements entered into between foreign businesses and local agents as well as other intermediaries.
The standard industrial license granted in accordance with Law 21/1958 is the basic license issued to industrial businesses while the investment license issued pursuant to the Investment Law provided for in Legislative Decree 8/2007 authorizes exemptions from restrictions contained in other laws and helps to encourage investments in a variety of sectors. It lists the industrial sector as a potential target for both local and foreign investors. The Investment Law moreover sets no limits on foreign ownership, whether in an individual capacity or otherwise, or on the disposal of revenue. Licensed investors are entitled to purchase and rent as much land as necessary even if it exceeds the maximum amount defined in other legislation. However, it must only be utilized for the purposes of the licensed investment. Noteworthy incentives provided to local and foreign investors pursuant to the Investment Law include reduced taxation liabilities; a relaxation of import controls; exemptions from customs duties, tariffs and other fees; and the right to repatriate profits.
The regulatory authority in charge of licensing proposed investment projects in accordance with Legislative Decree 8/2007 is the Syrian Investment Authority, which serves as a one-stop shop where investors can obtain their licensing requirements. The Syrian Investment Authority will usually assess the amount of capital to be invested into the proposed project in order to determine whether to classify it as a venture of strategic economic value worthy of the incentives sanctioned by the Investment Law. After an investment license is obtained, relevant permits must be sought from the Ministry of Industry. Certain administrative permits must also be procured from the relevant provincial authorities.
Another piece of legislation worth noting is Law 32/2007. According to Law 32/2007, foreign investors acting in an individual capacity and who are licensed or will be licensed under the original Law 21/1958 to execute industrial projects are permitted to purchase and rent as much land as is necessary in the industrial parks in order to realize their objectives. However, this Law also stipulates that any Syrian or foreign investor intending to transfer their project to a foreign party must first obtain the permission of the industrial park’s regulatory authority and the Ministry of Industry before doing so and the entire process must not take longer than two years to implement.
Businesspersons investing in the manufacturing sector do not entirely discount opportunities presented by the public sector following the passage of the Public-Private Partnership Law 5/2016. Law 5/2016 lays down the framework for long-term contractual arrangements entered into by governmental entities and private sector parties with the aim of delivering services to the general public. Such contracts are approved by the Public-Private Partnership Council. Given the historic role played by the state in the industrial sector since the 1970s, the government is seeking to offload many of its state-owned enterprises onto interested investors to operate them in order to lessen the financial pressures facing the Public Treasury. Back in 2016 following the passage of the Public-Private Partnership Law, the Ministry of Industry began setting out a plan to rehabilitate its companies and factories that were affected during the war through public-private partnership models. The Ministry of Industry offered up several of its companies for public-private partnership opportunities though not much progress has materialized to date.
Separate from the Investment Law, the industrial sector benefits from tax exemptions granted pursuant to the Income Tax Law provided for in Law 24/2003 and amended by Legislative Decree 51/2006. According to the Income Tax Law, the progressive tax brackets applied to the profits of commercial establishments, excluding corporations, range from 10% to 28%. Companies on the other hand are usually taxed at the single rate of 22%. It is important to also account for other taxes and fees such as the Local Administration Tax and the Reconstruction Tax.
Taxation incentives are however afforded to businesses that operate in the industrial sector. The tax rates mentioned above are reduced further in the following circumstances: one percent less if industrial businesses are established in industrial parks; two percent less if industrial businesses are established in remote areas; one percent less for industrial businesses that recruit at least 25 employees who are formally registered with the General Establishment for Social Security; two percent less for industrial businesses that recruit at least 75 registered employees; and three percent less for industrial businesses that recruit at least 150 registered employees. Upon a recommendation from the Minister of Finance, the Council of Ministers may adopt other deduction criteria for industrial enterprises and may also grant the discounts mentioned above to investors in other sectors.
If the Syrian Investment Authority issues an investment license to an industrial business, the latter may benefit from a progressive taxation regime, which takes into consideration its legal form, the size of the investment project, its location, the number of persons it employees, the exports that it produces and other factors. Consequently, the tax liability of the investors may be significantly low. Moreover, the industrial business shall have the right to import all of its necessary materials, equipment, machinery and production lines without restrictions, and these shall be exempted from customs duties and other fees.
As the industrial sector faced mounting strains induced by the war and the international sanctions regime imposed on Syria, the government announced steps to lighten the heavy load on manufacturers. In this respect, Legislative Decree 10/2020 directly issued by President Bashar Al-Assad on May 13, 2020 exempts raw materials imported for local industries and subjected to a customs duty of one percent, as per the schedule issued by Resolution 377/2014, from the duty itself and other taxes and fees for a period of one year. Furthermore, the President passed Legislative Decree 14/2020 exempting the importation of raw materials utilized for the manufacture of pharmaceutical products from customs duties, taxes and other fees for a period of one year starting from the beginning of August 2020. Such legislative measures built on Law 19/2017, which was enacted earlier and which exempts imported machines and production lines bound for licensed industrial businesses from customs duties and other import fees. It should be noted that the Ministry of Economy and Foreign Trade is responsible for granting import licenses. Traders who import such materials must usually be registered with their respective provincial chamber of commerce, which is overseen by the Federation of Syrian Chambers of Commerce.