Further Change of Policy in Free Zo
Further Change of Policy in Free Zones:Oil Refineries Allowed Once More to Benefit from Presence But Not Tax Exemptions
Law No. 133 of 2010 for the Authorization for Petroleum Refinery Projects to Work Under the Free Zones System (published in The Official Journal on June 19th, 2010) partially reverses the effects of a previous Law issued in 2008 (Law No. 5 of 2008) which excluded certain oil and high-energy-consuming industries from benefiting from the Free Zones status.
Under the Investment Law No. 8 of 1997 (which also deals with Free Zones), projects licensed as free zones projects are exempted from payment of tax duties as well as taxes for the duration of the project. This was the case until the passing, in May 2008, of Law No. 5 of 2008, which excluded oil refinery projects as well as industries that are high energy consumers from benefiting from those exemptions. The reaction of the investment community and of international business to Law No. 5 was extremely negative as it affected already existing and licensed projects, and therefore was deemed to be of a retroactive nature, and detrimental to the predictability of the business environment.
Thus a partial reversal of that policy was intended to be achieved through the issuance of the new Law 133 of 2010. This allows oil refinery projects once more to be licensed - or to continue to operate - as Free Zones, but on condition that they pay taxes, but no import duties.
The effect of the new Law will not be positive. It fails to redress the issue of predictability of law changes, and it only partially allows oil refineries to go back to their original positions, as it exempts from import duties but not taxation. Moreover, it does not address the fate of energy consuming industries that continue to have their licenses as Free Zones projects in doubt. It is a partial solution that does not address the issue of credibility, and fails to provide a clear direction.
Law No. 133 of 2010 for the Authorization for Petroleum Refinery Projects to Work Under the Free Zones System (published in The Official Journal on June 19th, 2010) partially reverses the effects of a previous Law issued in 2008 (Law No. 5 of 2008) which excluded certain oil and high-energy-consuming industries from benefiting from the Free Zones status.
Under the Investment Law No. 8 of 1997 (which also deals with Free Zones), projects licensed as free zones projects are exempted from payment of tax duties as well as taxes for the duration of the project. This was the case until the passing, in May 2008, of Law No. 5 of 2008, which excluded oil refinery projects as well as industries that are high energy consumers from benefiting from those exemptions. The reaction of the investment community and of international business to Law No. 5 was extremely negative as it affected already existing and licensed projects, and therefore was deemed to be of a retroactive nature, and detrimental to the predictability of the business environment.
Thus a partial reversal of that policy was intended to be achieved through the issuance of the new Law 133 of 2010. This allows oil refinery projects once more to be licensed - or to continue to operate - as Free Zones, but on condition that they pay taxes, but no import duties.
The effect of the new Law will not be positive. It fails to redress the issue of predictability of law changes, and it only partially allows oil refineries to go back to their original positions, as it exempts from import duties but not taxation. Moreover, it does not address the fate of energy consuming industries that continue to have their licenses as Free Zones projects in doubt. It is a partial solution that does not address the issue of credibility, and fails to provide a clear direction.