Incorporating a Limited Liability Company in Syria

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. 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 as they desire in the country regardless of the nationalities of their shareholders. Furthermore, a company must be registered in the Commercial Registry of the relevant province in which it is incorporated. The Commercial Registry falls under the authority of the Companies Directorate in the Ministry of Internal Trade and Consumer Protection.

The cost of incorporating a limited liability company (LLC) is less than the amount to incorporate a joint stock company (JSC). One of the main advantages of incorporating a JSC as opposed to an LLC is that on a sale of shares in a JSC, there is no capital gains tax payable unlike in the sale of shares in an LLC where such a tax exists. While an LLC is a company, it is more akin to a limited liability partnership because the owners of the LLC are considered to be partners. In a JSC, the owners of the company are considered to be shareholders in the traditional sense. The LLC is also more preferred because the relationship that will exist between the owners is that of a partnership where all of their input will be valued and their individual participation is essential. Partners in an LLC can be natural or legal persons, such as other companies.

The minimum share capital requirement for an LLC incorporated by two or more partners is SYP 5,000,000 while for a single-member LLC, the minimum share capital requirement is SYP 10,000,000. Upon incorporation, at least 40% of the share capital of the LLC must be paid up and the balance must be settled within one year thereafter or the LLC risks being struck off the Commercial Registry. The share capital is not a charge but rather belongs to the LLC and can be used immediately to cover its expenses.

To incorporate an LLC, some of the relevant documents must be notarized. If all the documents that require notarization are issued and notarized in Syria – e.g., if the founding partners of the LLC are natural persons who can travel to Syria to issue a power of attorney to a lawyer in the presence of a Syrian notary public – then the timescale for registering the LLC should be between four to seven weeks. Such an estimated time period is based on the presumption that the founding partners will agree the provisions of the corporate bylaws, such as the memorandum of association, the articles of association, etc. within an immediate timeframe.

However, if at least one of the documents – such as the power of attorney to the relevant lawyer – that need to be notarized is issued outside Syria, the founding partners will require some time to have it certified by the relevant Syrian consulate abroad. The process is initiated by having the document notarized by a notary public abroad and then legalized by the Foreign Ministry of the country where it has been notarized. Afterwards, it must be attested by the Syrian consulate in that country. Once this three-step process has been completed, the documents will need to obtain clearance from the Syrian security authorities. The security authorities may grant or decline their approval. Presuming that the security clearance is granted, the process usually requires a time period between one to three months from the date the documents arrive in Syria. From the date the security authorities grant their approval, the LLC requires between four to seven weeks to be incorporated.

The following documents and steps are required to complete the registration of an LLC:

1. Power of Attorney (PoA) to the lawyer to act on behalf of the partners in incorporating the LLC and opening a bank account, etc. The PoA can be drafted in any language but it will have to be translated into Arabic when it arrives in Syria. Since most translators in Syria only translate from English or French, the PoA should preferably be in Arabic, English or French. It must also be notarized.
   1. If the PoA is notarized in Syria (in the event the individuals signing it travel to Syria in person), it can be used immediately.
   2. If the PoA is signed and notarized abroad, it cannot be used in Syria unless it is attested by the relevant Syrian consulate and then subsequently approved by the Syrian security authorities. The process is initiated by having the PoA notarized by a notary public abroad and then legalized by the Foreign Ministry of the country where it has been notarized. Afterwards, it must be attested by the Syrian consulate in that country. If the Syrian consulate in the concerned country is not operational, the PoA will need to be attested in a country nearby where a Syrian consulate is operational and competent to certify the PoA – e.g., the Syrian consulate in Tokyo, Japan is the one competent to certify documents issued in South Korea, the Syrian consulate in Havana, Cuba is the one competent to certify documents issued in Canada, etc. Once the PoA has been attested by the consulate and it reaches Syria, it will need one to three months to obtain security clearance from the authorities. As part of the security clearance procedures, the authorities may or may not ask the concerned individuals follow-up questions.
2. If a prospective partner in an LLC is a natural person, they will need to supply copies of their passports. The copies do not require any certification and scanned copies sent by e-mail should be sufficient.
3. If a prospective partner in an LLC is a legal person such as a company, the required corporate documents that must be supplied include the Certificate of Incorporation, the Memorandum and Articles of Association, and the Resolution of the Board of Directors granting the company the authority to participate in the incorporation of an LLC in Syria. The relevant documents must be certified accordingly. If these documents are issued abroad, they will need to be legalized by the Foreign Ministry of the country where the company is incorporated. They will then need to be attested by the Syrian consulate as explained above before being sent to Syria to be approved by the security authorities.
4. The names of the father and mother of the individuals who will be appointed as directors or managers of the LLC will need to be supplied. The parents’ names are necessary in order to obtain a clean judicial record for the directors or managers to confirm that they have no criminal convictions, which is a requirement to finalize the incorporation of the LLC.

When all the documents have been prepared and approved by the security authorities where appropriate, the relevant lawyer will use the PoA to open a bank account for the company, lease an office for the company, register the company with the General Commission for Taxes and Fees, pay the share capital, register the company with the Commercial Registry and carry out other related procedures.

LLCs may be governed by managers or alternatively by a board of directors. The minimum number of managers or directors is one person and their number shall not exceed five persons. Nevertheless, should the number of partners increase to more than 25, the number of managers or directors may also be increased to seven persons. Directors can be of any nationality because they do not require work permits. The director does not have to be resident in Syria but must make sure to fulfill his or her legal responsibilities and duties towards the LLC.

As for the general manager, a work permit will need to be obtained and renewed annually if he or she is a foreign national. The formalities in this case may be complex and lengthy. If the manager is a foreign national, he or she needs to be present in Syria for long periods of time as a requirement of his or her work permit. Under these circumstances, it may be preferable to appoint a Syrian national as a general manager.

As a precondition of incorporating an LLC, the company needs to lease or own an office classified as a real estate unit for commercial purposes. It can be as small as a one-room office. The lease should be maintained for as long as the LLC exists.

At the end of the LLC’s fiscal year, its financial statements must be audited and certified by a chartered accountant registered with the Chartered Accountants Association. The company is obliged to appoint an auditor and to renew his or her appointment on an annual basis. The auditor will submit the audited accounts to the General Commission for Taxes and Fees every year.

While the corporation tax for LLCs is fixed at 22%, it is important to also account for other taxes and fees such as the Local Administration Tax and the Reconstruction Tax. The fixed 22% rate includes all contributions but excludes these two specific taxes. In total, the amount the LLC may pay in taxes reaches approximately 30% of profits per year depending on which license it obtains and under what conditions. It must also be borne in mind that other fees such as customs duties, import tariffs and so forth may be applicable depending on the nature of the business. However, there are exemptions and benefits that may be availed depending on the type of the investment, especially those businesses involved in the industrial sector.

It should be noted that only Syrian companies licensed to offer insurance services have the right to insure against risks arising out of activities in Syria. Moreover, companies operating in Syria are only permitted to insure their employees with insurance companies licensed in Syria.