Legal Briefing – July 2018

Investments

• The Syrian government has published its latest draft of the new Investment Bill. It is expected to be a major piece of legislation that will regulate and encourage local and foreign investments in the country as reconstruction kicks off in the upcoming phase. While the form of the Bill does not differ substantially from its predecessors, it is distinguishable on the grounds that it accommodates the present circumstances where the priority will be reconstruction. In doing so, the Bill provides for a new system of tax incentives to encourage investors to undertake projects. Previous Investment Laws in Syria have included Law 103/1952, Law 10/1991 and the current one contained in Legislative Decree 8/2007.
• A three-day investment conference bringing together 270 businesspersons from 23 countries including Lebanon, US, Sweden, Germany, Cyprus, Greece, Egypt, China, Brazil, Russia, Belarus and Iran to explore investment opportunities on offer in Syria was opened by Prime Minister Imad Khamis in Damascus. The business delegation from Lebanon was the largest. The Syrian Investment Authority, which hosted the conference, presented projects worth €5 billion to the potential investors who can benefit from the incentives and tax exemptions provided for in the Investment Law.
• The relevant Syrian authorities are in contact with Gulf companies who have pre-existing real estate development and investment contracts in Syria that predate the war. Investors such as UAE-based Majid Al-Futtaim Properties have not yet confirmed when they will resume work on the Khams Shamat mega tourism project in Sabboura, just outside of Damascus.
• Prime Minister Imad Khamis indirectly issued warnings to the parties in charge of suspended projects in the public and private sectors that the government will take action if work is not resumed. The Syria Towers and the Mövenpick Hotel projects were mentioned as examples.

Reconstruction

• President Bashar Al-Assad told an audience of diplomats that after all the parts of the country are reunited, reconstruction will run in parallel with a new program of legislative reform that will witness the modernization of laws and regulations.
• China will distribute around $91 million to Syria, Jordan, Lebanon and Yemen as part of an aid package allocated to Arab states. During the war, China extended humanitarian, medical and economic support to Syria. The Chinese government further stated that it will participate in the reconstruction phase in Syria without any preconditions once the war has formally ended.
• According to China’s Special Envoy to Syria, China is very interested in the reconstruction phase in Syria after the war is over and will encourage Chinese companies to participate in this process.
• The Economic Committee linked to the Council of Ministers approved the incorporation of a joint Syrian-Malaysian company to undertake activities pertaining to sewage treatment. As such, Malaysia has become the most recent country to invest in Syria and participate in the reconstruction process.
• President Bashar Al-Assad said that the main discussion between the Syrian and Russian governments at the moment is how to deliver more humanitarian assistance in order to help accelerate the return of refugees back to Syria.

Construction

• Contractors in Syria have faced several complex circumstances since the conflict broke out back in 2011. Massive inflation and the devaluation of the Syrian Pound meant that the cost of construction materials, labour and so forth became a burden on contractors. In the case of public contracts, contractors have since sought to benefit from measures by the government to obtain compensation for the differences in prices caused by inflation. However, this has not been the case for all contractors, especially where projects of national importance are involved. Private sector contractors have also been complaining that public contracts are being awarded mainly to public sector companies and they can only marginally benefit from them by being appointed as subcontractors. Such a situation cannot be regarded as surprising since the government may be expected to task its public sector companies with laying the groundwork for reconstruction projects when the financing originates from the Public Treasury. Moreover, the Director of the state-owned General Housing Establishment doubted the capabilities of the private sector in meeting the demands for reconstruction while suggesting that the public sector is resourceful and experienced at handling the projects that are anticipated to come online. In any case, the Construction Contractors Union is being called upon to address these matters and alleviate the difficulties faced by contractors.
• With respect to public contracts, the Minister of Public Works and Housing revealed that there is approximately SYP 271 billion worth of compensation payable to publicly-owned construction companies to make up for price differences brought about by the devaluation of the Syrian Pound.

Property

• Syria’s government has commissioned the Ministry of Public Works and Housing to prepare new zoning criteria for the Damascus districts of Jobar, Barzeh, Qaboun and Yarmouk. With respect to Yarmouk, different considerations will apply as it has a special status. It was designated as a district catering to the needs of Palestinian refugees in 1957.
• The Governorate of Damascus has completed the zoning of Basilia City, the second urban renewal development to be announced in the capital after Marota City. Basilia City was originally sanctioned by Legislative Decree 66/2012 but now comes under the jurisdiction of the Urban Renewal Law 10/2018.
• In a letter to Prime Minister Imad Khamis, the Chairman of the Damascus Chamber of Commerce warned about the potential consequences of converting the industrial zone of Qaboun, a district in Damascus, into a residential area, which will also have an environmental impact.
• The Russian company Stroy Export Middle East has proposed undertaking housing projects in suburbs of Rural Damascus in a joint venture alongside the state-owned General Housing Establishment.
• A new Real Estate Development Bill is expected soon. The Bill will replace the current Real Estate Investment Law 15/2008, which was enacted 10 years ago. The new Bill takes into consideration the emphasis placed on the real estate sector as reconstruction begins to move forward. The Bill includes provisions distinguishing the circumstances affecting ownership of land by the state in relation to ownership by a real estate development company. The Bill also details under what strict conditions expropriation, if any, can take place.
• The Ministry of Tourism and the Ministry of Religious Endowments are looking to decide the fate of the unfinished Yelbagha Complex project where construction work has been suspended for several years. The landmark project is located in the city centre of Damascus. Both Ministries are prepared to offer the Yelbagha Complex project to any interested investor or investors on a build-operate-transfer (BOT) basis for a period of 48 years in return for a SYP 9 billion investment.
• Real estate sales in four districts in Damascus have been temporarily suspended due to technical difficulties preventing relevant officials from the Directorate of Finance in Damascus from reaching them.
• There are reportedly more than 100 registered sales of real estate properties per day in the capital Damascus.
• There have been approximately 9,000 lease contracts concluded in Damascus in the past five months.
• The Governorate of Damascus has removed approximately 850 informal structures this year that were constructed in violation of planning regulations. The authorities had postponed dealing with this issue since 2012 but are now enforcing building regulations in Damascus. Furthermore, the Governorate raised the fines for building violations.

Commerce

• The Syrian government retook control of the Nassib border crossing with Jordan, which will facilitate exports of Syrian and Lebanese goods particularly to the Gulf countries by land routes. The Customs Directorate prepared to dispatch a team of its employees to the Syrian-Jordanian border crossing at Nassib, which is expected to re-open soon. The Nassib border crossing is an essential trading route between the Levantine and Gulf countries.
• Lebanese manufacturers and farmers are expected to benefit significantly from the opening of the Nassib border crossing. According to Lebanese Caretaker Minister of Economy and Trade Raed Khoury, Lebanon should seek an agreement with Syria that would allow Lebanese exporters to reach wider markets in the Middle East via the Syrian-Jordanian border crossing at Nassib. The Minister said it was important for Lebanese merchants to re-export their products through Syria while describing the Nassib border crossing as the “vital artery” of the Lebanese economy after Lebanese exports fell 35 percent since the Syrian war erupted.
• Jordanian officials stressed the readiness of the transport sector in their country to resume trading with Syria immediately after the re-opening of the Nassib border crossing, which was described as a major economic artery for Jordan. It has been suggested that the trading of goods in the Syrian-Jordanian free zone at the Nassib border crossing could be resumed soon.
• The Four Seasons Hotel in Damascus is expected to give Lebanese food and beverage and retail companies an opportunity to tap into the Syrian market as economic woes at home pose challenges. The new management at the Hotel, which took over this year, is set to sign new contracts.
• There was confusion and controversy in the Ministry of Internal Trade and Consumer Protection as a decision to initially ban the sale of secondhand clothing was reversed. The importation of secondhand clothing was ceased in 2011 to offer a boost to local industries as an economic crisis set in when unrest erupted in Syria. Reports allege that secondhand clothing was being smuggled into the country and was unhygienic. The Ministry took the view that an outright ban would nevertheless have detrimental effects on citizens so it reversed the decision to ban the sale of secondhand clothing.
• The Directorate of Supply in the Ministry of Internal Trade and Consumer Protection confiscated US-made goods in a Damascus market that were smuggled into the country in violation of import regulations. US sanctions also prohibit exports to Syria except for food and medicine.
• In the space of six months, the Directorate of Economy and Foreign Trade in Lattakia granted 1,300 import licenses worth more than SYP 150 billion.
• Damascus has been ranked as one of the most inexpensive cities in terms of cost of living in 2018. Given that the city has been secured militarily since May, many expatriates are expected to return home where services are running and supplies are available.
• Work is ongoing to automate the Commercial Registry in Syria to turn it into an electronic platform, which should help streamline corporate registrations as reconstruction gets underway.

Industry

• According to industrialists, the industrial sector would benefit from a reduction in the prices of electricity, a greater provision of labourers and tax relief.
• Pressure is being applied on the Ministry of Industry not to revoke the licenses of companies who have ceased production for the past 20 years.
• It was reported that more than 2,000 factories have resumed production in Aleppo.

Finance

• In accordance with the Loan Guarantee Law 12/2016, the Ministry of Internal Trade and Consumer Protection ratified the articles of association of the Loan Guarantee Corporation (LGC). 16 banks contributed to the share capital of the LGC and became shareholders. Headquartered in Damascus with a capital of SYP 5 billion, the LGC takes the form of a private joint stock company that does not offer its shares to the public. The Central Bank and certain financial institutions can contribute to its capital but foreign shareholders are limited to a 49% shareholding. The LGC’s main objective will be to guarantee loans by banks and other financial institutions to small and medium-sized enterprises (SMEs). By guaranteeing loans to SMEs, the LGC will seek to bolster their position in the economy. Furthermore, it is expected to give banks and other financial institutions a certain degree of confidence to lend money to SMEs. The LGC is permitted to invest its surplus funds at a value of no more than 25% of its capital in low-risk financial investments.
• Statistics are showing that Syrians deposited funds in banks in Lebanon that amounted to more than double what they have deposited in Syrian banks.
• Syrians heading north to Idlib from former rebel enclaves in southern Syria took with them Syrian Pounds, which is helping to challenge the illegal use of the Turkish Lira and US Dollars in sales transactions in northern Syria.
• A study is being carried out with respect to increasing the minimum share capital of money transfer companies in Syria.
• The government has already initiated work on preparing the national budget for 2019.

Taxation

• The Real Estate Sales Tax Bill, which will soon be referred to the People’s Assembly for deliberations, will impose a one percent tax on property sales utilizing actual real estate market valuations as opposed to outdated rates. The valuations are being determined by special committees with help from the Central Bank. The current Law imposes a 25% sales tax on valuations dating from 1985 and earlier and a 15% sales tax on valuations dating from 1986. According to local real estate brokers, the issuance of the new Real Estate Sales Tax Bill will lead to an increase in property prices but this assertion is the subject of debate.
• More controls and an administrative restructuring process are anticipated as the new Customs Bill is released for final approval. The Bill will regulate the import, export and transit of goods while attempting to combat smuggling operations as well as protecting the rights of the Public Treasury and the economy in general. The Bill anticipates an administrative restructuring of the customs system including converting the Customs Directorate from a department within the Ministry of Finance to an independent public body with its own Board of Directors. If approved, the Bill will also restrict inspections of persons and homes unless permission is granted by the Public Prosecutor or an obvious crime has been committed.
• The government is levying a tariff on ceramic imports from Arab countries into Syria. The tariff will be valued at SYP 700 per square meter.
• The Ministry of Finance instructed goldsmiths and jewelers in Damascus, Aleppo and Hama to raise the value of their sales taxes from 2.5% to 5.75% for each gram of gold sold to account for other taxes and fees such as the reconstruction tax. The move was met with reservations as it will impact the profits that artisans and workers earn as well.
• Members of Damascus Provincial Council are calling for tax relief on behalf of merchants.

Transport

• For the first time in eight years, the Ministry of Transport has revived its files on the North-South and East-West Cross-Country Highways projects that were intended to be offered on a build-operate-transfer (BOT) basis to local and foreign investors before the conflict. By 2010, technical and feasibility studies were being undertaken by local and foreign consultants and contractual terms were being considered by local and foreign law firms. A dedicated Public-Private Partnership (PPP) Bill had been drafted with input from local and foreign experts. The PPP Bill became Law 5/2016.
• Automobile imports were halted in 2011 in a bid to protect the value of the Syrian Pound, which depreciated every time there was demand for foreign currencies to import cars. As a compromise, some car parts could be imported as long as other components were manufactured locally. However, this did not prove to be the case in practice as cars were being taken apart and shipped to Syria where they were immediately reassembled. The government has since started sanctioning companies for such practices.
• There are disputes between the Customs Directorate and investors in the Adra Free Zone with respect to pricing automobiles. The investors had recently welcomed a move by the government to adopt policies that would reinvigorate the Adra Free Zone after its activities were affected during the conflict. Nevertheless, technical misunderstandings such as those relating to the pricing of automobiles are holding up matters.
• Syria is currently in discussions with Russia about potentially purchasing a modern fleet of new passenger aircrafts.

Health

• The Ministry of Health is working on a new bill that will prohibit pharmacists from selling antibiotics to customers unless they present a prescription issued by their doctor. The objective is to stop the uncontrolled sale of antibiotics which is causing bacterial resistance.

Employment

• Law 26/2018 extends the Social Security Exemption Law 4/2016 for a further year. According to this Law, businessmen and employers registered with the General Establishment for Social Security are exempt from making penalty and interest payments if they pay their dues within a year.
• The Council of Ministers approved a bill to install temporary public sector employees in employment on annual contracts.

Local Councils

• Nominations for local council elections to be held in Syria on September 16th this year were formally opened. The last local council elections were held on December 12, 2011 since the 2015 round was suspended due to the conflict raging in various provinces.

Judiciary

• The Director of the Judicial Inspectorate reported that there have been 460 complaints lodged against judges this year so far. The complaints received could potentially serve as grounds for appealing current judgments. The Minister of Justice has been implementing a new plan that puts in place preventative measures to review the conduct and decisions of judges without the need to wait for litigants to lodge complaints. In this respect, judges are referred to the Supreme Judicial Council (SJC) for disciplinary action. The Director of the Judicial Inspectorate estimated that on average 10 judges are disciplined every month by the SJC for allegations of misconduct. The Judicial Inspectorate is believed to employ 150 inspectors who review court judgments and judicial conduct with each Syrian province being allocated approximately 10 inspectors each.
• A judicial source confirmed that more than 7,000 powers of attorney granted by Syrian expatriates abroad were lodged with the Palace of Justice in Damascus this year so far.
• Judicial action is being taken against lawyers who have been struck off the Roll of Attorneys and discharged from the Bar Association but are still fraudulently using their Bar License Identity Cards to practise the legal profession. The Bar Association is referring such cases to the courts where criminal penalties including imprisonment for up to one year are applicable.

Administrative

• The Regional Command of the Arab Socialist Baath Party, the ruling political party in Syria, carried out reshuffles at the provincial branch level. New officials were appointed to head up the provincial branches of the Baath Party.
• Syrian MPs discussed a bill concerning the competencies of the Ministry of Administrative Development. The Ministry is expected to yield influence in the government as it will have certain responsibilities over other ministries and public authorities. The reason is because it has been tasked with steering the National Administrative Reform Program, which was launched by President Bashar Al-Assad last year. During the deliberations, one MP criticized the notion that subordinates within ministries were exercising more influence than ministers themselves and that this point needed to be addressed. Other issues that were debated included the move towards a format that favoured e-government, automation and electronic record-keeping to evaluate employees’ performances in the public sector.
• The Director of the Small and Medium-Sized Enterprises (SME) Development Agency called for amendments to the SME Law 2/2016 in order to increase the powers of this public body.