The bulk of Syria’s trade today is with Italy, Germany, France, and Turkey. Its trade with members of the European Union amounted to over $6 billion in 2002. Syria is planning to increase its cooperation with the EU and 12 of its Mediterranean neighbors in a long-term plan that is to take effect in 2010. Trade with the USA is estimated at below $500 million per annum.
Syria has now succeeded in becoming a net exporter of many agricultural products and is completing a shift in priorities from industrial expansion to agriculture in order to achieve food self-sufficiency and avoid increasing rural migration. This has been aided by imposing many of its goods on Lebanon. However, over 80% of Syrian arable land is still entirely rain-dependent with little irrigation infrastructure.
The Syrian oil industry has declined slightly in recent years and its reserves are limited, but the country still relies on heavy-grade oil as one of the main export earnings.
Banking and Finance
In one of Bashar Asad's first moves, he scrapped the antiquated tier-based currency exchange system in 2001. Bashar also cleared the way for the first foreign banks in thirty years to open, and this July it passed a decree abolishing laws banning dealings in foreign currency. These landmark changes have received international attention and sent a positive signal to investors and financiers.
According to the Constitution of 1973, the Syrian Arab Republic is a democratic, popular, socialist and sovereign state with a republican system of government. The Constitution establishes Islamic jurisprudence as a main source of legislation.
Two judicial systems operate in Syria: the Courts of General Jurisdiction and the Administrative Courts. Transcendent authority over all courts of law rests with the Supreme Constitutional Court, which deals almost exclusively in matters of constitutional law and other internal affairs of state.
Courts of General Jurisdiction
The Courts of General Jurisdiction are separated into six branches, all of which are further categorized by Civil and Penal Chambers (with the exception of the Personal Status Courts). These branches are: (1) The Court of Cassation; (2) Courts of Appeal; (3) Tribunals of First Instance; (4) Tribunals of Peace; (5) Personal Status Courts; and (6) Courts for Minor Offendors.
The Court of Cassation, the highest court, hears appeals from the lower courts and can overturn judgments rendered by Courts of Appeal in criminal and civil cases.
The Courts of Appeal preside over a separate governorate (Mouhafazat) each and are divided into Civil and Penal Chambers. Each Court of Appeal hears appeals of decisions in cases previously tried before the Tribunals of First Instance and the Tribunals of Peace.
There are several Tribunals of First Instance located in each governorate. Each Tribunal is divided into several divisions according to nature of the cases presented.
The Tribunals of Peace preside over minor civil and criminal matters and are abundant in each governorate. The Personal Status Courts deal mostly in personal status and family matters and vary according to the religion and ethnic origin of the litigants. The jurisdiction of the Courts for Minor Offendors applies accordingly to matters relating to minors. The Administrative Courts adjudicate matters involving the state and its agencies.
Recognition of Foreign Judgments
Foreign judgments can only be executed in Syria if they relate to civil or to commercial disputes upon the approval of the Court of First Instance in the governorate where the judgment is to be executed. If there is no bilateral treaty on mutual recognition with the country concerned, the Syrian court will re-examine the case and scrutinize the foreign court's opinion. If a bilateral treaty exists, the Court will limit its scrutiny to violations of Syrian public policy.
Alternative Dispute Resolution
Generally, both domestic and international disputes are a, unless otherwise specified in statutory provisions. Public or government institutions cannot agree to submit to arbitration unless provided for by statute. The state can only agree to arbitrate if it is bound by treaty. International arbitration held in Syria is subject to Syrian law and is generally covered by the same rules governing domestic arbitration. The enforcement of international arbitration awards generally follows the same rules as the enforcement of foreign court decisions.
Furthermore, Syria is a contracting party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Few investment disputes have actually occurred during the past few several years. Such disputes are usually settled (often after long delays) through negotiations or by enforcement of a contractual arbitration clause.
Business Forms and Structures
According to Syrian commercial law contained in Legislative Decree No. 149 of 1949, there are several forms in which entities may be registered in Syria and through which business may be conducted. These are: (1) capital company (either a shareholding or a limited liability company); (2) general partnership; (3) limited partnership; (4) joint venture; and (5) branch of a foreign company. All of these forms enjoy an independent legal personality except for the joint venture.
Foreign enterprises wishing to establish a branch or to carry out work in Syria must register with the Foreign Companies Department of the Ministry of Foreign Trade. The participation of foreign entities may not exceed 49 percent of invested capital. As a limiting measure, foreign companies and individuals of non-Arab origin may not own real property, but may only rent facilities in order to meet their commercial and residential needs, unless the government issues a decree permitting a particular foreign company to own real property.
A non-Syrian company may establish a shareholding company in Syria provided that: (1) the majority of shareholders are Syrian nationals; (2) the Ministry of Economy and Foreign Trade authorizes the venture; and (3) there is a minimum capital investment of SP 50,000.
Shareholding companies must set aside 10 percent of their net profits annually, as a legal reserve that can be discontinued when its total reserves equal at least 50 percent of the share capital of the company. The legal reserves set aside may not exceed 25 percent of the company's net profits per year. Foreign nationals who are members of the board may not exceed the proportion of their relative shareholding participation in the company's capital. In addition, a majority of the members of the board must be Syrian nationals.
In public shareholding companies, at least two members of the board of directors are required to be representatives of the employees. Members of the board of directors are individually liable for any violation of laws, regulations or the terms of the company's articles of association. The board must convene once a month, in Syria, and at least one member more than half of the total number of board members must be present. Voting by proxy or by writing is not permitted. The board of directors must have full authority to deal with all matters pertaining to the company's normal conduct. A general assembly of shareholders is required to convene at least once a year.
Limited Liability Company
In order to form a limited liability company, a copy of the company's constitution must be deposited at the Primary Civil Court within a month of establishment. Capital investment of not less than SP 25,000 is required. An application to register a limited liability company should also be submitted to the Ministry of Supply and Interior Trade (along with a copy of the Constitution) which, if it shall approve the application, shall issue a certificate of registration.
Foreign individuals or corporate bodies are permitted to enter into a general or limited partnership provided a written agreement is signed by all partners, an application is submitted to the Ministry of Supply and Interior Trade and provided that the foreign entity is not a bank, insurance company, law or accounting firm.
In a general partnership all partners are jointly liable to the full extent of their personal fortunes. A minimum of two partners is necessary to found a general partnership. At least one of the general partners' names must be included in the title of the company along with a description signifying it is a partnership.
A limited partnership includes limited partners, who are liable only to the extent of their capital investment, in addition to a general partner or partners, who have unlimited liability. A foreign company or individual can be a partner in either type of partnership.
Due to special privileges and exemptions, which include tax and customs duty exemptions, relaxation of foreign currency controls and the easing of some bureaucratic restraints, joint ventures are considered to be very practical. In order to establish a joint venture, a law or legislative decree must be issued to approve the proposal. In order for a foreign business to set up a joint venture, it must first establish its presence in Syria in some other manner.
Companies wishing to establish a branch in Syria are required to submit a request to the Foreign Companies Department of the Ministry of Economy and Foreign Trade. Following authorization, registration of the company must be published in the Official Gazette. The general manager of a branch must be a Syrian national.
There are no special requirements for the financing of the branch, but the transfer of capital from the branch is restricted. Any amounts transferred must receive prior authorization from the Ministry of Economy.
Generally, Syrian law does not require a foreign firm that wishes to do business in Syria to have an agent or a local distributor. Syrian businesses may order directly from abroad without seeking to establish an agent/distributor relationship.
Legislative Decree 151 of 1952 governs the licensing and registration of agents acting for foreign companies. The agent must apply for a license to the Ministry of Economy and Foreign Trade. In addition to providing the agents particulars as required in the application, a notarized, Arabic translation of the agency agreement between the agent and the foreign company must accompany the application. Agents may only be Syrian nationals or a company registered in Syria whose partners or shareholders are Syrian nationals.
Patents and trademarks can be registered with the Patent and Trademark Office. Syria is a signatory to the Paris Convention for the Protection of Industrial Property and to the Madrid Agreement concerning the suppression of false statements of origin.
Law No. 47 of 1946, amended by Legislative Decree No. 28 of 1980, provides that a patent is valid for a period of fifteen years from the date of application, but an extension of its validity is possible. Renewal fees must be paid every year for the first five years and then consecutively for each five year period thereafter. Working of a patent within two years of its grant is compulsory, and working of a patent within three years of filing the application is compulsory in order to claim priority.
Protection for trademarks is provided under Legislative Decree No. 28 of 1980. It grants protection for ten years from the date of registration and is renewable for ten year periods thereafter. The international classification of goods and services is followed in Syria for trademark registrations. The use of trademarks in Syria is not compulsory for filing applications for registrations nor for maintaining trademark registrations in force.
Trademark applications are examined initially to determine that the mark is not identical to or closely resembles previously registered trademarks covering the same goods or services. Thereafter, the applicant may be requested by the Boycott of Israel Office to provide a declaration regarding the Arab boycott of Israel. Failure to provide the boycott declaration will result in delay in registration. Once the file is complete and cleared, the Trademark Office registers the trademark immediately.
There is no official system of copyright protection in Syria. In the book industry, however, major political infringements do not appear to be a problem as most books are in Arabic and by Arab authors. There are some individual entrepreneurs who copy records, cassettes and videos for resale. These operations are not sanctioned by the Syrian government.
Syria's system of income tax is apportioned into three main income categories: (1) profits from an industrial, commercial, or non-commercial activity; (2) wages; and (3) income derived from movable capital assets.
Legislative Decree No. 85 of 1949 regulates income tax. It is subject to wide interpretation by tax officials and tax committees. The Tax Department administers Syria's tax laws and is supervised by the Ministry of Finance.
Taxation of Companies
A business profits tax is charged on net profits derived from professional and industrial, commercial and non-commercial activities, as well as on net profits from all other activities not specifically subject to the wage tax, to the tax on income from personal property or to the real property tax. The business profits tax is levied on the profits of individuals as well as on the profits of corporate entities. Non residents are subject to the business profits tax on all profits arising from sources or activities in Syria.
The business profit tax is applied in progressive rates between 10 percent to 45 percent, depending on the amount of taxable income. Shareholding companies and industrial limited liability companies are taxed at a flat rate of 32 percent and 42 percent respectively.
Dividends are not subject to a withholding tax provided such dividends are paid from company profits. The company profits from which dividends are paid are taxed under the business profits tax unless specifically exempted.
Taxation of Individuals
An individual is liable to the same taxes as a company on his business income, income from movable capital and real property. In addition to these taxes, individuals are also subject to a wage and salary tax. Income, taxable under the wage and salary tax, includes the basic salary, bonuses, overtime, allowances and foreign benefits. This income is taxed at progressive rates of 5 percent to 12.5 percent. Foreign employees working in Syria are subject to the same rules and rates as those applied to Syrian employees.
Tax on Income from Movable Capital
Tax on income from movable capital applies to interest, royalties and foreign source dividends. Royalty payments are subject to this tax and payable by the recipient, unless the royalty payments would be subject to the tax on business profits for the recipient.
The tax is levied at a flat rate of 7.5 percent on such income received by a Syrian resident and at a rate of 15 percent on such income received by a non-resident, unless reduced by an applicable tax treaty.
Real Property Tax
Real property gains are taxed at rates ranging from 17 percent to 60 percent. A property registration fee is due upon the registration of real estate, its sale, assignment or inheritance. The fee amounts to 10 percent of the value of the property, as estimated by the Ministry of Finance.
A stamp duty is imposed on the documents relating to the formation of companies, contracts, deeds and a variety of other instruments and transactions in Syria. The stamp duty is charged at a fixed or proportional rates depending on the type of transaction and is levied at a rate of 0.624 percent on contracts signed in Syria.
Treaties for the Prevention of Double Taxation
Syria has entered into tax treaties for the prevention of double taxation with Cyprus, Czechoslovakia, India and Romania. Under these treaties, business profits of a foreign company that is a resident of a signatory country, arising from its business conducted in Syria, are taxable in Syria, provided that such business is carried out by a permanent establishment of such company in Syria.
Furthermore, Syria is also a party to the Agreement for the Avoidance of Double Taxation and Prevention of Tax Evasion between the States of the Arab Economic Union Council.
Investment and Trade Issues
The Encouragement of Investment Law, No. 10 of May 1991, was enacted to encourage investments in economic and social development projects, approved by the Supreme Council of Investment, which is composed of various government ministers. Applications for approval of projects must be filed with the relevant ministry which will forward them to the Council for approval.
Approved projects may import all equipment and supplies needed, without limitation, in order establish, develop or enlarge the project. Such importation is exempt from taxes, customs and any other duties. Nonetheless, taxes and duties are levied on all imported equipment that is used to operate the project on a continuing basis.
Depending on the type of project, certain tax exemptions are granted for periods ranging from five to seven years. Furthermore, all projects covered under Law No. 10 are exempt from Syrian foreign exchange control. After five years, the portion of foreign investment equal to the amount of shares held in such a project may be repatriated to the foreign investor, based on the actual value of the project. The amount transferred may not exceed the initial currency investment. Should circumstances that are beyond the control of the investors arise, repatriation may begin within the first six months of the project. Annual profits and interest earned, through the use of foreign capital, may be transferred abroad.
The Investment Law's main provisions are as follows:
The project must correspond to the government's aim for the relevant sector; Import of production inputs such as machinery, equipment and vehicles is free of customs duty; Mixed-sector companies in which the Syrian government's stake is at least 25 percent or companies that export 50 percent of their products receive a seven year tax holiday; Private-sector companies receive tax incentives five years; Foreign exchange capital can be repatriated after five years, and, if the project fails through circumstances out of the investor's control, such capital can be repatriated after six months; Profits can be transferred freely; 50 percent of expatriate salaries and 100 percent of expatriate severance pay can be repatriated.
A 1996 decision by Syria's Supreme Council for Investment states that the expansion, modernization and development of projects under the 1991 Investment Law No. 10 will not receive any new tax benefits.
Incentives for the Tourism Industry
Several laws provide incentives for the tourism industry and certain other industries. These incentives, under Decision 186, include a seven year exemption from all taxes on the operation of tourist establishments, an exemption from paying income tax on up to 50 percent of the profits, certain import and customs exemptions, and some exemptions allowing bank accounts to be maintained in foreign currency.
According to Decrees 46 and 162 and Law No. 36, investments in hotels, restaurants and approved tourism projects enjoy certain benefits which may include an exemption from tax for between five to seven years, for example, hotels, restaurants and entertainment areas having a deluxe or first class rating.
Imported building materials, furniture and installations for these tourism businesses are also exempt from customs duties if such imports are used in order to enable a hotel or restaurant to maintain its deluxe or first rate rating.
Before 1990, Syrian policy was geared to substituting imports with domestically produced goods. The government, however, has eased regulations to the point that advance deposits for imports of food and industrial inputs have been abolished. The most significant change has been in financial transactions. According to statistics by the Syrian government, 95 percent of exported and imported goods are priced at the neighboring countries' rate, which has gradually replaced the alternative rates for different goods. Furthermore, exporters do not have to exchange their foreign exchange earnings with the Commercial Bank of Syria if they then want to finance imports. The 25 to 30 percent share in foreign export proceeds that must be exchanged at the commercial banks are now also subject to the neighboring exchange rate.
All documentary transactions for imports must be by a letter of credit opened at the Commercial Bank of Syria. Typically, the bank requires the importer to cover 100 percent of the transaction from his own resources offshore or from funds generated by exports. Syrian importers often use free-of-payment or 180-day-credit facilities clauses. In this case, the importer pays through his offshore bank either cash in advance or via L/C, and the bill of lading is then sent to the Commercial Bank of Syria. Alternatively, an importer may use foreign exchange earned from exports and deposited in the Central Bank of Syria.
Free Trade Zones
Free trade zones have been established in Damascus, Aleppo, Tartus, Lataquia, the Damascus international airport and in Adra. Article 6 of Decree 84 of 1972 encourages certain kinds of investments in free trade zones, authorizes the importation of foreign goods to these zones, and permits re-exportation that is not subject to the laws on foreign trade, customs duties or taxes. The Ministry of Economy and Foreign Trade may authorize the establishment of warehouses in a free trade zone. Up to 20 percent of imports to such warehouses may be granted an exemption from the usual limitations imposed on imports into the Syrian market, provided they do not compete with local industries or with a state-run monopoly. Priority in establishing an operation in a free trade zone is given to industries that use components or raw materials produced in Syria, complement existing industries in Syria, satisfy a local demand or employ a large number of Syrian workers.
A cooperation agreement has existed between Syria and the EU since 1977 that sets preferential tariffs for a wide range of agricultural produce as well as import ceilings for crude oil, petroleum products and cotton fabrics. These ceilings are above normal customs duties applicable to third countries. Syria is also included in the EU plan which allows industrial products to enter the EU market duty free. There are special regulations to the agreement, regarding technical and financial cooperation, which were renewed in 1991 and are now focused on supporting Syrian economic reform measures, especially in private sector development in agriculture, manufacturing, science and technology, as well as external trade.
Syria entered an agreement for Economic and Social Cooperation and Coordination with Lebanon in September 1993, which regulates the general framework of bilateral relations between the two countries in such areas as trade, movement of people and capital, residence, employment and transport. The sale of agricultural products in both countries is conducted by a joint Syrian-Lebanese marketing company. Other later concluded bilateral accords regulate water sharing in the Orontes river, labor relations (addressing the legalization of an estimated 500,000 or more Syrian workers in Lebanon), tourism and cultural relations.
Trade agreements with other countries, especially Arab countries specify products which can be traded in both directions under preferential terms. Such trade is often limited to specific transactions, such as the importation of equipment under a particular contract or tender. No formal trade relations exist with Israel, although illegal trade has become more prominent since the peace process began.
While the political sector is characteristically hesitant and reserved, the existing illegal trade indicates that the private sector seems interested in entering into trade and general business relations with Israel as soon as the political barriers will be removed.
Customs duties can range from 1 percent to over 100 percent on certain items. Law No. 1 of 1980 created a Unified Tax on Imports which ranges from 6 percent for goods exempt from customs, and from 35 percent for goods subject to customs tariff, to more than 100 percent. Machinery and materials imported for new industrial investment, under certain circumstances, may, upon application to and approval from the government, be exempt from import duties.
The customs procedures require that goods imported be accompanied by invoices that list the producer of the goods and their country of origin in Arabic. The invoice must also include an Israeli boycott clause and, in some cases, a health declaration.
Private Sector Investment
Until the 1990s, private sector involvement in induwas limited by a number of regulations. In the past decade, the relaxation of certain restrictions allowed the private sector to import parts, equipment and other industrial inputs. Currently, private sector involvement is significant in the textile, food, leather, paper, and chemicals sectors, while heavy industry remains state-dominated. The Syrian government, however, has started to open up these industries to private-sector investment as the public sector cannot meet rising demand. There are plans to open the country's first privately-run sugar factory, and a private Saudi-Syrian joint venture has plans to open a cement factory.
In agriculture, the private sector dominates approximately two-thirds of cultivable land, with state-farms and cooperatives accounting for the remainder.
Public Sector Procurement
Public sector procurement in Syria is regulated by Decrees No. 195 of 1974 and No. 349, of 1980, which set forth regulations governing contracts and tenders for public establishments, companies and enterprises. The decrees impose a number of regulations requiring the buying entity to solicit bids by announcing requirements through the Daily Bulletin of Official Tenders. The announcement of tenders with deadlines of less than forty-five days is not uncommon, however, suggesting that in certain cases, the contest may have already been decided beforehand.
Foreign companies may bid directly or through the use of a duly-registered Syrian agent. Offers, accompanied by a bid bond of 5 percent of the offer value may be submitted. Before an L/C is obtained, the supplier must submit a 10 percent performance bond. The Commercial Bank of Syria requires that all bonds be issued according to the Syrian Official Text.
In 1979, Syria appointed a Minister of State for Environmental Affairs and has since continued to make much headway in developing the country's environmental institutional capabilities by creating a General Commission for Environmental Affairs (GCEA) under the direction of the Minister. This basic framework for environmental protection is constrained, however, by acute shortages in human, physical and financial resources.
In 1994, a World Bank project was instituted in Syria (Program Syria 21) to formulate an Environmental Action Plan with the participation of the GCEA in order to address the country's pressing environmental issues by the promotion and integration of environmental considerations in all development activities. Program 21 began its activities in mid-1995 and has since instituted certain changes to the decision-making process and a reform policy for seven river-basin projects.
Syria is a party to several international agreements for the protection of the environment, including the International Convention for Civil Liability for Oil Pollution Damage (and its amendments); the Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage; the International Convention Relating to Intervention on the High Seas in Cases of Oil Pollution Casualties; the Convention for the Protection of the Mediterranean Sea against Pollution; the Agreement for the Establishment of a General Fisheries Council for the Mediterranean (as amended); the Convention concerning the Protection of Workers against Ionizing Radiation; the Treaty banning Nuclear Weapon Tests in the Atmosphere, in Outer Space and Underwater; the Agreement for the Establishment of a Commission for Controlling the Desert Locust in the Near East; the Convention concerning Protection against Hazards of Poisoning arising from Benzene and the Convention for the Protection of the World Cultural and Natural Heritage.