The Regulatory Framework
3. The Regulatory Framework
The legal framework for foreign investment in Palestine is based on the Investment Promotion Law, as amended in 1998, which provides for non-discriminatory treatment, protection against expropriation, and repatriation guarantees. In addition, the law provides incentives for investors in the way of tax and customs exemptions which are granted automatically upon the fulfilment of certain conditions. This section provides a brief summary of the main aspects of the legal system relevant for foreign investment in Palestine.
3.1 Institutional Framework
Business activities have been vibrant for decades in Palestine. At present, companies may be registered under Companies Law No.12 for 1964, applicable in the West Bank, and the Companies law of 1929 applicable in Gaza. All business entities registered in Palestine must be duly registered with the Companies Registrar either in the West Bank or Gaza. Presently businesses in the West Bank and Gaza are registered with the Ministry of National Economy.
According to the company laws, the following are the three different types of companies which may be incorporated.
* General Partnership:
The liability of each partner in a general partnership is unlimited. All partners are personally responsible for the liabilities of the partnership. The name of at least one of the partners must be indicated in the title of the General Partnership.
* Limited Partnership
Limited Partnership includes two different types of partners: general and limited. A limited partnership must have at least one general partner who is personally responsible for the liabilities of the company. There is also at least one limited partner whose liability is limited to the amount of the capital.
* Local Companies (Limited Liability Company and Public Liability) LLC companies are the form of business that most investors prefer to use for the purposes of conducting commercial affairs. The procedures that have to be followed in Palestine to register this form of company are as follows:
1. Obtain temporary copy of certificate of registration from the Ministry.
2. Deposit initial capital, which is 25% of the capital plus official bank fees
(1/1000 of stated capital).
3. Obtain signature of the required documents by a local lawyer.
4. Register with the commercial Registry.
5. Pay registration fee.
6. Register for income and VAT.
7. Register with Chamber of Commerce.
8. Obtain business license from the Municipality.
9. Obtain and legalize special company books55.
Foreign companies and representative offices may do business in Palestine provided that they register with the Companies Registrar and file their Memorandum and Articles of Association and other relevant information
3.2 Legal Protection
Commercial disputes may be resolved by way of conciliation, mediation or arbitration. Arbitration in Palestine is governed by the Law No. 3 of 2000. The law sets out the basis for court recognition, and enforcement of arbitral awards. As a general rule every dispute may be referred to arbitration, by the agreement of the parties unless prohibited by the law. Article 4 of the law mentions that certain disputes cannot be referred to arbitration, including disputes involving marital status, public order issues in Palestine, and cases where no conciliation is permitted. In the event that parties do not agree on the formation of the arbitration panel, each party shall choose an arbitrator and arbitrators shall choose a casting arbitrator unless the parties agree to proceed otherwise. Judgments made in other countries that need to be enforced in Palestine, are honoured in Palestine according to the prevailing law in the West Bank, mainly Jordanian Law No.8 of 1952. The law covers wide issues in relation to the enforcement of foreign judgments.
3.3 Guarantees and Incentives for Foreign Investors
According to the Investment Promotion Law, the PNA guarantees to all investors the unrestricted transfer of all their financial resources outside Palestinian including the capital, profits, dividends and capital profits, wages and salaries, interest, debt payments, managements fees, technical assistance, other fees and compensation money for cancellation of licenses. Furthermore, Article 22 of the law provides that fixed assets are given the following exemptions:
a- ‘The project’s fixed assets shall be exempted from customs duties and taxes provided that they are brought in within a period specified by the Authority’s decision approving the lists of fixed assets of the project....’ b- ‘The spare parts imported for the project shall be exempted from customs duties and taxes, provided that the value of such spare parts does not exceed 15% of the value of the fixed assets and that they are brought in or used in the project within a period specified by the Authority .....’ Article 23 of the law provides that the projects approved by the Authority and which have obtained the licenses required under the law shall be granted the incentives mentioned in this law in the following manner:
a- Any investment with a value ranging from $100,000 to $1 million shall be granted an exemption from income tax for a period of five years beginning from the date of commencement of production or carrying on the activity and shall be subject to income tax on the net profit at a nominal value of 10% for an additional period of 8 years.
b- Any investment with a value from $1 million to $5 million shall be granted an exemption from income tax for a period of five years beginning from the date of commencement of production or carrying on the activity and shall be subject to income tax on the net profit at a nominal rate of 10% for an additional period of 12 years.
c- Any investment with value of $5 million and above shall be granted an exemption from income tax for a period of five years beginning from the date of commencement of production or carrying on the activity and shall be subject to income tax on the net profit at a nominal value of 10% for an additional period of 16 years.
3.4 Foreign Trade
The Palestinian authority has signed various trade treaties with other countries, including the European Union (EU), EFTA, USA, Canada, Jordan and Egypt. Licensing is required for importing goods into the West Bank and Gaza. The imported goods should comply with the health and environmental standards as set by the Palestinian Standard Institute (PSI). It usually takes up to 15 days to obtain the necessary documents for imports. Licenses are valid for a period of six months to a year depending on the product. The documents that are required for import are as follows:
- Certificate of Incorporation if the importer is a duly registered company.
- Certificate of Foreign Trade Dealings obtained from the Ministry of National Economy.
- Pro-forma invoice with the estimated value of goods to be imported.
- Import license for items that are on the specified list.
There are no applications or licenses required for companies exporting from the West Bank and Gaza, except for certain categories of goods that need to meet specific standards. Exporters must submit a certificate of origin to the MONE for final approval. The MONE will pre-approve and issue multiple certificates of origins to businesses that export the same product on a regular basis.
3.5 Banking and Insurance
Banks in Palestine are regulated by law No.2 for the Year 2002. Banks are defined as ‘any institution authorized to conduct banking transactions in Palestine in accordance with the provision of the law’. The law specifies the conditions that must be fulfilled for establishment of a bank, and these include:
* The bank must be incorporated in the form of Joint Stock Company unless it’s a foreign bank that must be registered as a foreign company in accordance with the Company Law.
* The Palestinian Monetary Authority (PMA) must approve the Memorandum and Articles of Association and all other management agreements/contracts signed with the manager.
* The applicant must also submit the necessary documents to be approved by the PMA. The law details guidelines for both internal and external auditing of banks, data obligations to the PMA, and sets out the guidelines for on-/off-site inspection, penalties, liquidations and mergers. The authority shall decide on the licensing of the banking activities within three months and inform the applicant accordingly. The law also allows opening foreign branches according to specific conditions. The law specifies lawful and unlawful banking conduct, and allows the establishment of Islamic banks in accordance with special conditions. The PMA supervises activities in accordance with the needs of the Palestinian economy. It issues permits and supervises banks and other financial institutions and ensures compliance with the banking law and that regulations are enforced. It also has the authority to levy penalties on banks and institutions who do not comply with the regulations. The insurance industry is currently regulated in the West Bank and Gaza by the Jordanian Law No. 5 of 1965 on the supervision of insurance, law No. 76 of 1965 on insurance companies in the West Bank, and laws No. 2 of 1966 and No. 1 of 1967. The types of insurance available include insurance for air, land and sea, and for movable and immovable property. Personal insurance is also widely available and extends coverage to life, theft, health, employees and vehicles.
3.6 Competition and Intellectual Property
Although there is no unfair competition or anti-competition law issued yet in Palestine, there are some sections of laws effective in Palestine that prohibit activities harmful to competition, including the Penalty Law No 16 of 1960 that stipulates that any person tempering with prices to affect supply and demand in the market shall be imprisoned for a maximum of one year and fined 100 Jordanian Dinars. Furthermore, there is a draft law on competition law that aims at creating free competition in the exchange of services and goods and bans any agreements or arrangements that may result in restricting or weakening competition. Palestine has introduced new draft laws to update its intellectual property laws. The Civil Claim Law of 1933 in Gaza, the Commercial Law No. 19 of 1953 and the Patent Law No. 22 of 1953 in the West Bank currently govern intellectual property. Laws applicable to intellectual property rights in Palestine are as follows:
Trademarks are governed by Law No.33 of the 1952 in the West Bank and Trademark Law No. 35 of 1938 in Gaza. Trademarks are protected under the trademark laws if they are distinctive and capable of distinguishing the goods or services to which it will be applied. The period of initial protection of trademarks is seven years, and trademarks may be renewed for successive periods of time. The law prescribes imprisonment for a maximum period of one year or a fine not exceeding 100 JD for infringement of a registered mark. A foreign company is entitled to register its trademark in Palestine by giving power of attorney in this regard either to a trademark agent or to a lawyer. Trademarks are registerable unless they fall within the recognized prohibition, such as being similar to or identical to an already registered trademark, likely to be lead to deception of the public, or contrary to public morality. It should be noted that trade names are also registered in Palestine according to specific procedures and conditions that are laid out in the Jordanian Trade Names Registration Law No.30 of 1953, which is still applicable in the West Bank, and Law No.1 of 1929 in Gaza.
The procedure to register a trademark requires the following:
- Submit an application for the registration of trademarks.
- The proposed trademark in color must be attached to the application.
- Four copies of the Trademark must also be attached.
- A copy of the company’s Certificate of Registration must also be attached.
3.6 2 Patents, Drawing and Designs
Patents are forms of protection that the law grants for the inventor for a specific period of time. The Patents and Design Law No. 22 of 1953 is applicable in the West Bank and the Patents Design Law No.64 of 1947 is applicable in Gaza. A foreign company is entitled to have a patent or design registered by giving power of attorney in this regard to a patent agent or to a lawyer, with the requisite documents.
Copyright in Palestine is governed particularly by the Copyrights laws of 1911 and 1924. The laws protect all kinds of works whether literary, artistic, and musical. The protection lasts for a period of 50 years after the death of the author of the work. The law also deals with infringements, compulsory licenses, and many other procedural issues as well.