Posted by: Mondaq

The Tunisian government’s actions since the uprising in 2011 have proved to be a commendable example of how to implement a democratic transition in the wake of a radical and sudden change of government.   It has enacted a new constitution, held free elections and adopted a diplomatic approach to the political tensions between secular and Islamist leaders to improve the overall environment.  As if the internal political changes were not enough, Tunisia’s fledgling regime was considerably damaged by the 2015 lone-wolf attack in Sousse after which the country was far from the first choice for Foreign Direct Investment (FDI).  Tourism, one of the country’s key industry sectors was, understandably, hit exceptionally hard.  Tunisia has fought back and executed a radical root and branch review of its position on the world stage and developed comprehensive strategies and implemented significant changes to enable it to become an attractive proposition for FDI.

Tunisia has many advantages for the foreign investor, it enjoys a strategic location on the Mediterranean and Tunis, the capital city, is an average of two hours flight from all major capital cities in Europe.  The country boasts an impressive education policy and a productive workforce with competitive salary levels all aiming to support the modernisation of the country.  The growing diversification of the economy strengthens its resistance to an economic crisis. The fact that Tunisia enjoys a reasonable reputation for credit-worthiness is also an encouraging factor for a foreign investor. The World Bank’s Doing Business Ranking places Tunisia in the top ten countries in the Middle East and North Africa for ease of doing business.  Also, since 2017, there has been a consistent increase in Greenfield investment in Tunisia.  The principal industry sectors that attract FDI are energy, construction material, telecommunications, textile, tourism and electronics. However, this is not an exclusive list.

The Tunisian government recognised that if it was to re-build its position with FDI on the global stage the governance of foreign investments would benefit from a more streamlined system combining the previous administrative bodies dealing with foreign investment into one body.  New investment law aimed at simplifying the procedures and authorisations required, together with the considerably easier process to engage workers from overseas, (should the need arise), was drafted and enacted.

Giorgio Bianco, a senior lawyer in Giambrone, pointed out that, “there are considerable advantages for the foreign investor doing business in Tunisia; a company can be created quickly, in around two weeks, with only €300 as the minimum capital.  Those companies involved purely in export enjoy a rate of corporation tax of only 10%, as well as a VAT exemption on all goods purchased locally on behalf of the business”, Giorgio further commented, “all overheads, including salaries and taxes, are considerably less than in Europe, the minimum wage being 340 Tunisian dinars (€107.74) per month.  An added advantage for textile businesses manufacturing clothing is that there is a wealth of well-trained workers capable of an excellent standard of workmanship”.

The new investment law came into force in January this year and three major platforms have been created for the promotion of foreign investment, known as the “Council”, the “Instance” and the “Fund”.   The Conseil Supérieur de l’Investissement, the Higher Council for Investment, the Council is composed of ministers with particular expertise in the foreign investment arena, headed by the Prime Minister, will in the future draft State policy related to investments, promote and monitor foreign investments and take responsibility for the improvement of the commercial environment throughout the country.  The Council will also oversee the system of incentive bonuses in respect of the projects which impact on the national interest.

The Instance Tunisienne de l’Investissement, the Instance, will be under the authority of the minister in charge of investment and the Council.  Its job will be to analyse bonus applications for a project in the national interest and make decisions relating to grants.   There is also provision for someone to be appointed to liaise with and inform foreign investors as to the best way to obtain the required authorisations.

The Fonds Tunisien de l’Investissement, the Fund, will pay the bonuses and be entitled to make subscriptions, directly or indirectly, in risk mutual funds, venture capital funds and seed funds.

The changes assist in smoothing the path for foreign investors and the government also took the step of enshrining in law non-discrimination principles, meaning the foreign investor cannot be treated less favourably than a Tunisian investor, conditional on there being comparable circumstances; also removing the previous “prior approval” requirement which applied under the previous Investment Code which was applicable to certain foreign investors.

Whilst absolutely all barriers to investment may not have been removed entirely, considerable progress has been made.  The Investment Law clarifies the principles of free acquisition, rental and utilization of non-agricultural lands by investors.  Also, there is a desire to ensure that both foreign and Tunisian investors alike have access to relevant information.   The new Investment Law also seeks to reassure foreign investors by way of guarantees relating to the relationship between the Tunisian authorities and the investors.  Administrative authorisations relating to investments will have to have a reasonable, as well as a justifiable, rationale and also will have to be put in writing.

Foreign investors will have the ability to recruit and employ foreign workers in their projects amounting to 30% of the complement of its management staff in the first three years of incorporation and 10% from the fourth year.  No visa is required for foreigners visiting Tunisia for three months or less if they are not working.  A temporary residence visa is granted to foreigners who are not intending to set up permanent residence; this is valid for one year.  A temporary residence visa can be granted on a five-year renewable basis for foreign investors who have been living in Tunisia for a year or less providing the foreigner can support themselves, entered Tunisia legally and has the authorisation to work on an investment project.  A permanent residence visa is granted to foreigners who have lived in Tunisia on a temporary residence visa for five continuous years or those individuals who are married to a Tunisian.  A residence permit is granted by the Directorate General of the National Security in the Ministry of the Interior on a two-year renewable basis and must also be renewed each time a work contract is renewed. There is an investors’ support cell within the Ministry which assists foreign investors and entrepreneurs to obtain a residence permit.

Tunisia is making substantial strides to implement the reforms that the International Monetary Fund (IMF) has highlighted as necessary to improve the financial strength of the country.  The finance minister said in recognition of the need to reduce public sector wages, reforms on public works will include a raft of measures such as early retirement to reduce the spend.  In response, the IMF released a delayed $320 million tranche of Tunisia’s $2.8 billion in loans.

Some significant companies on the world stage have seen the advantage of outsourcing some parts of their business by setting up an off-shore company in Tunisia, but you do not have to be a large corporation to set up an off-shore company and take advantage of the benefits offered.  Giorgio Bianco says “one of the most beneficial advantages in having an off-shore Tunisian company is the special agreement that Tunisia enjoys with many countries in avoiding double taxation, guaranteeing the transfer of dividends in full (no tax on that income will be paid to the country of origin under the Agreement of Double Taxation).  This together with the zero VAT rate and low rate of 10% tax applied to profits of off-shore companies makes the Tunisian proposition very attractive”.  Another consideration is that the banks respect the privacy of your business dealings and do not divulge the business activities of their customers.

There is a growing desire within Europe for investment in Tunisia with France and the UK leading the way.  The European Bank for Reconstructions and Development (EBRD) has announced that Tunisia will host the next Regional Investment Summit in 2019.  The EBRD has invested €640 million in Tunisian projects since 2012.

Opportunities to take advantage of a “new dawn” in a country that has taken such comprehensive measures to change its FDI environment should not be overlooked.