SOMALILAND FOREIGN INVESTMENT LAW
The Somaliland Constitution and Foreign Investment:
- Guarantees: Article 11(3) of the Somaliland Constitution states that: “The state shall ensure the security of foreign investment in the country. Such investment shall be regulated by law.”
- Importance of Foreign Investment: Article 11(1) of the Constitution confirms that the state shall lay down the national economic policy “based on the principles of free enterprise and the joint working of private property, public property, the national wealth and foreign investment” so as to realise the growth and advancement of the economy.
- The right to own property: Article 31 states that every person shall have the right to own private property that is acquired lawfully and that such property “shall not be expropriated except for reasons of public interest and provided that proper compensation is paid”. As a further guarantee of legality, Article 31(3) adds that “the law shall determine matters which are within the public interest” that may bring about expropriation of private property.
- The guarantee of private property rights and the protection of the free market is one of the guiding principles of the Constitution as set out in the Preamble of the Constitution. These principles, which also include the entrenchment of fundamental rights and freedoms, are relevant in guiding state action and also in the interpretation of the constitution and and the laws of the land.
Background of the Somaliland Foreign Investment Law (written in 2008):
The relevant Law was passed by both the Houses of Parliament in 2004. The President, however, did not sign raised two points in September 2004 - the first related to Article 5 about the composition of the Investment Board, which the President said ought to include the Director Generals of various other ministries and the second was an objection to Article 13(2) which exempted from import duties machinery and equipment imported by foreign investors when no such exemption was accorded to nationals of the country who are undertaking similar investments.
Finally, on 25 March 2008, the House considered the two objections raised by the President and voted by a majority (of 36 votes for, none against and 6 abstaining) to accept them. Somalilandlaw.com’s view is that as agreement has been reached on ALL the provisions of the law, the President will have to sign the law within 21 days or failing that the bill shall henceforth become law, and shall be promulgated by the House. However, an unusual Presidential Decree (No: 340/042008) issued on 08 April 2008 (copy below with the Law) stated that the disputed articles 5 and 13 of the Law shall come into force on that date and did not mention the rest of the Law. The Decree quotes Article 75 of the Constitution which states:
“All laws shall be promulgated and published in the Official Journal by the President within three weeks (21 days) beginning from the date when the two Houses have forwarded them, and shall come into force within thirty (30) days beginning from the date of their publication, but a longer or shorter period for coming into force may be set out in each law”.
In the case of this Law, as in most other Somaliland laws, Article 27 states that it shall come into force following its signature by the President. There is no record of the rest of the Law having been signed into law by the President before and in any case there is no provision either in the law itself or in the Constitution for selective (or in US terminology line item) presidential approval or promulgation of the some provisions of a law. It is normal for presidential objection to a law to be based on some of its provisions, but the whole law is then returned to the House under Article 78(3) of the Constitution and such an objection can only be trumped by a two third’s majority of the House.
In this case (and in the recent vote on the Organisation of the judiciary Law) the House accepted the President’s changes, and yet in both cases the relevant presidential decree only brought into force the disputed provisions. Presumably, this leaves the rest of the law to come into force under Article 77(6) of the Constitution and requires vigilance on the part of the House of Representatives.
The final law as passed by both Houses and signed by the President is set out below and here at this link is a copy (in pdf) of the Law together with both the House Resolution and the Presidential Decree: Foreign Investment Law (Final) - Law No. 24/2004 which came to force in 2008.
As this Law is aimed at attracting foreign investors, it is currently only in English language. We understand that a Somali language version of the Law is being prepared but we would recommend strongly that when any amendments are made to this Law, a clause be added to make it clear that the English language version shall remain the official text. Article 6(2) of the Somaliland Constitution allows the use of other languages, where necessary.
Some possible areas for further reform:
- The law is very largely based on the last pre 1991 Somali Democratic Republic Foreign Investment Law 1987 and requires updating.
- The Law applies only to foreign persons or concerns and different laws need to be promulgated to encourage investment by Somaliland citizens living abroad (non-resident Somalilanders) and who hold either dual nationality or are “ordinarily resident abroad”. Some provision could also be made for joint foreign and national investment (the Uganda Investment Code Act, for example, uses a 50% ownership threshold).
- Article 3 of the law states that the foreign “investment shall be made for the purpose of the establishment or the expansion of an enterprise incorporated or registered in Somaliland” and reinvestment of profits is mentioned in a list which appears unnecessarily restrictive. A better option might be to to use an “asset based” broad definition of what qualifies as foreign investment and any lists should simply be illustrative as to the forms of investment.
- As a yet unrecognised country, Somaliland needs to offer more to prospective investors and issues such as insurance and other preferential incentives need to be explored, perhaps within the context of the newly formed Somaliland Development Corporation Trust.
- On settlement of disputes (Article 19), the Law has not followed the comparable provisions in the 1987 Law which offered also a third option (in addition to settlement of disputes through agreement with the investor or within the framework of any agreement between Somaliland and the country of the investor) of arbitration through the International Centre for the Settlement of Disputes (ICSID) under the Convention for the Settlement of Investment Disputes between the Satate and Nationals of Other Countries (1965) which was signed and ratified by the Somali Republic on 27 September 1965 and 29 February 1968 respectively (Law No. 11 of 1967). Regardless of whatever position the ICSID might take, Somaliland accepts, under Article 10(1) of the Constitution, previous treaties or agreements entered into by the pre 1991 Somali Republic so long as these treaties “do not conflict with the interests and concerns of the republic of Somaliland”.
Pre-1991 Foreign Investment Laws:
The last pre 1991 Law in this area was the Foreign Investment Law - Law No. 19 of 9 May 1987 which has only force for a few years before the disintegration of the Somali Democratic Republic. Here are Copies of the Law in both English and Somali . The 1987 Law has been replaced, in the Republic of Somaliland, by the 2004 Law.
Selected International Guidelines on Foreign Investment Laws: (to be completed)
The original Somaliland Foreign Investment as signed by the President and the House is available above in pdf. I have re-produced the Law below and have added a few Editor’s notes which clarify some of the obvious mainly typographical errors in the Law.
REPUBLIC OF SOMALILAND
Promotion, Protection and Guarantees of the Foreign Investment Law
LAW No. 29/2004 (& 2008)
XEERKA MAAL-GASHIGA SHISHEEYAHA
THE HOUSE OF REPRESENTATIVES
Having Seen: Articles 11(3) and 12nd of the Constitution.
Having Considered: The Government’s current endeavours to avail itself of the economic resources and potentialities available in the country and to mobilize and utilize them in the best possible manner.
Has enacted This Law:
Article 1: DEFINITIONS
The following terms which are used in this law shall have the meanings assigned to each one of them for the purpose of this law unless the context indicates a different meaning: -
1. The agreement The agreement signed by the Foreign Investment Board of the Government of the Republic of Somaliland and the contracting Foreign Investor.
2. Contracting parties The Foreign Investment Board of the Republic of Somaliland and the Foreign Investors signatories to agreements with the Board and in respect of which these agreements have become effective.
3. Host State The Republic of Somaliland in which the invested capital is present Lawfully and permits the investor to employ his capital therein.
4. Capital All assets (Including everything that can be evaluated in monetary terms) owned by a foreign contracting party to the agreementwith the Board whether a natural person or a corporate body and is present in the territories of the Republic of Somaliland whether these were transferred to or earned in it, and whether these be movable, immovable, in cash, in Kind, tangible as well as everything pertaining to these capitals and investments by way of rights or claims and include the net profits occurring from such assets and the undivided shares and intangible rights.
5. Investment The capital employed in the permissible fields in the Republic of Somaliland by the foreign contracting party with the board with a view to achieving a profitable return in accordance with this law.
6. Investor Any foreign contracting party with the Board whether a natural person or a legal personality in his own country who owns the capital and invests it in the Republic of Somaliland. The nationality of the investor shall be determined as follows: -
a. Natural person Any individual enjoying the nationality of his own foreign country in accordance with the provisions of the nationality law in force therein.
b. Legal Personality Any entity established in accordance with the law in the country of the contracting party and is recognized there by the law under which its legal personality is established.
7. Investment Returns The sums yielded by the investment or derived there from for a specified period which shall include, without Limitation, the profits, dividends, Licences, fees, royalties, leases, services and all the increases achieved on the capital assets and the utilization of the intangible property rights.
8. The Board: “The Board” is the Foreign Investment Board established at the Ministry of Commerce and Industry. It is the supreme decision-making authority over all matters concerning foreign investment in theRepublic of Somaliland.
9. The Office: The “Office” is the Foreign Investment Promotion office established at the Ministry of Commerce and Industry to assist the “Board” in the performance of its administrative and promotional functions.
10.Foreign: Any person whether a natural person or a legal person who is not a Somaliland national as provided in the Constitution.
Article 2: FOREIGN INVESTOR
Under this law a foreign investor is any foreign juridical or physical person.
ARTICLE 3: FOREIGN INVESTMENT FORMS
Foreign investment can be made in any of the following forms:
1. Convertible currency specified by the Central Bank of Somaliland.
2. Machinery, equipment spare parts installations, and current production inputs, whose importation is permitted under the prevailing import legislation.
3. Patent rights, trade marks, and Licences duly registered in Somaliland, provided they are necessary for the activities to be passed under the approved investment.
4. The amount of foreign currency spent on studies and technical documentation, prepared in connection with the approved investment.
5. Profit reinvested, originating from foreign investment approved in accordance with this law.
Said investment shall be made for the purpose of the establishment or the expansion of an enterprise incorporated and registered in Somaliland.
Article 4: INVESTMENT PRIORTIES AND SECTORS.
Priority shall be given foreign investment in those areas where it: -
a) Puts to productive use Somaliland’s human and natural resources.
b) Introduces innovative technology suited to the country’s conditions.
c) Generates new earnings or savings of foreign exchange, through exports, resource-based import substitution or service activities.
d) Contributes to regionally balanced socio-economic development,
this refers especially to foreign investment in, or closely related to: -
IV- Mineral resources
V- Industrial activities using significant amount of inputs produced, by afore-mentioned sectors.
VI- Tourism provided the investment harmonizes with the prevailing social, economic and infrastructural condition.
VII- Any other investment, in production and service activities, suited to support and stimulate, in a significant degree the development of the aforementioned sectors.
Article 5: THE FOREIGN INVESTMENT BOARD
The Foreign investment Board, hereafter referred as “The Board”, has the supreme, decision-making authority over all matters concerning foreign investment in Somaliland. It is established at the ministry of Commerce & Industry where it shall convene at least twice a month.
2. THE BOARD SHALL CONSIST OF.
2.1. The Director General of the Ministry of National planning.
2.2. The Director General of the Ministry of Foreign Affairs.
2.3. The Director General of the Ministry of Finance.
2.4. The Director General of Ministry of Commerce and Industry.
2.5 The Director General of the Ministry of Agriculture.
2.6 The Director General of the Ministry of Livestock.
2.7 The Director General of the Ministry of Fishery and Natural Resources.
2.8 Director General of the Central Bank of Somaliland.
2.9 The Chairman of the Chamber of Commerce, Industry and Agriculture.
Chairman of the Board is the Director General of the Ministry of Commerce and Industry.
Article 6: FUNCTION OF THE BOARD
The functions of the Board shall be the following.
1. To approve proposed foreign investment in accordance with the policy guidelines laid down in Article 4 and the and the provisions concerning quorum and vote, as per Article 7.
2. To approve the registration of foreign investment and to sign an agreement with the foreign investor in accordance with the provisions of this law.
3. To review the registration of foreign investment made under previous foreign investment laws from the more favourable provisions, as per Article 25 of this law.
4. To determine the value of foreign investment made as per Article 3 paragraph 1,2,3 and 4 this law.
5. To ensure compliance with the provisions of Article 14 concerning the contracting of debt from domestic sources.
6. To facilitate the granting of visas to foreign personnel to be employed by enterprises registered under this law.
7. To perform any other function concerning foreign investment in Conformity with this law.
Article 7: THE BOARD, QUORUM AND VOTE
Six members of the Board, including the Chairman, shall constitute a quorum; decisions will be taken by simple majority vote.
Article 8: THE FOREIGN INVESTMENT PROMOTION OFFICE.
The foreign investment promotion office hereafter referred to, as “The Office” is the administrative and promotional offices to assist the Board in performing its functions. The duties of the office shall be the following: -
1. To implement the decisions taken by the Board.
2. To propose the administrative and regulatory procedures required for the implementation of the law.
3. To provide information and advice to the foreign investor on matters such as application and registration procedures under this law, taxation, foreign exchange terms, economic legislation, foreign trade terms, investment opportunities, institutional frame work, local sources of debt financing partner search.
4. To assist the foreign investor in meeting the application requirements related to foreign investment.
5. To assist approved foreign investment at the setting up stages, with guidance and advice concerning official institutions, and channels, and related administrative procedures,
6. To formulated proposals concerning foreign investment policy and improvement of investment conditions.
7. To promote and attract new foreign investment, in collaboration with other institutions involved in this field.
8. To perform and other duty related to foreign investment, arranged to it by the Board.
Article 9: PROCEDURES FOR APPLICATION
The application by the foreign investor shall be made by completing the “Application form for Approval and Registration” available at the office located in the Ministry of Commerce and Industry, and mailing it, by a registered letter, to the Foreign Investment Board.
Article 10: CONDITIONS AND PROCEDURES OF APPROVAL
1. Within Sixty days from the date of the receipt of duly completed investment application, the Board shall notify the applicant, by registered mail, of its decision. At the applicant’s option, this notification may be collected by his representative directly from the office, against issue of a delivery receipt.
2. In case a modification of an application is required the Board shall notify the applicant, to this effect, by registered letter. At the applicant’s option, his notification may be collected by his representative directly from the office, against issue of a delivery receipt.
3. The Board shall notify, through the office, the approval of a foreign investment by issuing a “ certificate of Foreign Investment in an approved enterprise”. Such approval shall be construed by the foreign investor as being eligible for registration under this law.
4. The “ Certificate of Foreign Investment in an approved enterprise” shall be valid for the period of 18 months as of date of issue. During the said period, the applicant shall have effected the transfer of assets to Somaliland listed in article 3, paragraph 1,2,3 and 4. In case this period is extended [this should read “exceeded” - Editor] , the Board may grant, at the applicant’s request, an additional period, or ask for a new application.
5. Additional investment to be made as per article 3, paragraph 1,2,3 and 4, in an enterprise object of a foreign investment already duly registered, shall require application and approval as per Article 9, and paragraphs 1,2,3, and 4 of this article.
Article 11: PROCEDURE FOR REGISTRATION
1. The Board shall proceed with the registration of an approved investment as soon as the foreign investor
[s] has effected the transfer of assets, to Somaliland, listed in Article 3 paragraph 1,2,3 and 4, in accordance with the terms and conditions contained in the “Certificate of Foreign investment in an approved Enterprise”. To this effect, the Board shall issue to the foreign investor, a “Certificate of Foreign Investment Registered”.
2. In the case of a transfer, to Somaliland, of assets listed under paragraph 2,3 and 4, of article 3, the Board shall proceed with said registration as soon as it is satisfied that the value assigned, by the Foreign investor, to the assets transferred, represents fair market value. The Board [“may” - Editor] ask the foreign investor to produce sufficient documentary evidence to demonstrate the fair marked value of the assets as per paragraph 2, of article 3. [T]his value shall be determined in accordance with the prevailing import legislation.
3. The foreign investment shall be registered in convertible currency, as specified by the central Bank of Somaliland.
Article 12: GUARANTEES FOR FOREIGN INVESTMENT
1. All enterprise object of foreign investment shall receive as Favourable treatment as domestic enterprise.
2. The property of foreign investment duly registered under this law shall not be subject to expropriation measures, except in the only case where public interest cannot be satisfied by measures other than expropriation.
3. In the case of such expropriation, prompt compensation shall be paid. Said compensation shall reflect the fair market value of the assets as freely transferable.
Article 13: INVESTMENT INCENTATIVES
Foreign investment shall be eligible for incentives and facilities, in accordance with the legislation in force ruling on such iincentives and facilities.
Foreign Investment is exempted from payment of tax on profit for a period of three years from commencing operations. In addition, after the expiry of the initial tax holiday period, foreign investors shall be entitled to a 50% reduction of the tax due for the profit reinvested.
Article 14: LIMITS TO CONTRACTING DEBT FROM DOMESTIC SOURCES
Any enterprise subject to a duly registered foreign investment may contract debt from institutional domestic financial sources up to the limit established by the Central Bank of Somaliland, in consultation, with Board. [“The proceeds of such debt from these domestic” - Editor] sources shall be used strictly for the carrying out of the activities specified in the “Certificate of Foreign Investment Registered”. The Board shall be authorized to verify the due application of [the] proceeds.
Article 15: FACILITIES FOR FOREIGN PERSONNEL
The Board shall ensure that the immigration authorities facilitate the granting of the entry visas and residence permit to foreign personnel employed by an enterprise registered under this law, and to their families.
1. The Board shall also ensure that said personnel and their families be granted access, for reasons of work, to any part of Somaliland.
2. Said personnel may freely transfer abroad up to fifty percent of their salaries, wages, gratuities and allowances paid in Somaliland by the enterprise employing them.
3. Any enterprise registered under this law shall employ qualified Somaliland national whenever they are available, Foreign investment shall seek to make a significant contribution towards the transfer of technology and managerial know-how, and the upgrading of professional skills available in Somaliland.
Article 16: REINVESTMENT OF PROFIT
1.“Profit” shall be understood as the “net income” less income taxes payable, as applicable, in accordance with the prevailing legislation.
1. Profit organisation form [This should read “Profit originating from a” - Editor’ duly registered foreign investment may be invested in the same enterprise, [“that is the” - Editor] object of the investment, or in another enterprise in accordance with the provisions of this law.
2. When such profit is to be reinvested, the Board shall be notified to this effect by registered mail or directly against issue of delivery receipt.
3. The Board Shall proceed to register profit reinvested in the Convertible currency specified in the “Certificate of foreign investment registered”. The amount shall be determined in accordance with the prevailing laws and regulation governing foreign exchange.
4. To this effect, The Board shall issue a “ Certificate of Reinvestment”.
5. Subsequent rights to transfer profit and repatriate investment as well as other benefits under this law shall be determined on the basis of the original investment registered plus profit reinvested.
6. In case of reinvesting profit in an enterprise other than the enterprise [“that is the” - Editor] object of a duly registered foreign investment, the provisions of article 9 and 10 of this law shall apply.
Article 17: TRANSFER OF PROFIT
1. Profit originating from a duly registered foreign investment, as per paragraph 1 of Article 11 may be freely transferred abroad.
2. In case that only part such profit is transferred abroad in one year, the foreign investor may transfer this remaining portion in any one of the following years.
Article 18: TRANSFER OF CAPITAL AND PROFIT
1. Duly registered foreign investment, defined, as the original investment, plus profit reinvested, shall be freely transferable abroad after three years from the date of the registration of the original investment, as specified in the “Certificate of Foreign Investment Registered”.
2. The Board may reduce the said period, taking into consideration the priorities under the policy guidelines as per Article 4., of this law.
3. The transfer abroad shall be affected [“effected” - Editor] in the original currency specified in the “Certificate of Foreign Investment Registered.” The fund destined for transfer shall originate from the liquidation of assets or the transfer of capital stock of the enterprise,[“that is the” - Editor’] object of the foreign investment, to other juridical or physical persons. The foreign investor is free to transfer abroad the physical assets, that were the object of the investment, in the event this alternative is opted for.
4. In case were [“where” - Editor] the amount realised from the liquidation or sale of capital stock exceeds the amount of the original investment plus reinvested profit registered, the foreign investor shall be free to transfer abroad, in the freely convertible currency exchange conducted and warranted by the Bank Somaliland, the difference, in accordance [with] the prevailing tax legislation and foreign exchange regulations
Article 19: SETTLEMENT OF DISPUTES
Disputes in respect of the implementations of this laws shall be settled.
a. In a manner to be agreed upon with the investor, [or] in the absence of such agreement.
b. Within the frame work of the agreements in force between the Somaliland Republic and the investor’s home country.
In the absence of agreements, disputes shall be settled through arbitration. An arbitration board shall be established comprising one member on behalf of each disputing party and a third member acting as a chairman, to be jointly named by the said two members. Failing agreement of the nomination of the third member, the chairman shall be appointed, at the request of either party, by the president of the Supreme Court of Somaliland.
The Arbitration Board shall lay down its of procedures unrestricted by the rules contained in the civil and commercial code procedures, save for the rules which relate to the basic guarantees and principles of litigation.
The Board shall see to it that the dispute be expediently resolved.
Awards shall be rendered by majority vote, and shall be final and binding on both parties and enforceable as any other final jjudgement. The Arbitration boards shall decide who shall bear the arbitration costs.
Article 20: ALIENATION OF FOREIGN INVESTMENTAND NOTIFICATION REQUIREMENTS
1. Alienation of foreign investment shall be effected either through liquidation of assets or through the transfer of capital stock of the enterprise,[“that is the” - Editor’s note] object of such investment to juridical or physical person.
2. In the event of alienation of a investment to a resident Somaliland juridical or physical foreign, the transfer shall case [“cease to” - Editor] enjoy the benefit derived from the statues of a foreign investor.
3. Any alienation is subject to prior notification to the Board by both the transfer or and the transferred, such notification shall be accompanied by appropriate supporting documentation.
4. The alienation of foreign investment to
the [Editor] other foreign investors shall not require approval; as per paragraph 3 of the Article.
Article 21: BENEFITS TO EXISTING FOREIGN INVESTMENT
1. Existing foreign investment in Somaliland, duly registered under, current or previous laws concerning foreign investment, shall continue to enjoy the rights and obligations conferred to it by said laws.
2. Such foreign investment shall be benefited at foreign investor’s option, by the provisions of this law, provided the registration requirements and other provisions of the previous laws have been complied with, and satisfactory documentary evidence is produced, to this effect, by the foreign investor. In such case the foreign investor may apply to the Board for registration under this law within 180 days as of date of its promulgation.
Article 22: OBLIGATIONS TO REPORT TRANSACTIONS CONCERNING FOREIGN INVESTMENT
Bank[s] [Editor], notaries, private and public entities involved with foreign investment shall notify the Board of the particulars of any important pertinent acts and transaction[s] within thirty days from the date of completing such acts or transaction[s] concerning incorporation, contracting of debt from institutional domestic financial sources, transfer of profit and repatriation of investment.
Article 23: FOREIGN INVESTMENT NOT SUBJECT TO THIS LAW
The Provisions of this law shall not apply to foreign investment in mineral research and mining activities, including those related to the petroleum Industry and nuclear power. Such investments shall be subject to the mining code and the mining regulations, and of agreements reached, hereunder, between the Government of Somaliland and the interested party.
Article 24: NON-COMPLEANCE WITH THE PROVISIONS OF THIS LAW
Failure to comply with the provisions of this law, on the part of the foreign investor, shall result in the for forfeiture of benefits provided hereunder.
Article 25: ENJOYMENT BENEFITS UNDER SUBSQUENT MORE FAVOURABLE PROVISIONS
No provisions of this law shall preclude the enjoyment, by the foreign investor, of benefits under more favourable provisions, which might be subsequently promulgated.
Article 26: REGULATIONS
The President of the Somaliland Republic, on the proposal of the Board, and having heard the Minister of Commerce and Industry and the council of Ministers, may issue regulation for the proper implementation of this law.
Article 27: ENTRY INTO FORCE
This law shall come into a force following its signature by the H E President of the Republic of Somaliland.
Mohamed Hassan Kahin (keyse) Secretary General of the HoR
Abdirahman Mohamad Abdillahi (Irro), Chairman of the HoR