An overview of Tunisia's legal reforms and changes

 

As the country of origin of the Arab Spring, Tunisia is, to date, the only example of a successful democratic transition in the Arab world. However, the economic slowdown that followed the revolution and the freedom of expression newly acquired by Tunisians favoured a proliferation of social and political demands. In addition, tourism, which is an important source of employment and foreign exchange earnings, has been heavily affected by two deadly attacks that have left their mark on the economy as the sector struggles to recover.

This difficult social and security context, coupled with international events and proximity to Libya, which has been strongly destabilised since 2011, has contributed to a decline in investment, especially foreign investment, and consequently to Tunisia’s economic difficulties. Aware of the need to boost the economy and encourage investment, the authorities have undertaken a vast legislative effort to facilitate and simplify investment in Tunisia.

Legislation

It is in this context that the Assembly of the People’s Representatives promulgated a law on public-private partnerships in 2015 and revised competition and price legislation. Continuing in its reformist efforts, on September 17, 2016 the Assembly adopted session Law 2016-7 regarding investment legislation, also known as the New Investment Law. The provisions of this law went into force on January 1, 2017, and have substantially modified the legal framework for investment in Tunisia.

This review will provide an overview of the New Investment Law by succinctly describing the regulatory frameworks affected by the investment law, such as those related to real estate, labour and foreign exchange, as well as significant changes to other long-standing regulations due to the investment law. These changes include, for example, greater flexibility when it comes to granting the necessary authorisations for international franchises.

New Investment Law

After a laborious process within the Assembly, the provisions of the New Investment Law were designed to have a general scope, and they concern both local and foreign investors. Nevertheless, it is clear that the will of the legislature has been to simplify the legal framework governing investment in Tunisia, with a view to attracting more foreign investment in a difficult economic context. Thus, revision of the legal structures governing investment was necessary, as Tunisia’s old legal framework for investment had become too complex. The previous investment incentive code was too long, with 67 articles, which is twice the number of articles in the New Investment Law. It was also unstable, as the old code had been amended 29 times in nearly 20 years. In addition, this code was complemented by 33 implementing decrees.

Domestic investors had adapted to this uncertainty and learned to take advantage of the many incentives provided by the former code. However, foreign investors, especially small and medium-sized enterprises, were often hampered by the multitude of statutes, their possible combinations and the opacity of the conditions necessary for obtaining benefits, especially those related to tax advantages.

Tunisia has a small domestic market that is often insufficient to alone justify foreign investment. It is therefore the country’s ability to serve as an export platform that drives most foreign investment. In this respect, Tunisia benefits from important competitive advantages: low labour costs, a skilled and often bilingual – or trilingual – workforce, reasonable energy costs, geographical and cultural proximity to Europe, and wealthy and import-hungry neighbours. Conversely, there are also some disadvantages that the authorities are trying to eliminate or at least mitigate. In terms of substance, the changes to the legislative framework introduced by the New Investment Law are both numerous and important.

Freedom of Investment

The New Investment Law establishes the principle of freedom of investment for both nationals and foreigners. Freedom of investment constitutes an important change in the rules governing investment in Tunisia. Until the entry into force of the New Investment Law, foreigners were free to invest only in certain listed activities and sectors. Conversely, any investment in an activity not included on the list of free activities required the authorisation of the central bank, Banque Centrale de Tunisie, or the Higher Commission for Investment, depending on the case in question.

However, the freedom of investment principle provided by the New Investment Law is not absolute, as it supports some exceptions. Nevertheless, the approach has been changed. Before the adoption of the New Investment Law, the need to obtain authorisation was the rule and the freedom to invest the exception. Now, the freedom to invest is the rule and the need to obtain an authorisation is the exception. Thus, Article 4 of the New Investment Law states that investment is free, but it also provides that investment operations must comply with legislation relating to the pursuit of economic activities.

Ambiguity

The lack of clarity on this provision is regrettable. It is thus possible to consider that this provision merely asserts the principle of freedom of investment, but does not relieve the investor of complying with the technical regulations governing the various sectors of activity. Indeed, it is natural that investment in specific sectors, such as the banking sector, health care or education be subject to special conditions applicable to both Tunisian and foreign investors. Conversely, it would be contrary to the New Investment Law’s objectives of simplification if Article 4 were interpreted to oblige investors to abide by sectoral legislation that limits foreign investment in sectors such as agricultural or retail.

Nevertheless, this is what Article 4 of the New Investment Law seems to imply. Indeed, Article 36 of the law provides for the repeal of all previous provisions contrary to the New Investment Law, listing in a non-exhaustive manner a number of minor legal provisions, but without mentioning, for example, Decree-Law No. 61-14, which de facto requires any company that is majority owned by foreign investors to obtain authorisation from the minister of commerce to carry out a distribution activity, or the Agricultural Investment Act, which limits foreign capital participation to two-thirds.

In addition, Article 4 provides that a decree shall set out the list of activities subject to authorisation and the time limits, procedures and conditions for obtaining such authorisations. This decree has not yet been published. The New Investment Law stipulates that its publication must take place no later than one year from the publication of the investment law, which is to say October 7, 2017. Though the length of this period is regrettable, it would seem that the government does not intend to exhaust it and that the publication of this decree is expected before this deadline. At this stage, what the nature of this decree will be is unknown. It is possible that this decree will simply be a rehash of the authorisations provided for by sectoral legislation. In this case, and provided that it is exhaustive, the publication of this decree will clarify the meaning of the legal framework for Tunisian and foreign investors.

It is also possible that this decree will implement new authorisations in place of those provided for under the old investment incentive code, with or without the authorisation of sectoral legislation. In this case, the real improvement in the freedom of investment for foreigners can only be seriously assessed after the publication of this decree.

It is likely that the authorities will opt for this second choice and will, over time, change the list of authorisations towards an approach that is increasingly more liberal. It is also probable that the new authorisations that will be required by the decree will be limited and will thus significantly increase freedom of investment in Tunisia.

New Requirements

Furthermore, it is worth noting that denying authorisation requests must now be explicitly justified. This constitutes a major development in Tunisian law, which, with rare exceptions, does not require justifications or explanations for refusals of authorisation to be communicated. This could reduce request refusals or, in any case, clarify over time legitimate reasons for refusals and thus improve the predictability of administrative doctrine. It would have been useful for this purpose for refusal decisions be officially released for better dissemination of information.

It is also interesting to note that Article 4 of the New Investment Law provides that the decree must establish a maximum period for each authorisation, after which the administration’s silence will be considered an implicit authorisation, provided that the investor’s request satisfies all of the conditions laid down in the decree. In this case, the Tunisian Investment Authority, created by the New Investment Law, will formally grant authorisations after verifying compliance with the conditions stipulated by the decree. It is, however, unfortunate that the authorisations granted by the Tunisian Investment Authority are not also subject to a deadline.

Access To Real Estate

In Tunisia, there are two types of real estate assets: those entered in the land registry and those that are unregistered. Registration makes it possible to clarify the legal and material consistency of registered property. It is accompanied by a land notice that makes available to the public all land titles in the registry. Moreover, with regard to registered assets, since the last land law reform, real right, in particular the right to property, only comes into being when it is registered in the land register. The need to register makes it possible to determine the origin of the property and all the real rights that may encumber the property.

Real estate may be acquired through four methods: purchase, donation, inheritance or acquisitive prescription. With the exception of acquisitive prescription, these different methods of acquiring real estate are applicable to both registered and unregistered property. In the case of acquisitive prescription, this means of acquisition concerns only unregistered property, since in the case of registered property, the land registry prevails.

Real Estate & Foreigners

Tunisian land law provides for four main categories of property:

• Land for industrial use;

• Land for touristic use;

• Land for residential or professional use; and

• Land for agricultural use. Agricultural land cannot be held by foreigners. This prohibition is absolute, which is to say that no authorisation to acquire agricultural land can be granted to a foreigner under any condition. The only solution allowing for the acquisition of land for agricultural use by a foreigner is to change the purpose of the land in question. Such a change would circumvent the prohibition of purchase by a foreigner and the land would be subject to the rules applicable to its new purpose. In practice, these changes in purpose require a long and uncertain procedure that are rarely successful. Moreover, this prohibition applies not only to foreigners but also to any Tunisian company with a foreign direct or indirect shareholding or a part of the capital of which is held by another company, even if 100% Tunisian.

Conversely, land for industrial or touristic use may be freely acquired by foreign investors for the purpose of investment in Tunisia. All other acquisitions of land may be undertaken by foreigners after obtaining an authorisation from the governor of location of the property in question.

Freedom Of Acquisition

Article 5 of the New Investment Law lays down the principle of freedom of acquisition, of rental and/or of exploitation of real estate by foreign investors in order to carry out or pursue direct investment operations, with the exception of agricultural land, the property of which is reserved for Tunisians. This represents a small improvement over the pre-existing situation. Thus, it is clear from the New Investment Law that, with the exception of agricultural land, a foreign investor may acquire any real estate useful for the realisation or pursuit of his or her direct investment operations without having to apply for authorisation One may question the reasons for why this additional freedom concerns only direct investment operations. Indeed, Article 3 of the New Investment Law defines investment as any sustainable use of capital by an investor(s) for the realisation of a project that contributes to the development of the economy while assuming the project’s risks in the form of direct investment operations or equity investments. The same article defines a direct investment operation as any creation of a new and autonomous project for the production of goods and/or services or for any extension or renewal carried out by an existing company within the framework of the same project, allowing the increase of its productive, technological or competitiveness capacity. Moreover, equity investment operations are defined as the participation in cash or in kind in the capital of companies established in Tunisia, at the time of their formation, the increase of equity, or the acquisition of foreign equity.

It is regrettable that the two forms of investment provided for by the New Investment Law do not give rise to the same opportunities for access to real estate. From a practical point of view, it follows from Article 5 of the New Investment Law that if a Tunisian corporation is more than 50% owned by foreign investors, if a majority of its board of directors is composed of foreign directors, or if its management or general management is carried out by a foreigner, then it will be subject to the obligation to obtain an authorisation from the governor of the place of the property under common law conditions. Companies under Tunisian law that do not meet any of the above criteria will be considered Tunisian and will be free to acquire non-agricultural land.

It is also regrettable that the New Investment Law maintains the prohibition for foreigners to hold agricultural land. Indeed, it is because of this prohibition that foreign investors wishing to carry out an agricultural activity are generally forced to rent agricultural land. This prohibition is today, and will continue to constitute under the New Investment Law, a significant obstacle to the development of foreign investment in agriculture.

Labour Law

Labour law in Tunisia is governed by the Labour Code, a framework collective agreement, and sectoral collective agreements. Labour legislation protects the fundamental rights of workers, which include the following:

• Right to organise;

• Right to strike;

• Leave;

• Establishment of working hours;

• Establishment of guaranteed minimum wages; and

• Guarantee of social security.

Recruitment

The Tunisian legislature does not provide for any special recruitment rules. So there are no recruitment obligations on the employer. There are, however, incentives to employ certain categories of employees, such as persons with disabilities or employees who have been dismissed for economic reasons. Similarly for the selection of employees, Tunisian law does not impose any particular method. It is only necessary to respect the principle of non-discrimination introduced by the 1993 reform of the Labour Code.

However, freedom of recruitment is limited by the rules of fair competition. Non-competitive clauses can be inserted into employment contracts provided that they are limited in time and space. Moreover, when an employer hires an employee while said employee is bound by another employment contract in force, he is jointly and severally liable for the damage caused to the previous employer provided that, at the time of hiring, the new employer had been informed of the existence of an employment contract binding the recruited employee.

Duration of Employment Contracts

Tunisian law does not currently impose any particular minimum duration for employment contracts. It is possible to conclude fixed-term or indefinite employment contracts. However, if a fixed-term contract is renewed for more than four years, it is automatically converted into an employment contract of indefinite duration.

It is also possible to provide for a trial period, the duration of which is determined by sectoral collective agreements. If the employer and/or the employee wish to terminate the employment relationship during the probationary period, this does not entail any right to compensation or allowance.

Working Hours

In principle, a normal workweek is defined under Tunisian law as 48 hours. In certain sectors, sectoral collective agreements or regulatory documents drafted after consultation with trade union organisations may lead to a decision to reduce this weekly working time to no less than 40 hours per week. It may also be decided by ministerial decree to increase weekly working hours for certain companies or categories of staff to a maximum of 64 hours in order to take account for the loss of time resulting from the interruption of work or the nature of the job. It is also possible to provide for part-time employment contracts that would entail work performed during a working time not exceeding 70% of the normal working hours applicable to the company.

Dismissal

Employers are free to terminate employment contracts. Dismissal will be considered legally unfair if it occurs without the existence of a genuine and serious cause justifying it or without respect for legal, regulatory or conventional procedures. In the event of unfair dismissal, and except in the event of serious or gross misconduct, a laid-off employee holding an indefinite contract shall receive an end-of-service bonus calculated on the basis of one day’s salary per month of actual service in the company. Except in special cases, this bonus is limited to three months of salary.

In the event of an unfair dismissal, a laid-off employee who holds a contract of indefinite duration is entitled to damages, the amount of which varies between the monthly salary and the two-month salary, but will not exceed three years of salary. In the event of unfair dismissal, a laid-off employee with a fixed-term contract is entitled to damages equal to the wage corresponding to the remaining duration of the employment contract. For employers undergoing difficulties, the legislature has also provided for dismissals in light of economic or technological reasons in accordance with a procedure provided for by law that protects workers.

Employment Of Foreign Workers

The conditions under which foreign workers can be recruited under the Tunisian Labour Code are extremely restrictive. Thus, the recruitment of foreigners cannot be carried out when there are already Tunisian workers available that have the skills or the specialisms necessary for the position in question. In addition, the duration of the employment contract for foreigners may not, except in special cases, exceed one year, and is renewable once. Furthermore, the employment contract and its renewal must be endorsed by the minister responsible for employment. The terms of recruitment of executives have been relaxed by the New Investment Law.

Changes To Foreign Employment

The New Investment Law provides that and company may recruit officials of foreign nationality up to 30% of total executives until the end of the third year following its legal establishment, or following the date of its commencement of actual activity. From the fourth year on, this rate is reduced to 10%. In any case the company can recruit four executives of foreign nationality. Beyond this, the recruitment of a foreigners is subject to the above conditions.

It is regrettable that the rate is reduced to 10% from the fourth year onwards. It is also regrettable that in the event of a business transfer, the company is not entitled to the 30% maximum for the recruitment of managers of foreign nationality. Nevertheless, given social conditions in Tunisia, such as high unemployment and the availability of skilled employees, this development reflects a desire on the part of the legislature to encourage investment.

Exchange Control

Tunisia has introduced foreign exchange controls since its independence. Ever since, the trend has been towards a slow and constant easing of this control. Currently, Tunisian foreign exchange regulations distinguish between transfers related to day-to-day transactions that are free, as opposed to transfers related to operations that are subject to the prior authorisation of the Banque Centrale de Tunisie.

Free transfers are listed by a decree. This list includes the majority of the activities necessary for the operation of a company, such as commercial operations, operations related to production, transport and legal expenses. In addition, foreign exchange legislation provides that an alien who has regularly invested in Tunisia may freely export the dividends accruing to him, the proceeds of the sale of shares and any liquidation surplus.

However, this transfer guarantee is given only for investments carried out by importing foreign currency. Any other form of investment, such as contribution in kind and debt conversion, receives guaranteed transfer only after authorisation by the central bank. Nevertheless, insofar as the New Investment Law allows for foreign investment to be made in the context of a contribution in kind, it is probable that the transfer guarantee currently limited to liberalised investments made by importing foreign currency will also be extended to liberalised investments made by contributions in kind.

Moreover, as with all authorisations, the new law stipulates that the reply period of Banque Centrale Tunisie will be limited by a decree and that the failure to reply within this period will be considered an authorisation. The law also stipulates that any refusal must be justified and made available.

Support For Investors

In order to facilitate procedures and investor relations with various Tunisian administrations, the New Investment Law provides for the creation of a new institution that will serve as a single point of contact for investors. This new body will be responsible for the following:

• Welcoming, guiding and informing investors in coordination with the various bodies concerned;

• Carrying out, in favour of the investor, the administrative procedures related to the legal establishment or expansion of a company and obtaining any necessary authorisations for the different stages of the investment; and

• Receiving investor requests and supporting their completion with the various administrations.

Rewards & Incentives

The New Investment Law provides for the granting of various rewards for the realisation of direct investment operations. The following four categories of rewards, and the requirements therein, fall under this provision. Rewards for increasing value added and competitiveness: These rewards are granted for direct investment operations carried out in priority sectors and economic sectors that are singled out by the competent authorities and for economic performance in:

• Tangible investments aimed at better mastery of new technologies and improved productivity;

• Intangible investments;

• Investments in research and development; and

• Employee training that leads to the certification of skills. Rewards for the development of employability: This reward relates to the undertaking of the activities listed below:

• The employer’s contribution to the actual social security scheme for wages paid to Tunisian employees for a period not exceeding the first 10 years from the effective date of commencement of actual activity; and

• A percentage of the salaries paid to Tunisian employees according to the level of management. Rewards for regional development: This reward is granted on the basis of the regional development index in certain activities in connection with the realisation of direct investment operations and expenditure on infrastructure works. Rewards for sustainable development: This reward covers investments in pollution abatement and environmental protection.

Cumulative Rewards

It is possible to cumulate the different rewards provided for by the New Investment Law, and by the other applicable regulations, provided, however, that the cumulative rewards not exceed one-third of the total cost of the investment. It is understood that this ceiling does not include the participation of the government in infrastructure expenditure and the reward for developing employability. The percentages, ceilings and conditions for these rewards will be set by a decree not yet published. The decision to grant these subsidies is up to the Tunisian Investment Council, created by the New Investment Law.

Moreover, projects considered by the administration to be of national importance may, in addition to the above-mentioned rewards and independently of the criteria for such subsidies, benefit from:

• Deduction of taxable profits from the corporate tax base for a maximum period of 10 years;

• An investment reward not exceeding one-third of the total cost of the investment, including expenditure on intramural infrastructure works; and

• Government participation in the assumption of expenditures on infrastructure works.

Dispute Resolution

In general, Tunisian law enshrines the freedom of the parties to a contract, including a foreign element, to choose the applicable law governing dispute resolution and to provide for clauses of recourse to international arbitration or foreign courts. The New Investment Law sets out a framework for the settlement of disputes between investors and the Tunisian state that may arise due to divergences in the interpretation or application of the provisions of the New Investment Law.

The law provides that any dispute shall be resolved by conciliation as long as either party has not waived this mode of resolving the dispute. In the absence of an agreement between the parties on the conciliation procedures and rules, the Conciliation Rules of the UN Commission on International Trade Law will be applied. If the conciliation between the Tunisian state and a foreign investor fails, the investment law provides that it is possible to submit the dispute to arbitration under an arbitration agreement concluded between the parties.

In the case of a dispute between the Tunisian state and a local investor, it is possible to submit the dispute to arbitration under an arbitration agreement concluded between the parties if the dispute is objectively international in character. In this case, arbitration will be governed by the provisions of the Tunisian arbitration code. In the absence of this international character, the dispute must be submitted to Tunisian courts.

This differentiation between Tunisian and foreign investors in relation to the possibility of resorting to arbitration in dispute settlement is rather curious given that the New Investment Law affirms equal treatment between Tunisian and foreign investors. It is clear from the provisions providing for arbitration that it may be ad hoc, as well as institutional in both Tunisia and abroad. Insofar as the dispute submitted to arbitration concerns, by construction, the interpretation or application of the investment law, Tunisian law will be applied.

Franchise Law

Until 2009, franchises were not specifically organised by Tunisian law. Under more general legislation, the introduction of franchises was subject to administrative licences that were difficult to obtain. The concept of franchising was introduced in Tunisian law by Act No. 2009-69 on retail distribution. Following the promulgation of this law, Tunisian investors have developed contacts with international franchisors, but the start to this process has been timid due to the delay in issuing the implementing decree fixing the minimum clauses forming part of the franchise agreement in June 2010 and the revolution in 2011, which disrupted the business climate in the country until 2013.

Franchise Agreement

Since the business environment picked up again in 2013 there has been an acceleration in the development of franchises, favoured by the renewed confidence of investors and the goodwill of the authorities, who are increasingly granting the authorisations necessary for certain international franchises.

Tunisian franchise law is not well developed. The law defines the franchise agreement as a contract by which the owner of a trademark or a commercial sign grants the right to his business to a natural person or legal entity known as a franchisee for the purpose of distributing products or of the provision of services for a fee. The law provides that the franchise agreement must be in writing and that it risks invalidation unless it includes the following clauses and information:

• Services rendered by the franchisor to the franchisee, in particular as regards the transfer of acquired experience, know-how and use of intellectual property rights;

• Conditions for the distribution of advertising expenses;

• Duration of the contract and the conditions for its renewal;

• Conditions of use of the trademark or commercial brand;

• Terms of termination of the contract;

• Clauses on exclusive supply rights;

• Non-competition clauses;

• Delimitation of the exclusive geographical area of use of the trademark or commercial brand;

• Obligation of the franchisee to the confidentiality of the data disclosed by the franchisor;

• Royalties required of the franchisee;

• Communication to the franchisor of the data relating to the sale and the financial situation of the franchisee;

• Investment plan to be executed by the franchisee;

• Authorisation procedures of the franchisor or his or her delegates to access the premises of the franchisee; and

• Possibility for the beneficiary of an exclusive representation contract covering the entire territory of the Republic of Tunisia to conclude with franchisees operating contracts covering limited geographical areas. Franchise law also stipulates that the franchisor is obliged, within a minimum period of 20 days before the signing of the contract, to make available to the franchisee a draft contract and a document containing information relating to the franchisor and its sector of activity. The information document accompanying the franchise agreement must include data relating to the franchisor and its sector of activity and in particular the following information:

• Legal form of the company and the nature of its business;

• Identity of the franchisor and its address for natural persons;

• Identity of the legal representative, the address of the registered office, the list of directors and the capital for legal persons;

• Company history;

• Registration number in the trade register or any equivalent data;

• Evidence of the ownership of the trademark or commercial brand;

• Data relating to the entry in the national registry of trademarks;

• Data on the network of franchisees;

• Lists of the network of franchisees in Tunisia, their addresses, date of joining the network and the list of franchisees excluded from the network;

• Data on the sector of activity of the company and the opportunities for development of the sector in the areas where the brand is represented, as well as in Tunisia;

• Specification of the nature, amount of expenditure and specific investments of the trademark or commercial brand; and

• The company’s financial statements.

Sectors

The conclusion of a franchise agreement by a local franchisee with a franchisor holding a foreign trademark is free in the retail, tourism and training sectors. In retail the following segments are eligible: perfumery, cosmetics and beauty products, ready-to-wear, footwear, leather goods, sporting goods and footwear, dietetic products, watches, giftware, eyewear, household articles, furniture, indoor plants and flowers, hardware and sanitary ware, electronics and bookstores. In the tourism sector car rental, leisure areas and hotel management are eligible. Other economic activities include breakdown services, hairdressing and salons, repair and maintenance services, smoking cessation support services in hotels and thalassotherapy. Moreover, over the last two years there has been a tendency for the administration to grant authorisations more easily for franchises subject to prior authorisation.

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The Report: Tunisia 2017

Legal Framework chapter from The Report: Tunisia 2017

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