Doing Business in Tunisia

Welcome to Tunisia!

“If you have never been to Tunisia, we are coming to you!” This should be the slogan of Tunisian tourist agencies.

The  largest sector in the service industry, of course, is tourism, which  directly or indirectly provides employment for approximately 300,000 residents. As a major source of foreign currency, this sector experiences steady economic growth (despite the coup in Tunisia and a period of political instability – everything ends, and Tunisia will soon again become the Mecca for those tourists, who like sun, sea and unostentatious service in hotels).

Tunisia has a developed economy, an important place in which there is agriculture, mining, energy, tourism and manufacturing. The country is now gradually removing barriers to trade with the European Union, as evidenced by the increase in imports (from 46% of GDP in 1997 to 54% in 2009). Priorities for future development are expanded privatization and further  liberalization of investment laws to increase foreign investment and  improving government effectiveness.

In Tunisia it is extremely  profitable to do business as there are strong fiscal incentives. In the early 90s the legislation in Tunisia was enacted providing for the grant of a large set of tax incentives for international companies engaged in tourism, food and agricultural industry (especially the fishing industry), machinery and electronic industries and service industries. The international trading company may be authorized to conduct business in the country with preferential tax treatment.

In  order to attract non-residents, Zarsiz in the south and Bizet’s mouth in the north received the status of free economic zones. Preferential tax conditions attract foreign businessmen who, by law, must re-export all their products. These zones have created 8,000 new jobs, and the export gave $140 million in profits. Tunisians confer special hopes on Bizet’s mouth, which received the free economic zone status in 1995, but claims to be the “Gibraltar” of French in North Africa.

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Tunisia  is committed to a free trade regime of export-oriented growth, which highlights Tunisia’s entry into the World Trade Organization in 1995 (the year of its formation). Locals like to point out the historic orientation of the country to the outside world, which goes back to the Phoenician trading empire. Tunisia has largely focused on European Union countries to some extent because of their proximity, as well as  agreements with the EU on free trade in the region. The Cooperation Agreement with the EU, which entered into force in 2008, provides for the gradual elimination of trade and tariff barriers on non-agricultural products, services and investments. The EU has provided assistance to upgrade infrastructure and revitalize the private sector.

Meanwhile, Tunisian authorities are strengthening private sector participation in the economy, particularly in telecommunications and banking sectors. Over a good track record of sound financial history, the Tunisian economy regularly gets high investment ratings from various international institutions. Through tax reform and regulation of employment, she  manages to attract foreign direct investment (FDI). FDI attracted to the country happens on an assumption of a general positive climate and an investment rating by international institutions such as Moody’s Fitch. There are, however, constraints, including the continuing strong government presence in economic activity and the known “tightness” – a slow-working  bureaucracy, especially when making decisions.

New legislation designed to stimulate the activities of investors, primarily, provides a “most favoured nation” to residents, non-residents or partners, who are investing and creating new jobs in sectors of the Tunisian economy such as agriculture, fisheries, manufacturing, public works, tourism,  development of artistic handicrafts, transport, education, vocational  training, culture and environmental protection. Foreigners (residents and non-residents) are free to invest in these industries; however, their part-ownership in companies, with the system of export, is subject to approval by the High Commission on Investment if their proportion exceeds 50% of the share capital of the company.
Another restriction relates to agriculture. Foreigners may only take land on lease, and only when it is processed. Purchase of agricultural land by  foreigners is not allowed. A property in Tunisia may be acquired by any foreigner. To do this you only need to obtain permission of the governor of the district in which purchase is to be made.

The biggest  tax breaks are enjoyed by enterprises whose activities are entirely oriented to export. The export companies are those whose products are entirely intended for export abroad, or companies offering their services abroad or in Tunisia, but also for use abroad. They also include companies working with companies established in free economic zones as well as banking and financial organizations that work primarily with non-residents.

Taxation of the “fully export companies” is regulated by legislative acts, adopted for the free economic zones. In the course of their activities in Tunisia, they are required to pay:

1. Taxes and fees for the operation of passenger cars.
2. Single compensating tax on road transport.
3. Health tax.
4. Operating costs.
5. Taxes and fees charged for the services, provided in accordance with applicable law.
6. Contributions to the existing social insurance system (although at the time of joining the company, non-resident foreigners have the right to withdraw from the Tunisian social security system).
7. Income tax on individuals who are charged after a decline of 50% of export earnings. In the first ten years after the first export operation, specified in the annual tax declaration export profits from income is not taxed.
8. The tax on corporate profits paid out by the same scheme.

“Fully export companies” are non-resident if the capital, invested by non-residents through imports convertible foreign currency, is at least 66%. These companies are free to import any components necessary for them to ensure the production process. They are authorized to sell their own produce or provide services in Tunisia in the proportions determined by the relevant decree, depending on the nature of activities and products manufactured, not exceeding 20% of turnover. Agricultural and fishing companies are fully export if the export is at  least 70% of their products, the remaining part of the same, they have the right to sell on the domestic market. Implementation of these goods and services produced in accordance with the provisions of the Foreign Trade, paid customs duties and import tax.

After notification  of the Ministry in charge of hiring and training workers, all export companies can recruit foreign staff, including managers, but not more  han four persons for each company. In addition, companies must comply with specific programs approved by the Ministry in accordance with Article 260 of the Labor Law.

Foreign personnel, foreign investors or their representatives shall enjoy the following benefits:

1. Lump sum (without differentiating the component parts of) the income tax rate of 20% of gross income.
2. Exemption from customs duties and taxes on imported goods required for the stable operation of foreign personnel, as well as the import tax of one passenger car for each person.

Companies fully working for export shall be examined by the competent administrative authorities, who shall ensure that their activities are fully consistent with the law. Companies must continually pass customs control and be responsible for timely payment of staff salaries and rent for office.

Companies Partially Working in the System of Export

This form includes companies involved in the following categories:

The sale of goods abroad;

1. Providing services to foreign markets.
2. Sale of goods and services to companies, all working for export companies registered in free economic zones, banking and financial organizations that work primarily with non-residents, as well as foreign companies providing services in Tunisia.

Companies, partly working in the export system, are provided  the following tax incentives:

1. Exemption from VAT and consumption of goods, products and services required for the export operations.
2. Reduced income tax rates for individuals and lower income taxes by 50% for companies in the first ten years after the first export operation.
3. Compensation for duties and taxes at the rate of cost of raw materials and semi-finished products, imported or purchased on the domestic market, in order to produce goods for export.
4. Compensation for duties and taxes on import of equipment needed for production, depending on the number of products and goods intended for export. Conditions on the item defined by the relevant decree.
5. More flexible conditions for imports of food and goods destined for further processing and re-export. For this purpose, a deposit, of which dimension is determined by the relevant decree, must be paid.

For registration of companies, wholly or partially employed in the export  system, the relevant ministry must be furnished with information including the form and type of investment, the main activity, location of the project, information on contract awards, costs, funding sources, investment plans, the legal form of company, the degree of participation of foreign investors in the project schedule and the number of needed jobs.

Information Technology

One of the most promising areas is the development of market for information technology (IT), which is now on the verge of a broad liberalization. This sector, which is best developed in Tunisia from all North African countries and which has long remained a monopoly market under control of the company Tunizi Telecom, was liberalized in 2004 in such a way that by the end of 2005 a duopoly was achieved – a monopoly of the two competing companies.

In addition, the government has announced the international tenders for the VSAT (small satellite land stations) by introducing competition in the provision of VSAT-services that were  previously the prerogative of only “Tunizi Telecom.”

Another  milestone for the country’s achievements in high technology was the “World Report on Information Technology in 2003-2004,” at the annual World  Economic Forum, where Tunisia received a rating of the first country that invests in the development of information technologies for sustaining growth in the entire economy.

There are a lot of opportunities in Tunisia for small firms and large international companies to start business, and the government does all its best to attract investments from abroad and to raise the prosperity of the country.

By Iana Roginska