Tax Guide for US Expats Living and Working in Libya
Who Is Liable For Income Taxes in Libya
Libyan nationals and foreigners are subject to income tax on income arising in Libya. Libyan nationals and foreigners are considered to be resident if they satisfy any of the following conditions:
- They are Libyan.
- They are in Libya with a work visa.
- They undertake employment in Libya.
Residence results in liability for Libyan personal income tax for the year of residence.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Income tax is levied on employment income paid in cash or in kind.
Self-employment income. Individuals carrying out business activities independently, providing consulting services or engaging in technical, artistic or scientific projects are subject to tax on income derived from such activities.
Investment income. Bank interest on non-savings accounts is subject to withholding tax at a rate of 5%.
Other income. Other income is subject to tax at various rates.
Taxation of employer-provided stock options. Income derived from employer-provided stock options is taxed in the same manner as employment income.
Capital gains. The law does not make any reference to tax on capital gains. Company capital gains are treated as trading income.
Exempt income. The following items are exempt from income tax:
- Income from deposits in savings accounts
- Payments to beneficiaries of life insurance policies
- Payments for disability arising from employment
- Income from agricultural activities
- Income of civil servants and state employees
- Income from pensions
- Income derived from writing and research in the fields of science and culture
Deductions
Deductible expenses. Expenses that may be deducted include life insurance premiums, general insurance premiums, social security contributions, and medical insurance contributions.
Personal deductions and credits . Individuals may claim the following annual personal allowances:
- LD 1,800 for a single taxpayer
- LD 2,400 for a married taxpayer
- LD 300 for each dependent child, up to the age of 18
Jihad tax. Jihad tax is withheld monthly from earned income. It is imposed on gross income less the Social Unity Fund contribution (see below) and the employee’s social security contribution at the following rates:
- 1% if monthly income does not exceed LD 50
- 2% if monthly income does not exceed LD 100
- 3% if monthly income exceeds LD 100
Social Unity Fund contribution. One percent of monthly gross salary is withheld as a contribution to the Social Unity Fund.
Relief for losses. Losses incurred in business or professional activities may be carried forward and offset against profits from the same type of activities in the following five years. Losses may not be carried back.
B. Other taxes
Property tax. Only Libyan nationals may own property. Tax at scale rates is assessed on 60% of rental income. The top rate of property tax is 15%.
The transfer of immovable property is not formally subject to any property transfer tax.
Inheritance and gift taxes. Libya does not impose inheritance tax or gift tax.
C. Social security
Social security contributions are payable monthly on salaries, wages, bonuses and other compensation income. The contribution rates are 11.25% for employers and 3.75% for employees. The state pays a 0.75% portion of the contribution for Libyan companies. Employers withhold the employee contributions monthly.
Double tax relief and tax treaties
Under Libya’s double tax treaties, resident individuals who derive income abroad may claim a tax credit for foreign tax paid, up to the amount of the tax due on such income in Libya.
Libya has entered into double tax treaties with the following countries.
Arab
Maghreb
India
Slovak Republic
Union countries
Malta
Sudan
Egypt
Pakistan
United Kingdom
France
Libya has signed double tax treaties awaiting ratification with the following countries.
Austria
Croatia
Singapore
Azerbaijan
Germany
Slovenia
Belarus
Italy
Spain
Belgium
Korea (South)
Switzerland
Bosnia
Netherlands
Syria
Herzegovina
Qatar
Turkey
China
Russian Federation
Ukraine
To learn more about the history, culture, economy and other information about Libya
We have been preparing US income tax returns for US Citizens and permanent residents living in Libya for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Libya and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Libya.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email