Investing in the Supply Chain : Requirements and Expectations of International Investors from a Legal and Business Persp

1. Investing in the Supply Chain : Requirements and Expectations of International Investors from a Legal and Business Perspective Rindala Beydoun- Managing Partner Tribonian Law Advisors Dubai-Beirut-Riyadh

2. Introduction • Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies • Foreign investors favor jurisdictions with economic and political stability, ease of entry into the market, attractive tax system, no restrictions on repatriation of funds, low corruption, availability of finance and efficient dispute settlement mechanisms Lebanon International Oil and Gas Summit (LIOG 2013)

3. Risk Factors • Foreigner investors aim to limit, as much as possible, their risks and seek to mitigate them contractually • Common risks include: • Political instability • Economic slowdown • Changes in law • Adverse changes in tax regulations • Legal risks (enforceability, cross jurisdiction issues etc.) • Force Majeure (such as earthquakes, floods, etc.) • Such risks may have a material adverse effect on the value, trading or financial position or profits of the foreign investor • However, they can be mitigated by shifting them contractually to the local government or local party Lebanon International Oil and Gas Summit (LIOG 2013)

4. Ease of Entry • Foreign investors look for limited restrictions on their entry into the market • Ease of setting up • Minimum incorporation costs: • In Lebanon, approximately USD 2,000, this varies depending on the company's capital • Low minimum capital requirements: • In Lebanon, S.A.L., holding company, offshore company USD 20,000; S.A.R.L. USD 3,333 • Ease and speed of obtaining relevant trading license: • In Lebanon, incorporation of a company can be accomplished in 24 hrs • Ability to invest/conduct business through a branch or representative office: • In Lebanon, no minimum capital requirements for both; representative office is restricted to promotion of head office’s services • Foreign ownership restrictions will dictate an investor’s appetite to invest in a foreign jurisdiction • Is there a requirement for ‘local’ shareholders to have a minimum shareholding? • In Lebanon, there are no such requirements and foreigners have the right to form companies and even to participate in public tenders without the need for a local partner (except for commercial representation activities) • Are there free-zones? • Do sector-specific exemptions exist? Limited “negative lists” • Restrictions on foreign investment in Lebanon are very few, with all sectors open to foreign investors with the exception of weapons, media and to a certain extent, real estate ownership Lebanon International Oil and Gas Summit (LIOG 2013)

5. Workforce • Foreign investors are more likely to invest in countries with skilled workforce and minimal labor restrictions • Local talented/skilled workers • Attractive to foreign investors as it avoids the need to employ expensive skilled workers from abroad • Requirement to employ ‘national’ employees • Certain jurisdictions have local laws requiring the percentage of the overall workforce to include a minimum number of nationals (this is done to encourage the employment of nationals in the private sector) • There are no such requirements in Lebanon. However, a draft law is currently being discussed in the Lebanese Parliament in relation to the oil and gas industry and it remains to be seen whether it will include such a provision • Cost of labor • Visa requirements for expatriates • In Lebanon, naturally there are visa requirements for all foreign employees (except for Syrian employees). However, a draft law is currently being discussed in order to facilitate the visa procedure in the oil and gas sector • Average wage for both skilled and unskilled labor • Minimum wage requirements • In Lebanon, all employees benefit from minimum wage requirement. However, according to a draft law currently being discussed, the employees in the oil and gas sector will be subject to a higher minimum wage requirement Lebanon International Oil and Gas Summit (LIOG 2013)

6. Workforce (continued) • Unions • Existence of labor unions (e.g. General Confederation of Lebanese Workers) • Strength of labor unions (e.g. in Lebanon labor unions do not enjoy much power) • Employment at will • Freedom to employ and terminate employment for no cause • In Lebanon, employers may terminate an employment contract with notice period and 2-12 months compensation if no cause or for no compensation if cause (cause is defined broadly to include competence and performance, although employees terminated for such cause may complain at the Labor Ministry) • National Security Fund • In Lebanon, employers are required to register in the National Social Security Fund (NSSF) all their Lebanese and foreign employees and pay the relevant monthly contributions (being 23.5% of monthly salary) to NSSF to cover their employees’ family and medical allowances and end of service gratuities. As far as foreigners are concerned, they are entitled to social security benefits, provided their countries of origin offer equal treatment to Lebanese workers Lebanon International Oil and Gas Summit (LIOG 2012)

7. Repatriation of Funds • Ease of returning profits to home jurisdiction • Common for foreign investors to send a portion of profits made abroad back to their home jurisdictions • A number of jurisdictions have restrictions on or regulations governing the repatriation of funds • Repatriation may have tax implications in one or both countries; foreign investors hope for zero or minimal tax • In Lebanon, no restrictions or tax implications exist regarding the repatriation of funds Lebanon International Oil and Gas Summit (LIOG 2013)

8. Availability of Finance • Foreign investors consider the ease and cost of borrowing from international organizations and/or local banks • International organizations that provide financing/insurance to foreign investors include: • International Finance Corporation (IFC) promotes private sector investment in developing countries through loans and equity financing without government guarantees • Overseas Private Investment Corporation (OPIC): a US government agency that helps companies investing overseas analyze and manage risks and promotes development in emerging markets, supports projects, offers political risk insurance for investors as protection from expropriation risks, political violence and other country risks • Local banks are another source of finance: • Foreign investors consider the attitude of local banks when it comes to providing financing, whether they adopt conservative or liberal policy as well as bank secrecy regulations • In Lebanon, the criteria used by local banks to provide financing depends on various factors including the investor’s nationality, the investment sector etc. • Lebanon has strict bank secrecy regulations Lebanon International Oil and Gas Summit (LIOG 2013)

9. Bilateral Investment Treaties • Objective • A bilateral investment treaty (BIT) is an agreement between two countries that governs the terms upon which foreign direct investment is made by nationals or companies of one country in the other country • BITs are crucial for any foreign investor as they ensure fair and equitable treatment on a non-discriminatory basis, and full protection and security of foreign investments in both countries • There are currently more than 2500 BITs in place worldwide • Guarantees • BITs provide contracting states with a number of key guarantees, including: • Fair and equitable treatment • Protection from expropriation • Free transfer of funds • Protection and security of investment • BITs also allow for recourse for a foreign investor by way of international arbitration • Lebanon has entered into more than 53 bilateral Agreements for the Promotion and Protection of Investments. The oil and gas sector is generally included in said agreements Lebanon International Oil and Gas Summit (LIOG 2013)

10. Tax Regime • Favorable Tax Regime • A favorable tax regime attracts foreign direct investment • Highlights of favorable tax regimes include: • Zero/low corporate tax • In Lebanon, taxable income of non-residents is at 15% of total revenues generated in Lebanon • Zero/low withholding tax • In Lebanon, corporations and limited liability companies are subject to a withholding tax at the flat rate of 10% • Zero/low capital gains: • In Lebanon, capital gains arising from the disposition of immovable assets are taxed at a rate of 10% • Zero/low tax on profits from sale of shares, bonds etc. • Lebanese Joint Stock Companies (S.A.L) are exempted from tax on profits relating to sale of shares • A draft law is currently being discussed in order to promote foreign investments in the oil and gas industry by granting certain tax exemptions to foreign investors Lebanon International Oil and Gas Summit (LIOG 2013)

11. Tax Regime (Continued) • Double Taxation Treaties • Tax treaties entered into between two nations facilitate trading across borders and foster and encourage international business • Tax treaties promote the exchange of goods and services, the inflow of capital and technology by avoiding double taxation • Tax treaties aim to prevent fiscal evasion through administrative assistance between the contracting parties • The Lebanese double taxation treaty network is one of the widest in the Middle East region with more than 30 treaties Lebanon International Oil and Gas Summit (LIOG 2012)

12. Anti-Corruption/Bribery • Foreign investors are subject to anti-corruption/bribery regulations in their home jurisdiction aimed at combatting international bribery, e.g.: • United States Foreign Corrupt Practices Act (FCPA) • U.K. Bribery Act (UKBA) • E.U. Anti-Corruption Conventions • FCPA • Prohibits the making of payment or a gift (or an offer) of money or anything of value, directly or indirectly, to any foreign governmental official, to any foreign political party or candidate • Penalties include fines ranging from USD 10,000 to USD 25,000,000 and/or prison terms • UKBA • The UKBA applies to public and private sector functions, prohibiting the offering of a bribe to any private person or foreign public official • Penalties include fines (unlimited) and prison terms of up to 10 years • E.U. Anti-Corruption Conventions • The Criminal Law Convention on Corruption is aimed at coordinating the criminalization of active and passive bribery of domestic and foreign public officials as well as active and passive bribery in the private sector • The Civil Law Convention on Corruption is designed to ensure that effective remedies and compensation are provided for in E.U. members’ national laws for those who suffer damages as a result of corruption Lebanon International Oil and Gas Summit (LIOG 2013)

13. Legal System/Dispute Settlement Mechanisms • Choice of law and forum • In many circumstances when contracting with government or quasi-government entity, foreign investors have no choice but to have the local law as governing law • Investors consider how developed and efficient the legal system is in the relevant jurisdiction • Does law/legal system work to protect foreign investor rights? • Enforceability of Foreign Judgments • Refer to local courts enforcing final judgments made by foreign jurisdictions: • In Lebanon (i) according to the Lebanese Code of Civil Procedure, foreign judgments are enforceable provided that certain standard conditions are fulfilled; and (ii) Lebanon has entered into several treaties/conventions to facilitate the enforceability of foreign judgments provided that said judgments dot not contravene the public order/policy • Certain jurisdictions may refuse to enforce foreign judgments when a government or quasi-government entity is involved in the dispute Lebanon International Oil and Gas Summit (LIOG 2013) 13

14. Legal System/Dispute Settlement Mechanisms (Continued) • Enforceability of Foreign Arbitral Awards • The New York Convention requires courts of contracting states to give effect and to recognize and enforce arbitral awards made in other contracting states • Foreign investors consider whether the relevant jurisdiction in which they are investing is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards • Lebanon is one of the many states to have adopted the New York Convention Lebanon International Oil and Gas Summit (LIOG 2012)

15. Tribonian Law AdvisorsContact Details PARTNERS CONTACTS BEIRUT OFFICE RIYADH OFFICE • Capricorn Tower • Level 6 • Sheikh Zayed Road • P.O. Box 72545 • Dubai, UAE • Tel: +971 4 381 2000 • Fax: +971 4 351 7746 • Altakhassusy Street • across Prince Sultan Street • Alhakbany Buildings • Building No 5, 1st Floor • P.O. Box 67677 • Riyadh, Saudi Arabia • Tel: +966 1 482 3733 • Fax: +966 1 4811042 • Starco Bldg, Block B • 11th Floor • Omar Daouk Street • P.O. Box 14-6137 • Mina Al Hosn • Beirut, Lebanon • Tel: +961 1 376 016 • Fax: +961 1 376 018 Rindala Beydoun Managing Partner T: +961 70 847 487 E: rbeydoun@t-lawadvisors.com • Emile Boulos • Partner • T: +971 50 621 9590 • E: eboulos@t-lawadvisors.com Carlo Pianese Partner T:+971 56 603 4543 E: cpianese@t-lawadvisors.com Mothanna El-Gasseer Managing Partner, Riyadh Office T:+966 50 628 6942 E: melgasseer@t-lawadvisors.com Lebanon International Oil and Gas Summit (LIOG 2013)