Commercial Laws

Accounting and Reporting Standards

The accounting and reporting standards in Palestine Generally conform to International Accounting Standards, and when those do not apply, U.S. Generally Accepted Accounting Principles (GAAP) is used.

By virtue of the1964 companies law No. (12), all public and private companies, including foreign, must file a financial statement audited by a certified public accountant along with a statutory annual report within three months of the end of the fiscal year to the companies’ registrar. The laws and regulations of the Certified Public Accountants Associations prescribe the format of such reports.

It is highly recommended that persons conducting business in Bethlehem engage the services of a local Chartered Accountant to ensure compliance with the tax laws.

Foreign Ownership and Rental Regulations

The Landlord and Tenant Law applies to all commercial and residential buildings within city boundaries. It controls rental increases and limits the freedom of the landlord to terminate and evict tenants from the rented premises. It does not regulate the lease of land or movable properties which are regulated by other specific laws.

The Acquisition Law in the West Bank, which regulates foreign acquisition and the rental or lease of immovable properties, classifies foreigners into three categories:
• Foreigners who formerly possessed Palestinian or Jordanian passports shall have the right to own properties (not within the boundaries of the cities), sufficient to erect buildings and/or for their agricultural projects.
• Foreigners who hold other Arab nationality passports have the right to own property (not within the boundaries of the cities), which suffice for their living and business needs only.
• Others

Foreigners are allowed to own buildings or purchase land only outside the boundaries of the cities, however, exceptions can be made such as in the establishment of an approved investment project.

It is critical that potential purchasers of land or buildings perform a title search to be assured that no outstanding violations or unpaid penalties exist on the property. Under current law, violations and penalties are transferred to the new owner.

Accurate title search can only be obtained from the Land Registry Department (Al-Taboh).
Land registration is done through the Department of Land Registry (Al-Taboh), which has offices in Hebron, Ramallah, Nablus, Bethlehem, Jericho, Jenin, and Gaza City. In order to purchase land in Palestine, an application that includes supporting documents such as deeds to the property, powers of attorney, etc. should be submitted to the land registry office having jurisdiction over the land.

In Gaza, foreigners and locals are treated equally concerning rental contracts.

Commercial Agency and Representation

The original Commercial Agency Law was enacted since (1967), which has been amended by the Law for Regulating the work of Commercial Agents No. (2) for the country. The law requests that all foreign companies distributing goods in Palestine appoint a direct agent who is to register with the Ministry of National Economy. Foreign companies distributing goods in Palestine, where agents are not required or used in the ordinary course of business, must qualify for an exception from the Ministry of National Economy permitting them to distribute through distributors and middlemen.

Direct agents may authorize primary, sole or more distributor(s) in Palestine to assist in the delivery of goods to and between the West Bank and Gaza Strip.

Competition Law

The drafted Competition Law, modeled after EU Competition Laws and the Treaty of Rome, will introduce regulations to prevent anti-competitive practices. It is the Palestinian Authority’s national policy that business activities operate in a market environment where the principles of free competition are guaranteed. The Law is in the final stages at the Legislative Council, and is expected to be published in the near term.

Some Promulgated Laws and Draft Laws

Palestinian Monetary Authority Law no. (2) of 1997:

In addition to other tasks, the PMA law sets the goals and competencies of the PMA, specifies its capital and establishes that the PA is responsible for covering such capital. It also details the composition of the PMA’s Board of Directors, the powers of its Governor, its relations with the PA and those of the banks operating in the WBG.

Industrial Zones Law no. (10) of 1998:
The law establishes the Industrial and Free Zones Authority [www.piefza.org], specifies its powers and duties, regulates the establishment, development, and operations of industrial zones, as well as the procedures to be followed therein, and specifies the rights and duties of the projects licensed to operate within such zones.

Arbitration Law no. (3) of 2000:
The law unifies the rules governing the arbitration processes in the West Bank and Gaza, and follows international trends in administering alternative dispute resolution mechanisms. The law additionally promotes the establishment of specialized institutions that offer arbitration services.

Banks Law no. (2) of 2002:
The Banks Law, promulgated in 2002, defines the terms for bank licensing, legal and illegal operations and the rules governing overall bank management, including capital ratios.

Basic Law, 2003:
This law specifies the basic principles governing the Palestinian Authority, the relationship between the three powers (executive, legislative and judicial), and the major rights of Palestinian citizens.

The Basic Law was later amended by the PLC, with the approval of the President, to encompass the position of the Prime Minister. This recent amendment to the Basic Law is seen to be a major cornerstone in the democratization and reform efforts currently underway in the Palestinian Authority..

Draft Laws
In almost all cases laws already exist on the following legal issues. These drafts represent updates to the existing laws. Where this is the case, the previous law remains in force until the new law has been promulgated.

The following represents a number of draft laws affecting the private sector. They are currently at various stages in the legislative process. Some are expected to be presented before the PLC in the near future.

Securities Draft Law:
This law will represent an all-encompassing law to cover all matters pertaining to securities exchange. This is expected to include, among other things, public and private offerings, trade of securities, the Palestine Securities Exchange (PSE), listing of companies, public disclosure by listed companies and member brokerage firms.

Capital Markets Authority (CMA) Draft Law:
This law will establish the Capital Markets Authority (CMA), which will be an independent authority responsible for overseeing the non-bank financial sector, in particular: securities, insurance, mortgage financing, leasing and pensions.

Commerce Draft Law:
Efforts are currently underway to finalize the draft Commerce Law. The huge draft governing different aspects of trade and commerce, and commercial operations is expected to be presented before the PLC before the end of 2003.

Companies Draft Law:
The Companies Law will unify the rules governing companies and corporate bodies in the West Bank and Gaza Strip.

Employment Issues

The following sections provide information about human resources in Palestine, including its level of quality, availability, cost, and legal issues.

Labour Law

The PA recently passed a draft to harmonize the separate laws between the West Bank and Gaza. Under approval at the time of writing, the following table outlines the new amalgamated Labour practices and policies.

Labour Policies in Bethlehem

Source: Labour Law No. 4, 2000

It is allowable to reduce the working hours for an hour per day in professions that entail danger to health.The Ministry of Labour has not yet specified these professions. Also both parties to the Labour contract shall have the right to agree on overtime hours not exceeding 12 hours per week.
The annual leave for professions dangerous to health is 21 days per year. The Ministry of Labour has not yet specified these professions.

Labour Quality and Availability
One of Palestine's key advantages is its superior, low-cost Labour force. There is a number of highly qualified and internationally trained men and women that are suitable for employment in the services sectors, including: information technology, business administration, project financing, and any other function calling for skilled human resources.

Labour Costs

The table below outlines the various average costs and characteristics of the Labour force in Palestine. Depending on the location of the project, different rates may apply for the cost of Labour.


 

Labour Force Characteristics in Bethlehem

Sources: Palestinian Central Bureau of Statistics 2000.
^▲Source: PCBS, 2002.

Gross wages and salaries are cited in the table above. Taxes and insurance are deducted from these figures for salaried employees to arrive at the net wages and salaries.

It is the responsibility of the employer to deduct taxes and insurance benefits from employee salaries prior to disbursement of monthly remuneration. Ranges provided in the table above refer to averages. Depending on the nature and size of the enterprise, wages and salaries can vary considerably to these averages.

Taxation

In an effort to improve the income tax system and reduce the tax burden on individuals, the Palestinian Authority passed new legislation on income tax brackets for individuals and companies in March 1999. For companies, this is a change from a 38.5% rate to a 20% flat rate. For individuals, this is a significant change from a progressive bracket of 5-48% to 5-20%. The following sections briefly outline the taxation laws.

Individual Income Tax Rates

A new income tax law has been drafted and was passed in 2001. Income tax is withheld at source from salaried employees and individuals earning wages. Personal credits and other deductions, which the employee may be due, are factored into the calculation. If the annual income of the individual taxpayer is below the low-income tax-exempt status (adjusted annually), the taxpayer is exempt from filing an annual tax report.

The tax rates payable by Palestinian residents as of 1999 are as follows:

Special exemptions and/or credits are given to the unemployed, spouses, children, dependents and university students. The above tax rates are calculated before the applicable tax credits are applied.

Employers are required to withhold tax from salaries paid to employees. The employer is required to report and to remit the withholding tax on a monthly basis.

Corporate Income Tax Rate

Palestinian companies and businesses are primarily subject to a 20% tax on income. Losses, equipment depreciation, and business expenses are also factored into the calculation of taxes.

Foreign Dividend Tax

A 20% tax is withheld at source from dividends distributed in Palestine to shareholders of a foreign company. There are however no taxes due on dividends distributed to shareholders of Palestinian companies regardless of where they live or their nationality, and regardless of whether they are an individual or a company. An automatic deduction at the source of 25% is withheld from companies, unless companies or individuals obtain a Deduction at the Source Certificate, which grants a reduced rate that ranges between zero and five percent. Applications for these certificates are available from the district tax offices.

Value-Added Tax (VAT)
VAT is a consumption-based tax imposed on all local goods and services at a rate of 17%.

Other Taxes

Capital Gains Tax
Businesses and companies are not assessed for capital gains tax.

Tax for Service Contracts
Income generated or earned from contracts entered into for the provision of services is taxable.

Dividends, Leases and Royalties
Dividends paid out of profit are taxable. Dividends paid after redistribution of capital are exempt. Royalties are not exempt. Lease payments are not exempt. Retained profits are exempt only if reinvested.

Purchase Tax
Purchase taxes are payable by manufacturers or importers at the port of entry on certain consumer products specified by law. Products that are manufactured for export are exempt from the purchase tax. Purchase tax is imposed at a rate of 5% to 95% depending on set rates and the type of good.