Shell companies multiply in Syria; Old ones evade taxes

Headquarters of the Internal Trade Ministry in Damascus (Syrian Prime Ministry website)

Headquarters of the Internal Trade Ministry in Damascus (Syrian Prime Ministry website)

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Enab Baladi – Jana al-Issa

With the end of the year, the deadline set by the Ministry of Internal Trade and Consumer Protection in the Syrian regime government for companies operating in its regions to “regularize” their situations expires, according to Law No. 36 (2021).

Despite the passage of about two years of the law, the Ministry has registered only about 5% of the companies that adhered to it, according to government statements.

Out of 1,226 companies, only 60 “regularized” their situations, according to what the Director of Companies at the Ministry of Internal Trade, Zain Safi, said in early October.

Safi considered that the law, which stipulates making the necessary amendments to companies’ incorporation contracts and their bylaws, raised concerns among some company owners about the necessity of raising the minimum capital for their companies when “regularizing” their status, after the value was officially raised in October 2022, despite not obligating them to do so.

To evade taxes

The Ministry did not explain the reason for the weak interest of companies in “regulating” their situations in accordance with the provisions of the Companies Law issued by Legislative Decree No. 29 of 2011.

Over the past years, the Ministry has repeatedly called on company owners to adhere to “regulating” its basic systems, but these calls have not received a clear response.

The Syrian researcher in political economy, Ibrahim Yassin, told Enab Baladi that “regulating” the company’s conditions means increasing the declared capital at the beginning of the license, and accordingly, the initial taxes collected from the company are determined, and over time, the taxes are subject to several criteria, including the buying and selling movement of the company.

Yassin explained that the higher the capital, the higher the tax rate, which, in his opinion, prompts most companies to evade “regulating” their situation.

In turn, economics professor Zakwan Kreit attributed the weak interest in “reconciling” the status of companies to capital migration, the deteriorating economic situation, and the unfavorable investment climate.

In a statement to the government newspaper Al-Baath, Kreit considered that electronic connectivity with regard to taxes revealed tax evaders and their real numbers, so they preferred closure rather than being subjected to fines and tax penalties.

Dr. Karam Shaar, director of the Syrian program at the Observatory of Political and Economic Networks, believes that many companies left their businesses and exited the markets without publicizing this and requesting the liquidation of the company, which explains part of the reasons for the absence of companies’ desire to increase their capital.

Shaar pointed out in an interview with Enab Baladi that another additional reason behind this is the Ministry’s inability to impose the law on companies regarding capital increases.

What are the types of companies in Syria?

There are five legal forms of companies in Syria: the joint-liability company, the limited partnership, the joint-venture company, the limited liability company, and the joint-stock company.

While there are seven types of companies as classified by the Companies Law issued under Legislative Decree No. 29 of 2011, which are:

  1. Commercial companies, if their purpose is to conduct commercial business or if they take the form of a joint-stock company or a limited liability company.
  2. Joint companies are companies in which the state or a public entity contributes a certain percentage of its capital. The aforementioned companies are subject to the provisions and rules stipulated in their law.
  3. Joint stock companies wholly owned by the state are joint stock companies to which the provisions relating to joint stock companies apply. The state is represented by the public treasury or one or more public entities that own their shares in full. The shares of these companies or part of them may not be offered for trading except with the approval of the Council of Ministers.
  4. Free zone companies, which are companies whose headquarters are in one of the free zones in Syria and which are registered in the company registry in one of these zones. The free zone company takes the form of a joint-liability, limited partnership, limited liability, or joint-stock company in particular.
  5. Holding companies are private or public joint-stock companies whose work is limited to owning shares in limited liability companies or shares in joint-stock companies or participating in establishing such companies and participating in the management of companies in which they own shares or stocks.
  6. Foreign companies are companies whose purpose is limited to concluding contracts and carrying out work that is carried out outside the territory of the Syrian Arab Republic without having the right to engage in any activity inside Syria.
  7. Civil companies are companies that are established between partners with specializations and intellectual professions or whose subject matter is civil and are subject to the provisions of the Civil Code, the provisions of their own laws, contracts, and internal regulations.

“Shell companies,” 723 companies in 10 months

The absence of companies’ response to the Ministry’s calls coincided with the registration of new companies, as the number of new companies registered during the past years reached many times the number of companies that “regularized” their situation.

Dr. Shaar said that the number of registered companies this year to date, based on reviewing the Official Gazette (in which the establishment of all new companies is announced), has reached about 723 companies since the beginning of 2023 until now.

This statistic includes, according to the slogan, public joint stock companies, private joint stock companies, one-person companies, and limited liability companies.

While the statistics issued by the Ministry of Internal Trade differed regarding the numbers of new companies, as 387 new companies were registered this year, including 313 limited liability companies, 68 one-person companies, and six joint-stock companies, in which partners of various nationalities contribute, including Lebanese, Chinese, and Russian and Iranian, in addition to 9 companies in the governorates, according to Zain Safi, director of companies affairs department at the Internal Trade Ministry.

Shaar pointed out that it is necessary to point out that some of these companies are fictitious companies and front companies.

By reviewing the editions of the Official Gazette, the number of new companies in 2018 reached 709 companies, in 2019, 577 companies, and in 2020, 733 companies.

In 2021, the numbers reached 819 companies, and in 2022, 1,400 companies.

In this context, Shaar considered that it is difficult to distinguish between shell and real companies, so these numbers may not give clear indications.

When looking at these numbers in a historical context, in 2011, 547 companies were established, but the percentage of companies that were actively operating at that time is much higher than the fictitious companies.

Political economy researcher Ibrahim Yassin told Enab Baladi that the increase in the number of newly licensed companies in a country suffering from a long war and instability, and no one dares to take risks and invest in it with the presence of the stick of American sanctions, necessarily means that most of these companies are fictitious and were created to circumvent Western sanctions and increase the difficulty of its work.

Yassin considered that whoever owns a strong company in the Syrian market and needs to import and export will open a fake company in the name of one of his associates, whether “relative or friend,” to circumvent the sanctions laws and facilitate his commercial movements.

In March 2022, a report by The Guardian, prepared by Dr. Karam Shaar and Tessa Fox, revealed that “the Syrian regime is setting up shell companies in a systematic attempt to avoid sanctions, according to official documents obtained by The Guardian.”

The documents obtained by the newspaper, which are not publicly available, “detail at least three companies established in Syria on the same day with the explicit purpose of operating as a shell to buy shares and manage other companies.”

With official government recognition, the Minister of Foreign Trade and Economy in the regime’s government, Mohammad Samer al-Khalil, boasted in October 2021 that circumventing the sanctions imposed on the regime had become a “Syrian craft,” calling on companies that fear sanctions to appear under something other than their real name.

 

 

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