TRIPOLI — Libya has abolished the long-standing “Jihad Tax,” closing a chapter that began in 1970 and reshaping both payroll and corporate income tax compliance for employers and investors. The move follows a Supreme Court ruling in early February 2025 declaring Law No. 44 of 1970 unconstitutional, and a mid-July 2025 directive from the Ministry of Finance instructing authorities nationwide to cease collection. In practical terms, withholding on wages and surcharges on corporate profits tied to the Jihad Tax no longer apply from mid-July 2025, with courts indicating the levy could not be lawfully collected from February onward.
What the Jihad Tax Was
Created to finance the Libyan Jihad Fund, the levy operated as an add-on to standard taxation for more than five decades. For companies, it meant an extra 4% charge on taxable corporate profits. For individuals, it functioned as a payroll deduction that scaled from 1% to 3%, with the top rate applying to monthly incomes above LYD 100. In recent years, the additional 4% burden influenced pricing, margins, and deferred tax calculations in corporate financial statements, while payroll teams treated the deduction like a standard statutory withholding.
The Legal Turn—and the Administrative End
On February 2–6, 2025, the Supreme Court’s Constitutional Chamber struck down Law 44/1970, finding the Jihad Tax incompatible with Libya’s interim constitutional framework and principles of Islamic law. That ruling set the legal basis for the tax’s demise. The Ministry of Finance then formalized the halt in mid-July 2025, instructing financial controllers across government entities to stop applying the levy. Tax advisories subsequently confirmed that taxpayers should not include Jihad Tax items in filings from the effective stop-date, and employers should remove the charge from payslips.
Immediate Implications for Employers and Companies
For payroll, employers should update systems to remove the Jihad Tax line, adjust net-pay calculations, and align employment contracts and HRIS configurations accordingly. Where deductions continued after the February court ruling, practitioners warn that employees may raise refund claims; companies should document timing, legal advice received, and payroll run cut-over dates to manage exposure.
For corporate income tax, the 4% surcharge no longer applies to profits going forward. Finance teams should revisit estimated tax payments, quarterly provisioning, and year-end tax reconciliations to strip out Jihad-tax effects. Where advance payments or provisions included the levy for 2025, companies may need to re-book deferred tax and consider amended returns once administrative guidance is finalized.
Open Questions to Watch
Two practical issues remain. First, treatment of pre-2025 periods: while the levy is unconstitutional, the handling of historic assessments or arrears will depend on clarifications from the Libyan Tax Authority and the Ministry of Finance. Second, Libya’s broader procedural framework has been in flux this year (including changes touching audit and collection rules), which may interact with how legacy items are closed out. Until definitive guidance is issued, conservative record-keeping and contemporaneous memos supporting any refund or offset positions are advisable.
The Bigger Picture
The repeal lands amid wider efforts to normalize Libya’s economic and fiscal architecture after years of fragmentation. Removing a unique and often-criticized levy simplifies the business tax landscape, narrows the wedge between statutory and effective rates, and slightly improves take-home pay for workers. Combined with ongoing work to unify administration and strengthen routine corporate and payroll taxation, the end of the Jihad Tax is a notable step toward greater predictability for investors weighing projects in hydrocarbons, construction, and services.
