Lebanon tax system

                                                                  GREEK EMBASSY IN BEIRUT
                                                     Office for Economic and Commercial Affairs
          New Naccache, Rue 64                                                    Tel: (00961) 4-521701, 4-524396, 3-690010
          Immeuble Ant. Boukather, No 85                                                     Fax: (00961) 4-521701, 4-418774
          B.P. 309, Beirut - LEBANON                                                                  E-Mail: [email protected]
                                              Website : http://www.geocities.com/grecomlb/

1. INTRODUCTION [top]

Lebanon has always championed a clement tax policy.    Successive governments repeatedly encouraged the entrepreneurial sector through a policy of low taxation.   They relied on direct tax methods such as customs duties for government revenues.   However, with the introduction of the Value Added Tax (VAT), this way soon change.
Lebanon's initial tax law was passed on December 4, 1944 and went into effect in January 1945.   The latest amendement to the law was made on July 30, 1999.   Decrees 45 and 46, passed in 1983, regulate holding and offshore companies.
Depending on the nature of the income, tax is graduated or flat.   Earnings cannot be combined.   Personal income is distinct from corporate profits.   Taxes are either deducted at source, as with salaries, or are submitted when filing taxes.   Corporate tax is filed every April.   Proprietorship tax is filed twice a year, June and July and again in December.

1.1 INCOME TAX IS LEVIED ON: [top]

Personal earnings:Salaries, pension
Individual or partnership company profits
Joint stock, limited liability, limited liability by shares companies (capital companies)
Holding companies
Off-shore companies
Unearned income:Income generated from stocks, bonds, shares, cash deposits, paper issues, current accounts, ect
Earnings of non-residents:Tax charged on non- residents working in Lebanon. Tax on yearly income depends on the company's business activity. Some are assessed on yearly estimate, others on real earnings. Certain institutions are permanently or temporarily exempt from tax.

1.2 THE LAW OUTLINES WHICH JOBS ARE TAXED ON THE BASIS OF: [top]

Real income tax
Flat tax rate
Estimated income tax

1.3 OTHER TYPES OF TAXES: [top]

Inheritance tax
Built property tax
Stamp duty
Municipality taxes

2. PERSONAL INCOME TAX [top]

2.1 SALARIES [top]

The law differentiates between daily employement and earnings from practicing a prpfession or trade. Salaries are taxed on a sliding scale. The tax rate is as low as two percent and as high as 20 percent. Gross income is the sum total of salaries, allowances, annuities, bonuses, pension and other benefits. Income tax is applied to net income.

2.1.1 TAX ON NET INCOME [top]

Temporary or part-time staff or consultants are taxed a flat rate of three percent. They are not registered with the Social Security Fund and are not entitled to national health coverage or end-of-service indemnity. Full time employees must contribute three percent of their salaries to the Social Security Medical Fund. Taxable income ceiling is three times the minimum wage, which is LL300, 000. That means the maximum amount that can be withheld from the employee's salary is three percent of LL900, 000, or LL27, 000. If the money is earned in Lebanon, income tax can be collected even if the employee is not a permanent resident.

2.1.2 GROSS SALARY DEDUCTIONS : EMPLOYEE [top]

2.1.2.1 AUTOMATIC DEDUCTIONS FROM GROSS INCOME [top]

Gross salary is subject to family allowance as well as pension and education deductions:
-LL7.   5 million is set aside from the salaries of single and married employees and not taxed
-Married male employees can claim an additional "Family allowance", which is divided into two parts-an allowance for the spouse and another for the children.
Married male employees can claim an additional LL2.   5 million annually, if his wife is not currently working.
The entitlement can be claimed for estranged or divorced spouses to whom the employee pays alimony.   It can only be claimed for one wife.
A LL500, 000 allowance can be claimed per child per year to a maximum of five children.
The allowance is only applicable to children who do not work, plus:
-Male children up to the age of 18 or those still studying (up to the age of 25)
-The age limit does not aplly to handicapped children who cannot work.   A certificate from the medical committee at the Ministry of Health is needed to certify the child is incapable of working
-Female children for as long as they remain singl or if they are divorced or widowed.
A female worker can claim the family/children allowance if she is the sole breadwinner or if her husband has abandoned the family.

2.1.2.2 ADDITIONAL DEDUCTIONS [top]

1. Daily wage earners can claim a tax of LL10, 000 per day
2. Pension scheme fees are deductible
3. End of service benefits and pensions of work-related accidents are exempts from taxation.
4. Work-related expenses such as travel, entertainment, ect. are deductible
5. Education allowances and those granted for special occasions(marriage, maternity, death, ect. ) are deductible.

2.1.2.3 INCOME TAX EXEMPTIONS [top]

1. Religious clerics
2. Overseas diplomatic and consular staff if their countries reciprocate the arrangement-the income of Lebanese staff is not exempt
3. Armed forces of allied armies
4. Public servants' retirement salaries
5. Work-related accident benefits
6. Agricultural labor wages
7. Domestics helpers working in private homes
8. Nurses and attendants in hospitals, orphanages and shelders
9. End-of-service benefits
10. Social Security payments
11. UN and related agency staff-salaries

2.1.3 SOCIAL SECURITY [top]

Employers must cover their employees' medical, family allowance and end-of-service indemnities.
-Companies augmnet 12 percent to the three percent the employee pays to the governemnt fund.
-An additional 15 percent is allocated to family allowance deductions
-8. 5 percent of the salary is allocated to end-of service benefits
Income tax and family allowance deductions are calculated every month. Companies pay employee income tax twice a year.
Income statements are filed with the Finance Ministry's Income Tax Department every month.

2.2 INCOME TAX ON PROFESSIONAL PROFITS [top]

Tax Rates on profits
Net Income    Rate
---------------------------------------------------------------------
1. Up to LL9 million     4%
2. LL9 million-LL 24 million        7%
3. LL24 million-LL54 million      12%
4. LL54 million-LL104 million 16%
5. Greater than LL104 million 21%

Professional profit is income derived from commercial and non-commercial professions and activities. The lowest band is higher than that which applies to personal income tax but is nevertheless still set at a modest four percent. The graduated tax is applied in five stages with the highest rate set at21 percent again slightly higher than the top band for personal income tax.

2.3 REGISTERED COMPANIES/CORPORATIONS [top]

2.3.1 JOINT STOCK COMPANIES AND CORPORATIONS [top]

1. 10 percent tax on business profit
2. 5 percent tax on profits received from the development or sale of real estate

Withholding taxes includes:
1. 5% on dividents
2. 5% on royalties and service fees
Only earnings in Lebanon are subject to tax, even if the worker is not a Lebanese resident.

2.3.2 HOLDING COMPANIES [top]

Holding companies are exempt from paying:
1. Income tax on profits
2. Income tax on profit distribution

They must pay:
1. 5% on the interest on loans isued to companies operating in Lebanon, if the loan maturity is less than three years
2. 6% tax on capital gains received from the sale of holding company shares or its participation in Lebanese companies it has owned for less than two years
3. 10% on amounts collected from renting patents and on the reserved rights it possesses on a Lebanese company
4. Graduated tax on capital and reserves
 6% if capital and reserves are less than LL50 million
 4% if capital and reserves are between LL50 million and LL80
 million
 4% if capital and reserves are than LL80 million.
The annual tax should not exceed LL5 million.

2.3.3 OFFSHORE COMPANIES [top]

Offshore companies are exempt from :
1. Tax on profits
2. Tax on profit distribution
3. Stamp duties on overseas business contracts signed in Lebanon
4. 30% of foreign employees' basic salary is exempt
The company is subject to:
1. LL1 million fixed annual tax
2. 6% tax on profit received from the sale of fixed assets in Lebanon
3. Two to ten percent tax on the salaries of company employees working in Lebanon.

2.4 MOVABLE CAPITAL ASSETS TAX [top]

A flat 10% is imposed on the income or profits received from stocks, bondsand private or public paper issues, credits, cash deposits or current accounts. The tax must be paid even if the beneficiary is anonymous. There are no deductions. The tax is deducted before payment is issued to the beneficiary.
This tax must be paid if the income is earned in Lebanon or is paid to a resident of the country.

Exempted from the movable capital assets tax are:
1. Interest earnings on bank deposits, Treasury bills and non-resident deposits and banking transactions in foreign currencies
2. Interest on government or municipal bonds and all other public and private institutional issues
3. earnings on commercial credit and loans
4. Interest on deposits and current accounts

The following are not exempt:
1. Income derived from shares, interest payments or investment payments of joint stock companies, financial institutions and other public or private institutions
2. Shares or payments to the company's board of directors
3. Attendance fees paid to board members
4. Distribution of reserve capital in the form of shares or bonuses
5. Reserve expenditures

2.5 NON-RESIDENTS [top]

1. The incomes earned by non-residents are taxable when:
2. The company permanent business address is in Lebanon
3. The person profits from his professional experience even though he does not have an office or business address in Lebanon, i.e. doctor, consultant or technician
4. The company has a representative office in lebanon
5. The company or person does business in lebanon on a regular basis, even if the company official business address is not in the country.
6. The person works for a company whose income is generated in Lebanon
7. The person works on a public project
8. The person is a real estate investor
Non-residents must pay a 15 percent tax on their taxable income.

The tax also is applicable to:
1. 50% of the earnings experts, engineers and artists receive for work done and 50% of the profit received when selling or buying inventions or other copyrighted material. The tax rate is set at 7.5 percent.
2. 15% of income earned by other means such as agreements between individuals or companies for equipments and material. The tax rate is set at 2. 25 percent. The contracting party deducts the tax from the payment made.

Earnings that are not subject to tax are:
1. Income not earned in the country irrespective of workers nationality
2. Exporters of goods not directly delivered by the company. However, profits earned by the middlemen are subject to tax
3. Profits made by sales agents for foreign companies
Lebanese companies must include the earning of overseas staff in their annual profit statement. But as the branches of the parent company are subject to the tax laws of the areas they operate, their earnings must be distinguished from the earnings of the parent company.

2.6 INCOME TAX ASSESSMENT AND EXEMPTIONS [top]

A company's income is assessed in one of three ways: real, presumptive or estimated income. Most companies issue real profit statements. Businesses that are not subject to real profit tax can ask that a real profit assessment be done. The request must be made in January. The change in status is final.

2.6.1 TAX ON REAL PROFIT: [top]

Real profit tax is levied on:
1. Agricultural cooperatives, individual proprietorship, financial institutions, cooperatives and unions established for commercial purposes.
2. The local representative offices of foreign companies
3. Industrial companies:handicraft workshops are the exception
4. Banks, foreign exchange dealers and institutions or individuals working in the banking sector
5. Importers and exporters, wholesale merchants, agents and intermediaries, agents of factories and financial institutions
6. Retail merchants who have more than four employees
7. Owners of pharmaceutival and chemical warehouse
8. Investors in betting establishments (horse races, etc. )
9. Investors in hotels, cinemas and theaters
10. Publishing and printing companies
11. Mills
12. Those who lease equipped facilities

General expenses commonly claimed:
1. Travel expenses
2. Costs related to setting up the entreprise:stamp duties, travel, ect
3. Insurance premiums
4. Emblezzlement losses.

Filling deadline:
Tax declarations are due on April 1.
Joint stock companies are the exception;they have until June 1 to file their tax forms. The Ministry of Finance will approuve a one month extension to the filling deadline if the delay is justified.

Documentation:
In addition to the tax form issued by the Income Tax Division of the Ministry of Finance, the company must submit:
1. A copy of its balance sheet. This should be accompanied by the general accounts balance, account of the sale and purshases of goods and general expenditure
2. Profit and loss statement
3. Evidence of deductible expenses

Who files:
1. Individual or sole proprietor
2. General and limited pertnership:The general partners are responsible for filling. If a partner dies, his heirs or guardians are accountable. In a limited partnerships, a collective statement is presented on behalf of investors who do not have managerial or general partnership prerogatives
3. Joint stock company:A single tax declaration is presented
4. The profits are taxed regardless of the number of shares and its division among company shareholders
5. Limited liability company:The company, not the partners, presents a tax declaration. The company is taxed as a single entity. If the responsible party owns or is a partner in more than one company, the main company is deemed to be the principal company and it is on this tax form that the applicant must declare all profits and/or shares from his other holdings.
Even companies exempt from tax must file annual reports to the tax authority.

Premissible deductions:
1. Cost of goods sold and services provided during the year
2. Rent
3. Interest on loans-credit the owner extends to the company does not qualify
4. Salaries, wages and end-of-service benefits or allowances
5. Government levies
6. Depreciation costs
7. End-of-service indemnity, retirement salaries or emergency compensation
8. Charitable donations
9. Non-collective account receivables, but only after the company has proven it has made every effort to collect the amount due
10. Advertising and promotional expenses
11. Municipal assessment of property revenues

2.6.2 PRESUMPTIVE TAX [top]

The earnings of certain entreprises are based on calculation a coefficient of the estimated gross turnover. This estimate, set by an official committee, is the average profit rate expected for various professions.
This tax category was created primarily for small entreprises, which could not be expected to cope with complex accounting procedures.
Presumptive tax applies to:
1. Insurance and guarantee companies
2. Air, sea and land transport firms
3. Petrol refineries
4. Civil engineering firms
These businesses cannot ask that their taxes be determined using "real" profit assessments.
A special committee at the Ministry of Finance determines the coefficient to be applied to the company's revenue to determine the net income on which the appropriate tax is levied.

2.6.3 ESTIMATED INCOME [top]

This applies to small trading establishments (roving vendors, taxi drivers and transporters)that find it difficult to keep accounts of their financial transactions

2.6.4 INSTITUTIONS EXEMPTED FROM PAYING INCOME TAX [top]

2.6.4.1 PERMANENT EXEMPTIONS: [top]

1. Educational institutions :Encompasses all activities related to teaching, such as selling books and boarding fees, as long as the school is the main beneficiary.   The establishment , however, is taxed on income generated from activities that are not related to educating children
2. Hospitals, hospices, orphanages, nursing and emergency services funded by private or public aid.   However, the profit derived from these establishments is subject to tax
3. Mental hospital and tubercolosis sanatoriums
4. Non-commercial agriculture and retail cooperatives and unions
5. Sea and air navigation companies whose home countries have exempted Lebanese companies operating in the area from tax.   This privilege is often based on bilateral agreements established between the countries and Lebanon.
6. Public entities of commercial and industrial nature that are not competing with private entreprises.   Social and administrative entities are automatically exempt because they do not generate a profit.

2.6.4.2 TEMPORARY EXEMPTIONS [top]
These exemptions were implemented to encourage industrial productivity or promote the banking sector.

2.6.4.2.1 NEWLY ESTABLISHED FACTORIES [top]

1. Factories built in areas specified by the Council of Ministers to develop the district
2. Factories manufacturing goods not produced in Lebanon before 1980. This includes converting raw material into semi-finished products and assembling products not previously found locally
3. Companies with fixed assets of LL 500 million or more
4. The company's profit, during the exemption period, should not exceed the cost of its fixed assets at the time it opened.
If this criteria is met, the company file an application and submits the required documents to the Ministry of Finance. The exemption is granted if approval is received from the Ministry of Finance and Ministry of Industry.
Tax exemption on profits re-invested in increasing productivity or in constructing employee housing is:
 75% if the industrial establishment is built in a government designated area
 50% at the start and for three consecutive years afterward

2.6.4.2.2 BANKS [top]

Banks are limited to financing medium-and long -term loans and buying paper issues or providing guarantes against sufficient collateral on its behalf or as an agent. The establishment must have a minimum capital of LL30 million and cannot accept deposits of less than six months. Specialized banks are an exception to the rule. They do not pay taxes on profits generated during the first seven years. Tax is imposed on profits generated in the eighth year.

3. INHERITANCE TAX [top]

Inheritance tax tiers : From 3% to 45% according to the sum inherited and the familly ties.

A person has 90 days to notify the government if receiving inheritance from a relative who has died. Religious strictures govern Lebanon's inheritance laws. A progressive tax is imposed on the portion of the net inheritance(amount after all debts and liabilities are paid) that exceeds the basic deductible portion.

4. BUILT PROPERTY TAX [top]

Rental income is subject to a flat tax rate of 4%, applicable on total rental revenue, and a sliding rate of between 2 percent and 13 percent, which is applicable on rental income greater than LL20 million.

The sliding tax rate applies as follows:
1. 2% on income between LL20 million and LL40 million
2. 4%o on income between LL 40 million and LL 60 million
3. 7% on income between LL60 million and LL 100 million
4. 13% on income greater than LL180 million
One quarter of the tax revenues received is directed to the Municipal Fund if the property lies within the municipal's boundaries

The following are exempt from property tax:
1. Public buildings
2. Charities
3. Places of worship
4. Cemeteries
5. Embassies or consular offices
6. Association or syndicate headquarters

The following may be exempt from property tax if the government agrees :
1. Orphanages
2. Non-profit hospitals, clinics or schools or buildings donated for these purposes
3. Building that house sports facilities, welfare organizations, social clubs, cultural centers, public health organizations, political parties or labor unions.
Property owners must register all rental agreements with the local municipality. Tax on the rent received is due on the first day of the contract period. It stops when the landlord tells the local authority that the property is vacant.

5. LOCAL (MUNICIPAL) TAXES [top]

The rates for local-municipal-taxes are set at two levels. On business property the levy is fixed at 15 percent, while the rate for residences, rented as well as owner-occupied, is set at lesser 10%. However, local tax collection is very spasmodic.

6. STAMPS DUTIES [top]

Fiscal stamp fees on business documents

Stamp duty must be paid on the following documents                                            in LL
----------------------------------------------------------------------------------------------------------------------------------------
Joint stock company constitution permit                                                    1, 000, 000
Constitution permit for a factory, industrial or commercial busines                    750, 000
Statements relating to foreign excahnge buying or selling                                   1, 000
Bank guarantees or letter of guarantee                                                            10, 000
Personal or real guarantees, with the exception of land guarantee                      10, 000
Bills of landing or Customs receipts                                                                  5, 000
Official copies of the manifest                                                                           5, 000
Certificate of the origin of the goods                                                                 20, 000
Copies of agreement to cash money
 Specific                                                                                                        5, 000
 General                                                                                                       10, 000
Registration of property title deeds                                                                   10, 000
Receipt for money cashed
 Bank statements                                                                                               100
 Receipts of goods                                                                                              100
Receipts of cash, bills or share deposits                                                                100
Invoices                                                                                                               100
Quittances or releases                                                                                    10, 000
General power of attorney                                                                                10, 000
Specific power of attorney                                                                                  5, 000
Certificates of true copies of signature                                                                     100

All deeds and written materials mentioning a specific sum of money are charged a stamp duty of 0. 3 percent

7. TAX DEPARTMENT [top]

The ministry of Finance's Revenue Divisions:
1. Income tax department
2. Built property tax department
3. Real estate tax department
4. Inheritance tax departement
5. Indirect tax department

Where to pay taxes:
1. Beirut   :   Ministry of Finance, Revenue Bldg, bshara El Khoury str.
2. Mount Lebanon Finance Office   :   Baanda, near the Serail Courts
3. Finance Office of the North   :   Tripoli, El Tal road
4. Finance Office of the South   :   Saida, the Serail Courts
5. Finance Office of Nabatieh   :   Nabatieh, Main street, Daher Center
6. Finance Office of the Bekaa   :   Zahle, Serail Courts

Procedures:
1. Calculate the tax return due
2. Tax can be paid at the designated cashier sites or through a direct debit, arranged with the bank using the "S1" form
3. Present copy of payment receipt to the Ministry of Finance. Copy can be presented in person or sent via registered mail
4. Inform the relevant local authorities that tax has been paid
5. Companies must file their tax returns between January 1 and April 30.

Oscar computer program:
As of February 1999, the tax returns of the entreprises listed below can be prepared on Excel1997 using the Oscar program.
1. Sole proprietorship requesting they be assessed on "real profit"
2. Partnerships
3. Corporations, not including banks and other financial institutions.
Oscar Moubarak deveoped and is currently marketing this program

8. ACCOUNTING PRACTICES [top]

Accounting auditing requirements are incorporated in the Code of Commerce and in the Charts of Accounts.
The company's financial year is normally 12 months but may be extended or shortened as is often the case during financial year. The closing date is set in the company's Articles of Association.
Businesses can keep their records in Arabic, French or English. However, reporting must be done in Arabic and financial statements must be in Lebanese pounds.
Only holding and offshore companies can keep both their records and report in a foreign currency.
Before December 1996, companies were required to prepare their financial statements according to Lebanese Accounting Standards. However, in December 1996, the Cabinet decided that companies listed on the Beirut Stock Exchange(BSE) should comply with International Accounting Standards. The following year banks and other financial institutions with total assets of more than LL100 billion converted to the International Accounting Standards. Other companies followed suit. While the Cabinet has approved the conversion to International Accounting Standards, Parliament has not.
This means local companies can prepare their financial statements according to Lebanese Accounting Standards if they so choose. [top]

                                                   Spyros A. Abatzopoulos
                                           Economic & Commercial Counselor
                                                    Head of Beirut Office

PS     Please visit our portal website
           http://www.   geocities.com/grecomlb/
          and, through this, to our various relevant ones, as the list attached therewith.

Hosted by www.Geocities.ws