Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Tax is levied on the net income generated during the previous year. The net income is calculated by deducting all charges and expenses determined in the law from the turnover of the taxpayer.
There are three tax assessment methods: the effective profit method (used mainly for JSCs and LLCs); the lump-sum profit method; and the estimated profit method.
Income tax applies to earnings from business ventures carried out in Lebanon or the taxation of which is attributed to Lebanon pursuant to a double taxation treaty.Capital and income
Income and capital gains are taxed at different rates according to Income Tax Law No. 144 dated 12 June 1959 and its amendments (Income Tax Law). Income tax applies at a rate of 17 per cent for corporations, and at a progressive rate ranging between 4 and 21 per cent for physical persons. Capital gains resulting from the re-evaluation of assets are subject to a 10 per cent tax (with the possibility of total exemption in certain cases) and those resulting from the transfer of assets are subject to a 15 per cent tax (with partial deductions being allowed when the transferred assets consist of real estate properties).Losses
Losses may be carried forward for a period of three consecutive years and survive any change of ownership.Rates
Corporations (JSCs and LLCs) are subject to flat income tax at a rate of 17 per cent. The payment of dividends or any other dividend-like distributions to shareholders is subject to withholding tax at a rate of 10 per cent. The effective tax payable is thus 25.3 per cent.
Branches of foreign companies are subject to income tax at a rate of 17 per cent. According to the Income Tax Law, profits earned by branches of foreign companies are deemed distributed in full as dividends, and such distribution is subject to a 10 per cent tax on dividend distribution. The effective income tax rate payable by branches of foreign companies is thus 25.3 per cent.
Individuals are subject to a progressive tax rate ranging between 4 and 21 per cent on their income, after deducting around US$5,000 for single individuals, in addition to approximately US$1,700 for married individuals and US$300 for every legitimate dependent child (up to five children), subject to certain conditions.
The reduced tax on dividend of 5 per cent previously given to certain listed companies has been cancelled. The standard tax on dividend rate is 10 per cent for all companies.Administration
Tax returns are due annually, and must be filed before the tax authorities at the Ministry of Finance. The tax authorities may re-audit or reassess the amounts included in the tax declarations. The tax authorities may also challenge any scheme for tax avoidance or any practices contrary to the purpose of the law, in which case the violators may incur substantial penalties.
Guidance and comfort may be sought from the tax authorities regarding the interpretation of taxes and regulations, or regarding factual matters. The decisions of the tax authorities may be subject to an opposition filed by the taxpayer before the tax authorities in cases of an error or an unjustified imposition of additional taxes. The Income Tax Law also provides for a judicial recourse against decisions of the tax authorities.
The statute of limitations on taxes in Lebanon is five years.ii Other relevant taxesLump sum tax
Law No. 20 dated 10 February 2017 reintroduced a new lump sum tax payable per annum (which was originally provided for in the Budget Law No. 173 dated 14 February 2000 but remained ineffective ever since), as detailed in the table below.
|Taxpayer*||Tax amount (Lebanese pounds)|
|Joint-stock company (SAL)||2 million|
|Limited liability company (SARL)||750,000|
|Partnerships and personal establishments taxed on the basis of real profit||550,000|
|Branches of foreign companies||X*†|
|Individuals taxed on the basis of ratio profit||250,000|
|Individuals taxed on the basis of estimated profit||50,000|
|* The lump sum tax applies to the head office and each branch of a taxpayer operating in Lebanon. The term 'branch' shall be deemed to include, without limitation, offices, shops, points-of-sale, factories that conduct administrative, sales or business activities, and any other location at which the taxpayer conducts activities or receives clients. † The corporate form of the foreign company is used as a reference to calculate the amount of the lump sum tax payable by the branch.|
This lump sum tax was meant to apply irrespective of whether the target company has recorded profits, and was in principle not deductible for income tax purposes.
The application of Law No. 20 was suspended for three years as of 1 January 2018 by virtue of Law No. 108 dated 30 November 2018.
Law No. 108 also provided that taxpayers who had settled the annual lump sum licence fee have the right to apply for a refund, which will be set by a decision from the Ministry of Finance.Tax on interest
Tax on bank interest is currently payable at a rate of 7 per cent.Non-resident tax
Tax on payments made in return for services provided by a non-resident is applied at a rate of 15 per cent on the deemed profits, estimated at 50 per cent of the gross proceeds. Tax on payments made other than for services performed is applied at a rate of 15 per cent on the deemed profits, estimated at 15 per cent of the gross proceeds.Value added tax
VAT is an indirect tax on consumption levied at each stage of the production and consumption process. It is currently applied at a rate of 11 per cent. All companies whose revenues in any given quarter or year exceed approximately US$66,700 are subject to mandatory VAT registration.
Companies located in the Port of Beirut or the Port of Tripoli free zone are exempt from VAT for export purposes.Stamp duties
The standard stamp duty amounts to 0.4 per cent of the amounts provided for in a contract. Specific types of contract are subject to a lump-sum stamp duty ranging between approximately US$0.07 and US$1,334.Built property tax
Built property tax is a progressive tax applied on annual net rental proceeds and ranges between 4 to 14 per cent, according to a progressive tax scheme.Municipality tax
Municipality tax is a flat tax paid annually at a rate of 8.5 per cent of the yearly rent amount or the rental value of premises.