Corporate tax in Lebanon

Summary

Corporate Income Tax Rate (%) 15
Capital Gains Tax Rate (%) 10
Branch Tax Rate (%) 15
Withholding Tax (%)
Dividends 10 (a)
Interest 10 (a)(b)
Royalties from Patents, Know-how, etc. 10 (c)
Payments for Services Provided by Nonresidents 7.5
Branch Remittance Tax 10 (d)
Net Operating Losses (Years)
Carryback 0
Carryforward 3

a) Applicable to both residents and nonresidents.

b) Bank interest is subject to a 5% withholding tax.

c) Applicable if the royalties are received by Lebanese holding companies (see Section B).

d) Profits derived by branches operating in Lebanon are presumed to be distrib­uted and consequently are subject to remittance tax.

Taxes on corporate income and gains

Corporate income tax. Lebanese companies and branches of for­eign companies carrying on business in Lebanon are subject to tax only on their income derived from Lebanon. A company is con­sidered Lebanese if it is registered in Lebanon. The following are the two main conditions for registering a company in Lebanon:

  • The company’s registered office is located in Lebanon.
  • The majority of the company’s board of directors is of Lebanese nationality (unless the government authorizes the company to have less than a majority).

Rates of corporate income tax. In general, companies are subject to tax at a flat rate of 15%.

Profits derived in Lebanon by branches of foreign companies are presumed to be distributed and consequently are subject to the 10% remittance tax.

Contractors on government projects are subject to tax at the regu­lar corporate income tax rate on a deemed profit of 10% or 15% of actual gross receipts, depending on the type of project.

Lebanese holding companies and offshore companies are exempt from corporate income tax. However, special taxes apply to these companies (see Section D). A Lebanese holding company is a special type of company that is formed to hold investments in and outside Lebanon (“holding company” is not synonymous with “parent company”). An offshore company is a company that engages exclusively in business transactions outside Lebanon.

Insurance companies are subject to tax at the regular corporate income tax rate of 15% on a deemed profit ranging from 5% to 10% of their premium income.

Lebanese air and sea transport companies are exempt from corpo­rate income tax. Foreign air and sea transport companies are also exempt from corporate income tax if their home countries grant reciprocal relief to Lebanese companies. However, dividends dis­tributed remain subject to movable capital tax.

Profits derived by industrial enterprises established in Lebanon after 1 January 1980 are exempt from income tax for up to 10 years from the date of commencement of production if such enterprises satisfy all of the following conditions:

  • The factory is built in certain areas the government intends to develop.
  • The object of the enterprise is to manufacture new goods and materials that were not manufactured in Lebanon before 1 January 1980.
  • The total value of property, plant and equipment used in Lebanon by the new enterprise and allocated for the production of new goods and materials is at least LBP500 million.

Profits qualifying for this tax holiday may not exceed the original cost of the property, plant and equipment used by the enterprise on the date production begins.

Under Law No. 248, dated 15 April 2014, an exemption of 50% applies to profits realized from the exportation of goods produced in Lebanon. A certificate-of-origin document is needed to prove that the exports are from Lebanon. Companies engaged in the extraction of natural resources are excluded from this exemption.

Capital gains. Capital gains on the disposal of fixed assets are taxed at a rate of 10%.

If a company reinvests all or part of a capital gain subject to the 10% rate to construct permanent houses for its employees during a two-year period beginning with the year following the year in which the gain was realized, it may obtain a refund of the tax imposed on the reinvested gain.

Administration. The official tax year is the calendar year. Com­panies or branches may use a different tax year if they obtain the prior approval of the tax authorities.

Corporations with a financial year-end of 31 December must file their tax returns by 31 May of the year following the year in which the income is earned. Other corporations must file their returns within five months of their financial year-end. The tax authorities may grant a one-month extension at the request of the taxpayer if the taxpayer’s circumstances warrant the extension. Tax must be paid by the same deadline.

If a taxpayer does not submit timely returns, the tax authorities may levy tax on an amount of deemed profit and impose a fine of 5% of the tax due for each month or part of a month that the return is late. The minimum penalty is LBP750,000 for joint stock companies, LBP500,000 for limited liability companies, and LBP100,000 for other taxpayers. The maximum penalty is 100% of the tax due. For failure to pay tax by the due date, a penalty of 1% of the tax due is imposed for each month or part of a month that the tax remains unpaid.

Dividends and interest. In general, dividends and interest are subject only to a withholding tax of 10%.

Dividends received by a Lebanese corporation from another Lebanese corporation are excluded from the taxable income of the receiving company. How ever, dividends redistributed by a parent company to its share hold ers or partners are subject only to a withholding tax of 10%.

Dividends distributed by Lebanese holding companies and off­shore companies are exempt from dividend withholding tax.

Dividends and interest income earned by banks and financial institutions are considered trading income and consequently are subject to tax at the regular corporate tax rate of 15%.

Foreign tax relief. Lebanon has entered into double tax treaties with several countries (see Section F).

Determination of trading income

General. The tax assessment is based on audited financial state­ments prepared according to generally accepted accounting prin­ciples, subject to certain adjustments.

Deductions are allowed for expenses incurred wholly and exclu­sively for business purposes. Branches, subsidiaries and affiliates of foreign companies may deduct the portion of foreign head office overhead charged to them if the auditors of the head office present to the tax authorities a certificate confirming that the over­head was fairly and equitably allocated to the various subsidiaries, assoc iated companies and branches and that the amount of head office overhead charged back to the Lebanese entity is in accor­dance with the limits set by the Ministry of Finance. However, the deductible portion of the overhead charged back to the Lebanese entity is subject to a tax of 7.5% (see Section D).

Inventories. Inventories are normally valued at the lower of cost or net realizable value. Cost is usually determined using the first-in, first-out or weighted average cost method.

Provisions. The following are the only provisions that are allowed for tax purposes:

  • The actual amount due at the balance-sheet date for employees’ end-of-service indemnities
  • Doubtful debts owed by debtors that have been declared legally bankrupt
  • A provision for obsolete inventory if the following conditions are met:

— The tax authorities are notified about the intention to destroy the obsolete stock.

— The obsolete stock is destroyed in the presence of a repre­sentative from the tax authorities.

— The tax authorities prepare formal minutes evidencing the destruction of the obsolete stock.

Banks and financial institutions may deduct provisions for doubt­ful debts before declaration of bankruptcy of the debtor if they obtain the approval of the Banking Control Commission of the Central Bank of Lebanon.

Tax depreciation. Depreciation must be calculated using the straight-line method. The Ministry of Finance has specified the minimum and maximum depreciation rates. A company may select appropriate rates within these limits for its activities. Companies must notify the relevant income tax authorities of the adopted depreciation rates before the declaration deadline. Otherwise the company is considered eligible for the minimum depreciation rates only.

 

Assets Minimum rate (%) Maximum rate (%)
Developed buildings from concrete for use in the commercial, tourism and service sectors (for example, offices, shops, stores, restaurants, hotels and hospitals) 2 5
Developed buildings from concrete that are used for industry and handcrafts 3 10
Developed buildings from metal for commercial and industrial use 6 20
Large renovations, maintenance and decoration works for buildings 6 20
Technical installations, industrial equipment and accessories 8 25
Computer hardware and software 20 50
Cars 10 25
Vehicles for transportation of goods and people 6 20
Means of sea transport 5 10
Means of air transport 20 25
Office equipment, furniture and fixtures 8 25
Non-consumable tools in restaurants
and coffee shops (for example, glass
cups and silver spoons)
–* –*
Gas bottles 8 20

* These items are subject to count each year and are valued at cost.

Relief for tax losses. Tax losses may be carried forward for three years. In addition, under Law No. 273, dated 15 April 2014, losses incurred in 2003 and 2004 can be carried forward for one extra year (four years in total). Losses incurred in 2005, 2006, 2007 and 2008 can be carried forward for an additional four or seven years. This applies to certain companies specified under this law.

Groups of companies. Parent companies are not required to pre­pare consolidated financial statements that incorporate the activi­ties of their associated companies and subsidiaries. Each legal entity is taxed separately.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate
Value-added tax (VAT); imposed on the
supply of goods and services by a taxable
person in the course of an economic activity
in Lebanon and on imports; certain supplies
are exempt; registration with the Directorate
of VAT is required if an entity’s total taxable
turnover for the four preceding quarters
exceeded LBP150 million; all persons
performing taxable economic activities have
the option of registering, regardless of the
amount of turnover
Standard rate 10.00%
Tax on portion of foreign head office overhead
allocated to a Lebanese subsidiary, associated
company or branch
7.50%
Customs duties on imported goods Various
Social security contributions
Sickness and maternity, on monthly
salaries up to LBP2,500,000; paid by
Employer 7.00%
Employee 2.00%
Family allowances, on monthly salaries up
to LBP1,500,000; paid by employer
6.00%
End-of-service indemnity, on monthly
salaries; paid by employer
8.50%
Stamp duty on documents, such as the issuance
of share capital, corporate bonds, commercial
bills, lease agreements, employment agreements
and other agreements (contracts related to
foreign transactions of Lebanese offshore
companies are exempt)
General rate 0.30%
Built property tax; imposed on rental income
generated by entities subject to income tax;
such income is not subject to corporate income
tax and is excluded from the taxable results
together with the related expenses; the annual
net income from each parcel of real estate is
separately subject to built property tax
Net income not exceeding LBP20 million 4.00%
Net income exceeding LBP20 million, but
not exceeding LBP40 million
6.00%
Net income exceeding LBP40 million, but
not exceeding LBP60 million
8.00%
Net income exceeding LBP60 million, but
not exceeding LBP100 million
11.00%
Net income exceeding LBP100 million 14.00%
Municipal taxes on developed property
Sidewalk and sewage tax, paid by landlords
on annual gross rental from buildings
(since 1989, the municipalities have
collected this tax from tenants)
1.50%
Security and cleaning tax, paid by tenant on
a percentage of the rental value of buildings
(nonprofit enterprises are exempt from this tax)
Residential buildings (minimum tax of
LBP5,000)
5.00%
Nonresidential buildings (minimum tax of
LBP10,000)
7.00%
Registration duty, paid by purchaser of land
or buildings; levied on fair-market value of
building, which is deemed to be 20 times the
fair annual rental income set by the government
(approximate rate)
6.00%
Annual tax on total capital and reserves
of Lebanese holding companies, up to
a maximum tax of LBP5 million (tax
is due in full from the first year of
company’s operations, regardless of
the month operations begin); imposed
on amounts
Not exceeding LBP50 million 6.00%
Exceeding LBP50 million but not exceeding
LBP80 million
4.00%
Exceeding LBP80 million 2.00%
Annual tax on Lebanese offshore companies
(tax is imposed in full from the first year of
company’s operations, regardless of the
month operations begin)
LBP1 million

Miscellaneous matters

Foreign-exchange controls. Lebanon does not impose any foreign-exchange controls.

Anti-avoidance legislation. Under the Lebanese tax law, criminal or tax penalties may be imposed for specified tax-avoidance schemes.

Related-party transactions. Transactions with related entities must be on an arm’s-length basis.

Tax treaties

Lebanon has entered into double tax treaties with Algeria, Armenia, Bahrain, Belarus, Bulgaria, Cuba, Cyprus, the Czech Republic, Egypt, France, Gabon, Iran, Italy, Jordan, Kuwait, Malaysia, Malta, Morocco, Oman, Pakistan, Poland, Qatar, Romania, the Russian Federation, Senegal, Sudan, Syria, Tunisia, Turkey, Ukraine, United Arab Emirates and Yemen.