VAT, GST and Sales Tax in Lebanon

Summary

Name of the tax Value-added tax (VAT)
Date introduced 1-Feb-02
Trading bloc membership None
Administered by Ministry of Finance (http://www.finance.gov.lb)
VAT rates
Standard 10%
Other Exempt and zero-rated
VAT number format Tax identification number (TIN), followed by the VAT number (indicating whether the taxable person is an exporter; for example, 1473-601)
VAT return periods Quarterly
Thresholds LBP150 million in any four consecutive quarters
Recovery of VAT by non-established businesses Yes, with certain conditions

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods or services made in Lebanon by a taxable person
  • The importation of services by a person resident in Lebanon
  • The importation of goods into Lebanon, regardless of the status of the importer

Who is liable

A taxable person is an entity or individual who makes taxable supplies of goods or services in the course of doing business in Lebanon, in excess of the registration threshold. This definition includes a permanent establishment of a foreign business in Lebanon. The deadline for registration is two months after the last day of the quarter in which the liability to register arose.

The VAT registration threshold is total turnover of at least LBP150 million in the preceding four quarters.

Voluntary registration. Any person that begins or performs an independent economic activity that is liable to tax, or that is exempt with the right of deduction in accordance with the provisions of the VAT law, may voluntarily apply to become a taxable person, regardless of the person’s level of turnover.

Group registration. The Lebanese VAT law does not allow VAT group registration. Legal entities that are closely connected must register for VAT separately.

Registration procedures. A taxpayer registering with the Directorate of Value-Added Tax (DVAT) is required to manually fill out hard copies of the necessary registration forms (K1-1, K11-1 and K12-1) along with other required documents and submit them to the DVAT within two months from the last day of the quarter in which the liability to register arose (in case of mandatory registration). The DVAT takes an average of one week to complete the registration.

Late-registration penalties. Under Law No. 44, dated 11 November 2008, late registration with the relevant tax department triggers the following penalties:

  • LBP2 million for joint stock companies
  • LBP1 million for limited liability companies
  • LBP300,000 for sole proprietorships and other taxpayers

Non-established businesses. A “non-established business” is a business that has no fixed establishment in Lebanon. A non-established business must register for VAT if it makes taxable supplies in Lebanon.

Tax representatives. A non-established business must appoint a tax representative resident in Lebanon before it makes any sup­plies of goods or services there, regardless of its expected level of turnover. The tax representative is jointly and severally respon­sible for the payment of all VAT liabilities and penalties with the non-established business that it represents. The tax representative is solely responsible for complying with all of the other provi­sions of the Lebanese VAT law.

If a Lebanese resident receives a taxable supply of services from a non-established supplier that has not appointed a tax represen­tative in Lebanon, the Lebanese resident is liable to pay VAT and any penalties due to the VAT authorities.

Reverse charge. Reverse charge is a transfer of liability to account for and pay the Value-Added Tax on imported services from the person providing the service (the supplier) to the person receiv­ing the service (the recipient). If services are being supplied by a foreign nonresident entity that has no agent in Lebanon to a Lebanese registered entity, it is the responsibility of the Lebanese taxpayer to book the VAT amount due on the service and declare it to the VAT department.

Digital economy. No special rules apply.

Deregistration. A taxable person that ceases to carry on business in Lebanon must end its registration. A taxable person whose turnover falls below the compulsory registration limit may also deregister.

A taxable person that is registered voluntarily may request dereg­istration if its annual turnover does not exceed the compulsory VAT registration threshold.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to a rate of VAT, including the zero rate.

In Lebanon, the two rates of VAT are the standard rate of 10% and the zero rate (0%). The standard rate of VAT applies to all supplies of goods and services, unless a specific measure pro­vides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

  • Exported goods
  • Exported services
  • International transport

The term “exempt supplies” refers to supplies of goods and ser­vices not liable to tax and that do not give rise to a right of input tax deduction (see Section F).

Examples of exempt supplies of goods and services

  • Postal services and stamps
  • Education
  • Insurance
  • Financial services
  • Transfer of real estate
  • Medical services and equipment
  • Precious metals and precious and semiprecious stones
  • Betting and gaming
  • Transport of persons
  • Agricultural activities and products, including livestock, seeds, animal feed and pesticides
  • Books, newspapers and magazines
  • Basic foodstuffs and baby food

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The tax point is the earliest of the following events:

  • When the goods are delivered or the services are performed
  • When the consideration is paid if this occurs before the goods are delivered or services are performed
  • When the invoice is issued if this occurs before the goods are delivered or services are performed

The time of supply for imported goods is when the liability to pay customs duties arises, that is, either on the date of importation or when the goods leave a duty suspension regime.

A Lebanese resident who uses a service in Lebanon that is acquired from abroad must account for VAT on the service and pay VAT due to the VAT authorities. The tax point is when the service is received and the consideration is paid.

Recovery of VAT by taxable persons

A VAT payer may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. A VAT payer generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made.

Input tax includes VAT charged on goods and services supplied in Lebanon and VAT paid on imports.

A valid tax invoice or customs document must generally accom­pany a claim for input tax.

Nondeductible input tax. Input tax may not be recovered on pur­chases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for some items of business expenditure.

The following lists provide some examples of items of expendi­ture for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to a taxable business use.

Examples of items for which input tax is nondeductible

  • Business entertainment
  • Nonbusiness expenditure

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • Accommodation
  • Advertising
  • Business gifts
  • Conferences
  • Purchase, lease and hire of cars, vans and trucks
  • Business use of home telephone
  • Mobile phones (80% provided that the invoices are in the name of the taxpayer)
  • Taxis

Partial exemption. Input tax directly related to making exempt supplies is not generally recoverable. If a Lebanese taxable person makes both exempt and taxable supplies, it may not recover input tax in full. This situation is referred to as a “partial exemption.” Zero-rated supplies (sometimes referred to as “exempt with the right of deduction” supplies) are treated as tax­able supplies for these purposes.

A taxable person that makes both taxable and exempt supplies may generally recover input tax that is related to taxable supplies only. Input tax directly allocated to taxable supplies is deductible, while input tax directly related to exempt supplies is not deduct­ible. The remaining input tax that is not allocated directly to exempt and taxable supplies is apportioned. The apportionment may be calculated based on the value of taxable supplies made compared with total turnover.

However, certain VAT exempt entities, including hospitals, edu­cational institutions and nonprofit organizations, known as “Article 59 entities,” are subject to a special VAT recovery regime. Article 59 entities use fixed recovery percentages for recovering input VAT, depending on the type of expenditure. The following are the fixed percentages:

  • 100% recovery is allowed for purchases of fixed assets.
  • 100% recovery is allowed for current expenses.

Refunds. If the amount of VAT recoverable in a quarter exceeds the amount of VAT payable, the taxable person earns a VAT credit. The VAT credit is generally carried forward to offset output tax in the following VAT period. A refund of any remaining VAT credit may be claimed twice per year (every six months). However, exporters may claim a refund of the VAT credit at the end of each quarter.

The VAT authorities must make a refund within three months after the date of receipt of the claim. The VAT authorities pay interest on late refund payments at a rate of 9% per year, begin­ning at the end of the fourth month following the date on which the claim is submitted.

Preregistration costs. A taxable person who purchases fixed assets and inventory at a date preceding VAT registration can request a refund of input tax on these items once registered. The taxpayer has to submit a letter to the Ministry of Finance in order to refund such VAT. The amount to be refunded is deducted from the VAT amount to be paid starting from the period following the taxable period in which the refund request is approved.

Recovery of VAT by non-established businesses

The Lebanese VAT authorities may refund the VAT incurred by businesses that are neither established nor registered for VAT in Lebanon under certain conditions.

Invoicing

VAT invoices and credit and debit notes. A taxable person must generally provide VAT invoices for all taxable supplies made to other taxable persons and for exports. Taxable persons that sup­ply goods and services primarily to retail customers may issue cash receipts instead of full tax invoices.

A VAT credit note may be used to reduce the VAT charged and reclaimed on a supply of goods or services. The value of the sup­ply may be reduced if a supply is cancelled, goods are returned (in full or in part) or the contractual price is reduced. The amount of VAT credited must be separately itemized in the credit note. The credit note must be cross-referenced to the original VAT invoice and must contain generally the same information.

Proof of exports. Lebanese VAT is not chargeable on supplies of exported goods, which are zero-rated. However, to qualify as zero rated, an export supply must be accompanied by official customs evidence and port clearance documents, stating that the goods have left Lebanon.

Invoices issued in a foreign currency. As per Instruction No.167/ S1 dated 21 January 2012, when the value of goods or services is set in a foreign currency, the taxpayer should calculate the coun­ter value of the VAT in LBP by exchanging the foreign amount to LBP according to the official exchange rate at the date of transac­tion. If the official exchange rate at the date of the transaction could not be precisely determined, the taxpayer should use the Banque du Liban (BDL) rates published one day before issuing the invoice and apply this exchange rate.

Electronic invoices. Not applicable.

VAT returns and payment

VAT returns. Lebanese VAT returns are submitted for quarterly periods. VAT returns must be filed within 20 days after the end of each quarter. Payment in full is required at the same time. VAT liabilities must be paid in Lebanese pounds.

Effective 1 January 2014, all VAT-registered taxpayers are required to file their tax returns electronically. To access the electronic system, taxpayers were required to register for e-filing by 31 January 2014.

Special schemes. Not applicable.

Electronic filing and archiving. According to ministerial decision N. 1157/1 dated 25 November 2013 all taxpayers registered with the directorate of VAT should submit their quarterly declarations electronically starting the first quarter 2014. In order to do so, the taxpayer should register online and create an account with the Directorate of Value-Added Tax through the Ministry of Finance’s website (www.finance.gov.lb).

Annual returns. Not applicable.

Penalties

A penalty is charged for the late submission of a VAT return at a rate 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, and the maximum penalty is 100% of the tax due. For these purposes, a fraction of a month is considered to be a whole month.

A penalty is charged for late payment of tax at a rate of 1.5% per month or part of a month that the tax is unpaid.

Penalties apply to a range of other VAT errors and offenses, including the submission of incorrect tax returns (penalty is 20% of the difference between the tax due and tax paid), the issuance of incorrect VAT invoices (penalty is 25% of the tax due on the invoice), the issuance of invoices by unregistered taxpayers (pen­alty is three times the VAT amount in the invoice).