INCOME TAXES ON CORPORATIONS
1. Rates
Income taxes in Lebanon are independently applied on the type of profit generated. In general, the following classifications of profit are independently taxed:
q Real profits;
q Salaries and wages;
q Income from movable assets (e.g., interest income and share dividends).
Rates on Profits. In general, corporations or joint stock companies pay tax on net real profits derived in Lebanon at a flat rate of 10%. Taxes on profits resulting from certain real estate operations are reduced by 50% to a rate of 5%. No additional taxes are imposed.
Holding companies, which are exempt from this tax, pay other specified taxes. Offshore companies are also tax-exempt on profit; they pay a flat tax of LL 1 million annually (see item 31).
Rates on Dividends. Except for holding companies and offshore companies, distributions of corporate profits are taxed at the flat rate of 5% in all cases even though a corporation may be tax-exempt on real profits. Dividends received by a parent company are also taxed unless the company operates under the statutes of a holding company. See item 31 for holding companies and offshore companies.
2. Local Income Taxes
None.
3. Capital Gains Taxes
Lebanese income tax law recognizes as capital gains those gains derived from revaluation appreciation or sale of fixed assets and long-term investments. The normal revaluation method covers fixed assets, long-term investments, and intangible assets (key money and good will) and may be conducted once every five years. The surplus is taxed at the rate of 6% unless it is used to offset losses sustained. The exceptional method, which expires at the end of 1997, covers fixed assets, long-term investments, and other fixed assets held for resale (excluding intangible assets) that were acquired before January 1, 1994. The surplus is taxed at 1.5%. Gains derived from a partial or total sale of fixed assets and long-term investments are taxed at 6% unless such gains are used to offset losses sustained or reinvested within a period of two years in residential units for the use of the taxpayer employees.
4. Branch Profits Taxes
Branches of foreign corporations are subject to the standard tax rates under item 1 on profits derived in Lebanon. Such profits are assumed to have been distributed and hence are also subject to the dividend tax. If the entity is a branch of a foreign bank, then 10% of the profits, which are required for the compulsory statutory reserve, are exempt from the distribution or dividends tax.
5. Foreign Tax Reliefs
Lebanese income tax is due on profits derived from activity or effort expended in Lebanon, regardless of the nationality or domicile of the taxpayer. On the other hand, except for income derived from movable assets (dividends and interest), residents in Lebanon, regardless of nationality, are exempt from Lebanese income tax on profits realized abroad. In addition, foreign taxes normally are deducted, and movable asset income is taxed at 5%.
Numerous tax treaties between Lebanon and other countries have been concluded; they are pending ratification by the Parliament. The treaty with France governs the framework of income and inheritance taxes. Generally, double taxation between Lebanon and France is avoided by the application of tax at source for corporeal or specific taxes and on the basis of residence for personal taxes.
6. Classification of Corporations
Special tax
laws were decreed for holding companies and offshore companies. Otherwise, no distinction is made between resident, nonresident, and private or public corporations. Profits derived in Lebanon by branches of foreign corporations are treated as profits of resident Lebanese corporations for income tax purposes.
7. Payment of Taxes
Corporations are required to pay taxes when filing their tax returns, normally within five months after the standard tax year-end, which has been set at December 31 of each year, except in certain cases where special permits are granted for a different year-end. On examination of the returns, the income tax authorities may discover understatements or overstatements of tax. Inquiries and assessments may be made within four or five years from the financial year-end.
INCOME TAXES ON INDIVIDUALS
9. Rates
The Lebanese tax system is based on the imposition of graduated taxes on real profits, salaries, and real estate income. Other sources of income, mainly from movable capital (dividends and interest) are taxed at a flat rate. The tax rates on real profits are:
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