The Budget Law No. 144 dated 31/07/2018 was published in the Official Gazette on 01/08/2019 (below), seven months late compared to the constitutional deadline (article 86), and includes a number of tax measures that are worthy to be noted; notably those aimed at broadening the base of taxpayers, to cancel all the subsidiary budgets in order to include them in the consolidated budget as from 2021 as well as the measures aiming to fight against tax evasion and against the informal economy (économie souterraine). Hereinafter, a glimpse of the main provisions contained in the Budget of the year 2019:
* I. The new tax provisions:
It is important to note that a number of measures aiming to establish and/or to increase certain taxes, although strongly contested, have been adopted and incorporated into the tax nomenclature in order to increase the revenues and decrease the fiscal deficit rate in view to meet the commitments made at the CEDRE conference in April 2018. Among these new tax provisions it is worth mentioning:
* • Establishment of a temporary tax (for a three-year period) of 3% on imported products subject to VAT, i.e. approximately 55% of imported products, excluding gasoline, raw materials and equipment and materials used by the industrial and agricultural sectors.
* • Temporary tax increase on bank interests from 7 to 10% (Article 31 of the Budget amending article 51 of the Budget Law N°497/2003 amended by article 29 of the Budget Law No. 583/2004 and article 17 of Law No. 64 dated 20/10/2017 complemented by the Decision of the Minister of finance No. 1504/1 dated 22/12/2017) for a period of three years.
* • Taxation of retirement pensions on income tax (articles 23, 47 and 48 of the Budget amending Articles 47(4), 56 and 58 of the Income Tax Law) with the exception of pensions of the martyrs and wounded of the army and the security forces. This taxation will be as follows:
* − 1% on retirement pensions not exceeding LBP 6 million (4,000 USD).
* − 2% on pensions ranging from 6 million Lebanese pounds (4,000 USD) to 15 million Lebanese Pounds (10,000 USD).
* − 3.5% on pensions ranging from 15 million Lebanese Pounds (10,000 USD) to 30 million Lebanese Pounds (20,000 USD).
* − 5.5% on wages and salaries and pensions ranging from 30 million Lebanese Pounds (20,000 USD) to 60 million Lebanese Pounds (40,000 USD).
* − 7.5% on pensions ranging from 60 million Lebanese Pounds (40,000 USD) to 120 million Lebanese Pounds (80,000 USD).
* − 10% on pensions ranging from 120 million Lebanese Pounds (80,000 USD) to 225 million Lebanese Pounds (150,000 USD).
* − 12.5% on retirement pensions over 225 million Lebanese Pounds.
A tax rebate (a deduction applied to a given amount before the calculation of the taxable income) of ten million Lebanese Pounds (LBP 10,000,000) or approximately 6,600 USD is added to the other granted family allowances and will be deducted from the taxable base.
* • Addition of a seventh tax bracket for taxpayers whose salaries and wages exceed 225 million Lebanese Pounds (150,000 USD) (article 23 of the Budget amending article 58 of the Income Tax Law).
The new progressivity is as follows:
* − 2% on the portion of the net taxable income not exceeding 6,000,000 LBP.
* − 4% on the portion of the net taxable income exceeding 6,000,000 LBP and not exceeding 15,000,000 LBP
* − 7% on the portion of the net taxable income exceeding 15,000,000 LBP and not exceeding 30,000,000 LBP
* − 11% on the portion of the net taxable income exceeding 30,000,000 LBP and not exceeding 60,000,000 LBP.
* − 15% on the portion of the net taxable income exceeding 60,000,000 LBP and not exceeding 120,000,000 LBP.
* − 20% on the portion of the net taxable income exceeding 120,000,000 LBP and not exceeding 225,000,000 LBP.
* − 25% on the portion of the net taxable income exceeding 225,000,000 LBP.
The tax rebates defined by virtue of article 31 of the Income Tax Law and currently in force (a deduction applied to a given amount before the calculation of the taxable income will be applicable and deducted from the taxable base.
* • Addition of a sixth tax bracket of 25% for taxpayers subject to the tax on commercial, industrial and non-commercial income (including liberal professions) and for net income exceeding 225 million Lebanese pounds (article 24 of the Budget amending article 32 of the Income Tax Law).
The new progressivity is as follows:
* − 4% on the fraction of the profit not exceeding 9,000,000 LBP.
* − 7% on the fraction of the profit exceeding 9,000,000 LBP and not exceeding 24,000,000 LBP.
* − 12% on the fraction of the profit exceeding 24,000,000 LBP and not exceeding 54,000,000 LBP.
* − 16% on the fraction of the profit exceeding 54,000,000 LBP and not exceeding 104,000,000 LBP.
* − 21% on the fraction of the profit exceeding 104,000,000 LBP and not exceeding 225,000,000 LBP.
* − 25% on the fraction of the profit exceeding 225,000,000 LBP.
* • Introducing new taxes collected by the General Security (article 44 of the Budget), for example:
* − Three million Lebanese Pounds (USD 2,000) instead of one million Lebanese Pounds (USD 667) for the first category.
* − Two million Lebanese pounds instead of one million Lebanese Pounds (or 667 USD) for the 12th category.
* − One million Lebanese pounds (USD 667) instead of 300,000 Lebanese Pounds (USD 200) for the third category i.e. the category of domestic staff.
* − Three hundred thousand Lebanese pounds (USD200) instead of 50,000 Lebanese pounds for the fourth and last category.
* II. Measures reducing the applicable tax:
* • Reduction of the registration fee of residential units whose price reaches 375 million Lebanese Pounds at 2% instead of 5% (current rate) and 3% for the portion of the price that exceeds the ceiling of 375 million mentioned above; provided however that the notarized sales contract or the irrevocable power of attorney establishing the transfer of ownership was established before the publication of the Budget (01/08/2019) and that the transfer of ownership in the land register is executed and finalized before the deadline of 31/03/2020 (article 29 of the Budget).
* • Article 49 of the Budget (amending article 45 of the Legislative-decree No.144 dated 12/6/1959 amended by article 13 of Law No. 64 dated 20/10/2017) envisage to grant to natural persons or legal entities obliged to keep regular accounts, in accordance with the texts of the laws and regulations, the possibility of carrying out an exceptional revaluation of the elements of their fixed assets (including lands, buildings, machineries, shares in other companies, etc…) to mitigate the effects of inflation. This disposal can only be done once and before the deadline of 31/03/2020. The revaluation variance (added value) resulting from this exceptional revaluation is subject to a new proportional tax at the rate of 3% of the value of these differences instead of the normal rate of 10% currently in force for the traditional revaluation or 15% in case of the assignment of the property(ies). However, if the property belonging to the said assets is sold within three years as from the revaluation, the normal tax regime applies retroactively and the difference is paid to the Treasury. Another exceptional revaluation is also granted in article 49 (B) until 31/12/2019 to individuals and other taxpayers, residents or non-residents, subject by virtue of the Law No. 64 dated 20/10/2017 to the new tax of 15% on the capital gain realized as part of the management of their private assets in Lebanon.The applicable rate in this case is 2% to be paid within two months.
* • Diminution of due penalties and fines of up to 85% in respect of infringements for default or delay in reporting (tax returns) and/or payment (penalties of assessment and recovery, municipal taxes, CNSS, mechanic …) in addition to the spreading of payments (by installments) of the due tax (articles 32 to 40 of the Budget as well as article 68).
* • Amnesty in the order of 50% on the claimed amounts for tax adjustments and other pending litigations before the objection committees at 31/03/2019; to the condition that it covers all claims and that the amount of the amnesty is paid in full before 31/12/2019 or to pay a quarter (25%) and stagger the balance over three years against an interest rate of 12% to be paid to the Treasury (article 41 of the Budget).
* III. Measures to fight against tax evasion:
* • Municipalities are now required to report to the ministry of Finance, the businesses, companies and professionals (commercial, industrial or other professional activities) having elected domicile within the municipal framework; with all relevant details as well as the obligation to report to the tax authorities quarterly those who do not have a tax identification number (TIN) (articles 50 and 51 of the Budget).
* • Municipalities should conduct field surveys of businesses and professionals in order to compile tax information and transmit it to the ministry of Finance; especially for those who do not have tax numbers (personal or professional) and who work in breach of the regulations.
* • Notaries have the obligation to transmit to the ministry of Finance the authentic sales contracts and the irrevocable proxies to enable the tax authorities to take cognizance of them and act accordingly (article 53 of the Budget).
* • Article 53 of the Budget stipulates that genuine sales contracts and irrevocable proxies must be executed with the transfer of ownership within three years of their establishment, under the penalty of duplication of the right due (100%).
* • A new exhaustive definition of tax evasion has been established (article 57 of the Budget) and introduced among the definitions of the Code of Tax Procedures (Law No. 44 dated 11/11/2008 and its amendments). It takes into account the intentional element. Tax evasion has thus been defined as the fact for a person having tax obligations, knowingly and intentionally, to refrain from declaring the taxes and duties due to the State and payable on his income or on his fortune, and to refrain from paying or remitting the taxes he has the obligation to deduct or recover or withhold at source or to reduce such taxes and charges or to cancel or withdraw them or to recover them in an illegal manner by the use of illegitimate means, including but not limited to:
* − The concealment of income subject to tax.
* − Registration of fictitious financial obligations contrary to their actual purpose.
* − To register false documents or fictitious charges or hold a double accountancy;
* − To knowingly destroy accounting documents before the prescription date imposed by the law.
* − To refrain from issuing invoices in accordance with the regulations in force, or from declaring its employees, or from allowing the beneficial owners to be identified.
* − To refrain from declaring the imports and exports at their actual value.
* IV. Other important provisions:
* • Without changing the currently available options for passport fees, it will now be possible to apply for a three-year passport at 200.000 LBP.
* • Implementation of a special tax on special numbers car registration plates (from 3 to 5 digits) in addition to an annual fee.
* • Striking off of commercial companies as well as good will which have no activity and are in breach of the regulations of the commercial register as well as civil companies from the special register to civil companies.
* • Cancellation of exemptions on vehicle registration fees and mechanical tax (with the exception of persons with special needs, the State, public institutions, the Parliament, municipalities, the consular and diplomatic corps).