Decision of the Minister of Finance No. 272/1 dated 07/14/2020 relating to the tax treatment of the income deriving from foreign movable capital generated by physical or legal persons resident in Lebanon

The Minister of Finance (MoF) issued and published on July 14th, 2020 the here below Decision No. 272/1, determining the tax treatment of the income deriving from foreign movable capital generated by physical or legal persons residing in Lebanon, inasmuch :

 

  • This income is paid to these persons through a resident in Lebanon, who is legally obliged to withhold tax, declare it and pay it to the Treasury.
  • This income is transferred and/or collected abroad, directly or through intermediaries.
  • These revenues are paid to the same entities residing in Lebanon which are obliged to withhold taxes on the revenues that are returned to their customers.

 

  1. Regarding the income deriving from foreign movable capital generated by physical or legal person resident in Lebanon through another person resident in Lebanon and legally bound to withhold the tax:
  2. The obligations borne by the (paying) resident person in Lebanon bound to withhold the tax:

The said party resident in Lebanon is legally bound to withhold, declare and settle to the Treasury the due tax provided for in Chapter 3 of the Income Tax Law at the rate of 10% of the value transferred to its customers within the delays provided for in section 81 of the Income Tax Law. i.e.:

  • Before 01/08 of the year for the income generated during the first half (semester) of the year.
  • Before 01/02 of the following year for the income generated during the second half (semester) of the previous year.

Failure to comply with the aforementioned obligations, late payment penalties provided for by the Law on Tax Procedures will be due.

  1. The procedures that must be implemented for the application of the provisions relating to the income deriving from foreign movable capital provided for in tax conventions aiming to avoid double taxation
  • Insofar as this income is derived from a State which have signed double taxation treaties (DTT) with Lebanon aiming to avoid double taxation  allowing this State to withhold tax:

The natural or legal person from which income the tax was withheld in Lebanon, may request from the tax administration directly or through the party having withheld the said tax, to eliminate the double taxation by virtue of a written letter to which is attached documents justifying the nature and the amount of this income which was subject to the foreign tax and the amount of the due tax on this income, provided however (i) that the amount of the foreign tax is calculated on all the income and the tax in Lebanon is deducted from the net value of this income after deducting the foreign tax, (ii) to convert the amount of the foreign tax into Lebanese Pounds on the basis of the official exchange rate, on the date of the withholding of the Lebanese tax, (iii) that the adopted tax rate by the other State to withhold the tax does not exceed the rate determined in the treaty if the rate in accordance with its national law is higher than this rate, taking into consideration however that, if the rate according to its legislation is lower than the rate determined in the treaty, the tax will be calculated on the basis of the rate determined in the internal legislation of the said State and (iv) that no penalties are due on the foreign paid tax.

  • Insofar as this income is derived from a State which didn’t sign a double taxation treaty (DTT) with Lebanon aiming to avoid double taxation or from a State which signed a double taxation treaty (DTT) with Lebanon aiming to avoid double taxation but which doesn’t allow the said State to withhold the tax:

The natural or legal person whose tax has been withheld from their income cannot recover the foreign tax (in case it exists).

 

  1. Regarding the income deriving from foreign movable capital generated by natural or legal persons residing in Lebanon and which are transferred or collected abroad directly or through intermediaries:
  • Insofar as this income is derived from a State which have signed with Lebanon a double taxation treaty (to avoid double taxation) allowing this State to withhold the tax at a rate equal to or higher than the Lebanese tax rate:

Concerned natural or legal persons must declare this income before 01/03 of each year for the income earned during the previous year and attach to the declaration the documents justifying the nature and amount of the income and the withheld foreign tax.

In case of violation, late payment penalties provided for by the Law on Tax Procedures shall be due.

  • Insofar as this income is derived from a State which have signed with Lebanon a double taxation treaty (to avoid double taxation) allowing this State to withhold the tax and whose tax rate provided for in the treaty is lower than the tax rate provided by the Lebanese Law:

Natural or legal persons must declare this income before 01/03 of each year for the income earned during the previous year and pay before 01/04 the tax difference due on this income resulting from the amount of the Lebanese tax calculated at the rate of 10% on the basis of all income before deduction of the foreign tax and the value of the foreign tax.

In case of violation, late payment penalties provided for by the Law on Tax Procedures will be due.

  • Insofar as this income is derived from a State which didn’t sign with Lebanon a double taxation treaty (to avoid double taxation) or from a State which have signed with Lebanon a double taxation treaty that does not allow this State to withhold:

Natural or legal persons must declare this income before 01/03 of each year for the income earned during the previous year and pay before 01/04 the due tax difference on these revenues at the rate of 10% on the basis of all income before deduction of the foreign tax (if any).

In case of violation, late payment penalties provided for by the Law on Tax Procedures will be due.

 

  • Concerning the income deriving from foreign movable capital generated by the same party required to withhold taxes from the income of its customers:
  1. The obligations borne by the said taxpayers:
  • Insofar as this income results from fixed assets generated by the said party (taxpayer):

The due tax on this income shall be the tax provided for in Chapter 3 of the Income Tax Law, and the said party must declare before 01/03 of each year the income earned during the previous year and pay the due tax before 01/04 of each year.

  • Insofar as these revenues are generated by the exercise of the profession of the said party :

The due tax on this income shall be the tax provided for in Chapter 1 of the Income Tax Law (business and corporate income tax), and this authority must combine this income to its annual income and declare it during its annual declaration within the deadlines provided for by the Law.

 

  1. Concerning the procedures that must be implemented for the application of the provisions relating to the income deriving from foreign movable capital provided for in the tax conventions aiming to avoid double taxation.
  • Concerning the income deriving from foreign movable capital resulting from fixed assets located in a Stated which have signed with Lebanon a double taxation treaty:

Natural and legal persons must declare the income earned during the previous year before 1/3 of each year, and pay before 1/4 of each year the due tax difference resulting from the value of the Lebanese tax calculated at a rate of 10% on the basis of the value of all income before the deduction of the foreign tax and the value of foreign tax.

 

  • Concerning the income resulting from the exercise of the profession (business income) derived in a State which has signed a double taxation treaty (DTT) with Lebanon aiming to avoid double taxation:

The percentage that this income constitutes is determined on the basis of the total income, and this percentage shall be applied to the tax on commercial profits (first chapter) which was due to this authority, in order to determine the value of the Lebanese tax due on these revenues.

This value constitutes the maximum amount of tax that can be recovered by this authority.

The tax administration may use this tax to recover any tax or fines that the concerned taxpayer owes to this authority.

  • Concerning the income resulting from fixed assets or from the exercise of the activity in a State which didn’t sign with Lebanon a double taxation treaty allowing this State to withhold the tax:

This authority cannot recover the foreign tax (in case it exists).

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