Decision of the Ministry of finance No. 545/1 dated 22/07/2019 regarding the principles of determination of the value of a business (or goodwill) or participations and shares held by a deceased person and their results in the context of the assessment of the elements of the inheritance.
This Decision determines, on the one hand, the principles to be followed and implemented by the competent services of the Ministry of Finance within the income tax, in order to determine the value of the company or business belonging to the deceased or the value of his shares in partnerships or of his shares in companies in order to include them among the elements of the estate patrimony; and on the other hand, the tax treatment in case of transfer by the heirs of property devolved to them by succession.
The value of the goodwill is determined, by virtue of the Decision, on the date of the death of the deceased and thus, on the basis of the estimate of its fixed assets and its assets having recorded a capital gain, in order for the positive differences (i.e. the realized added value) resulting from the evaluation to be added to the deceased’s personal account/portion if it is subject to the real profit basis, as well as to its share of the profits at the date of death following the audit of the accounts and the declared balance sheet of the business, or either to the profit derived from the application of the flat rate of the fixed profit if the deceased falls under the said regime or to the percentage of the profits determined by the tax authorities for the year in which the death occurred, if the deceased is a taxpayer on the basis of the estimated profit.
I- Concerning the value of the share in companies:
A- In capital companies:
The value of shares in Lebanese capital companies is determined on the basis of the value of equity after:
– the revaluation of the company’s tangible and intangible assets, such as goodwill, proprietary rights in trademarks, and financial rights such as equity and contribution securities and the inclusion of their differences within the private capital.
– the revaluation of real estate assets that are part of the negotiable assets and the inclusion of the positive differences in the equity.
In the two aforementioned cases, the assets that have recorded a capital gain are amortized on the basis of the new discounted value, and the deceased’s share in the equity is credited from the balance of the creditor current account, or would be if necessary amputated from the balance of the debtor’s current account.
In the event that the audited results of the company up to the date of death are negative and exceed the deceased’s share of the capital, the value of his share will be considered to be null.
B- In partnerships:
The value of the deceased’s share is determined on the basis of the percentage of participation in the capital of the company. In addition to the balance of its current account, its share in the result of the financial cycle (operating result) up to the date of death will be taken into account, as well as its share in the revaluation differences of fixed and current assets of the company, will be taken into account.
C- In foreign companies that do not operate in Lebanon:
The share is determined on the basis of all available data on the financial position of these companies on the financial markets or on the world stock exchanges; and this, taking into account the balance sheet of the year preceding that of the death. Account should also be taken of the report of the chartered accountant and possibly the result of the last tax audit carried out by the tax authorities of the country in which the company concerned is located, in addition to the deceased’s current account balance.
The relevant tax unit is entitled to ask the foreign tax authority to provide information on the real value of the deceased’s share estimated by the said administration at the date of death.
In all the aforementioned cases, the department in charge of inheritance tax is required, upon the liquidation of the estate, to submit a detailed report to the heirs and to the tax service on the estimated value of each element of the company, or of the shares or of any other element of the estate and the value of the right due by each heir.
II- Concerning the tax treatment in case of transfer of the company (business) or one of its assets or shares in the partnerships or shares in the companies of capital.
In order to determine the value of the profit generated by the transfer of the transferred business or its assets or the shares or even of the transferred (assigned) shares, the difference between the transfer value and the estimated value of these elements, subject to the right of the tax authorities to requalify the assignment in accordance with the provisions of article 10 of the Income Tax Law (Code of Fiscal Procedures) as regards to fictive transactions or transactions entered and between connected persons.
The current basic principles for determination of the value of the profit realized by the assignment of the company and its assets, as well as the shares, remain unchanged, i.e. the difference between the transfer value and the book value, subject however to the right of the tax authorities to requalify the transfer transaction in accordance with article 10 of the Code of Tax Procedures (Law No. 44 dated 11/11/2008 and its amendments). This difference is subject to the income tax.
The relevant tax departments in charge of income tax are responsible for the execution of the operations relating to the determination of the deceased’s share within the deadlines specified in Decision No. 826/1 dated 25/09/2008.