Briefing of Tax Law 64 dated 26 October 2017

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The Law #64 that amended some tax articles and introduced new taxes to finance the increase of wages & salaries in the public sector was published in the Official Gazette #50 on Thursday 26th October 2017 (attached a scanned copy). This Law has replaced the previous Law #45 published in the Official Gazette #37 on Monday 21st August 2017 that was invalidated by the decision of the Constitutional Council on the 30th August 2017. We hereby give you a brief on the main relevant tax updates related to corporate operations that can affect your business:

  • The Value Added Tax (VAT) rate has been increased by 1% from 10% to 11% starting from the quarter that follows the date this Law was published (i.e. starting from 1st January 2018).

Amendment of the Article 25 of the VAT Law #379 dated 14/12/2001.

 

  • The Corporate Income Tax rate for joint-stock companies (SAL), limited liabilities companies (SARL) and limited partnership by shares (SCA) has been increased by 2% from 15% to 17% starting from the fiscal year 2017. Consequently, the non-resident withholding tax rate will increase from 7.5% to 5% for services provided by non-residents and from 2.25% to 2.55% on goods purchased from non-residents.

Amendment of the Article 32 of the Legislative-Decree #144 dated 12/6/1959    (Income Tax Law).

 

  • The Tax on Interest rate has been increased by 2% from 5% to 7% starting from the date this Law was published. This tax is deductible from the net profit but is no longer a tax credit for companies subject to corporate income tax. As for taxpayers subject to deemed profit taxation according to the Article 44 of the Income Tax Law (i.e. insurance, saving, shipping and air & land freight companies), the net interest income (after tax on interest) is considered as part of the taxable income subject to deemed profit taxation. It is worth noting that contrary to what was mentioned in the previous Law #45 (invalidated by the Constitutional Council), the Law #64 has excluded the liberal professions (lawyers, doctors, engineers, accountants, etc…) subject to the deemed profit taxation from the provisions of the Article 17 of this Law.

Amendment of the Article 51 of the Law #497 dated 30/1/2003 (Budget Law 2003).

 

  • The Fiscal Stamp Duty rate has been increased by 1‰ from 3‰ to 4‰ starting from the date this Law was published. The fiscal stamp duty is calculated on the initial amount excluding VAT provided that the amount of VAT is separately stated in the contract or deed signed by parties regardless their nationality or place of residence. The fiscal stamp duty is due again at the renewal or extension of the duration of the contract or deed whether clearly stated or not in the document.

Furthermore, the fixed stamp duty amount on corporate documents (invoices, receipts, statement of accounts issued by banks or companies, unpaid invoices and other documents not subject to the variable fiscal stamp duty) has been increased from LBP 100 to LBP 250 starting from the date this Law was published (in accordance with the previous directives of the MoF/notification #3386/S1 dated 24/8/2017 on the practical application of this fixed stamp duty). Other fixed stamp duties have also been increased by this Law (e.g. the LBP 2,500 stamp on the invoices issued by the Ministry of Telecom. to phone and internet services subscribers and invoices, receipts and prepaid cards issued by mobile operators).

Amendment of the Article 18 of the Decree #67 dated 5/8/1967 (Fiscal Stamp Duty Law) and Appendices (point 46, 47, 68, 94, 95 and 111).

 

  • The Capital Gain Tax rate on the disposal of fixed assets has been increased by 5% from 10% to 15% starting from the fiscal year 2017. However, the losses carried forward can be used to reduce this capital gain. The revaluation gain, resulting from the revaluation of assets undertaken by entities subject to the real profit taxation every 5 years, is taxable at 10% if the revaluation gain is not used to cancel losses carried forward or left in a separate caption in the assets and liabilities of the balance sheet (unchanged legislation). However, the Article 13 – paragraph 3 of the Law #64 has broaden the scope of the capital gain tax to include the gain on disposal of real estate properties realized by individuals and entities exempted from the income tax or individuals subject to income tax but selling real estate properties that are not part of their professional business that are from now on subject to 15% capital gain tax. However, the primary and secondary residence of individuals (maximum of 2 residences) and real estate properties held by individuals for more than 12 years (8% deduction from the capital gain per year held) are exempted from capital gain tax (attached the MoF notification #3387/S1 dated 24/8/2017 on this capital gain tax).

Amendment of the Article 45 of the Legislative-Decree #144 dated 12/6/1959 (Income Tax Law).

 

  • The Tax on Dividend discounted rate of 5% has been cancelled for companies listed in Beirut Stock Exchange or having assigned at least 20% of its capital to Arab companies whose shares are listed in their respective country stock exchange or foreign companies whose shares are listed in the OECD countries stock exchange or having issued Global Depository Receipts GDR for the equivalent of at least 20% of the number of its shares in the Beirut Stock Exchange. From now on, the standard tax on dividend rate of 10% is applicable to all companies.

Amendment of the Article 72 of the Legislative-Decree #144 dated 12/6/1959 (Income Tax Law) with the cancellation of the Article 25 of Law #173 dated 14/2/2000 (Budget Law 2000).

 

  • The down payment of 2% on the Tax on real estate sale contract should be paid within 15 days of the contract date. This down payment will be deducted from the total registration fees of 5% provided that the registration occurs within one year from the contract date. This is not a new tax but its payment is now required within a short period of time to force the registration of purchased real estate properties.

 

The Law #64 further imposed penalties on illegal public maritime properties, increased the tax rate on lottery prizes and introduced a new fee on freight entering the ports in the country and increased the tax on imported tobacco and alcohol products. It also imposed a fee on non-Lebanese entering the country by land and increased the tax on air passengers leaving the country, raised the public notaries’ fees collected on behalf of the Treasury and imposed a fee on cement production, among many other measures.