The Inward Investment and International Taxation Review: Lebanon


Lebanon is a country that, by tradition, remains open to foreign direct investment and is endowed with several investment-enabling strengths, including a free market and limited restrictions on foreign investment.

Despite the ongoing unprecedented economic and financial crises, the government encourages foreign investment, and favours a strong role for the private sector in a liberal policy environment while maintaining minimal intervention in economic activities.

Lebanese law does not differentiate between local and foreign investors, except in sectors with specific requirements and limitations such as real estate, insurance, media (television and newspapers) and banking. Foreign investors can generally establish a Lebanese company, participate in a joint venture, or establish a local branch or subsidiary of their company without difficulty.

Some issues continue to cause frustration among local and foreign businesspeople. Impediments include red tape and corruption, complex customs procedures, lengthy judicial procedures and a weak enforcement of intellectual property rights. Several laws and decrees have been enacted in the past decade to encourage investment. The Investment Development Authority of Lebanon (IDAL) was established in 1994 and was considerably remodelled in 2001 with an aim to stimulate Lebanon's economic and social development, and to enhance its competitiveness. Law No. 48 relating to public–private partnerships was passed in 2017 but remains unapplied to date. Law No. 126 of 1 April 2019 introduced a long-awaited overhaul to the Lebanese Code of Commerce of 1942, with the aim of modernising the legal framework for companies and improving the business environment as part of the government's reform agenda presented at the CEDRE conference for Lebanon. The main amendments to the Code of Commerce include the introduction of the sole-partner limited liability company (LLC) with no restrictions on foreign ownership, the possibility to split the functions of the chairman and the general manager of a joint stock company, and the possibility to call for and hold board and general assembly meetings virtually. More recently, in an effort to facilitate and strengthen international and local investments, the Lebanese government enacted Law No. 163 on 14 May 2020, which introduced a new flexible investment vehicle, the private investment company (PIC), with a limited purpose centered on investing in financial instruments issued by private companies and entities that are not traded on organised financial markets on the date of investment. The PIC is explicitly exempted from the scope of the collective investment schemes laws and regulations, and it benefits from an attractive tax regime.

Common forms of business organisation and their tax treatment

i Corporate

The Lebanese Code of Commerce of 1942 and its amendments (Code of Commerce) distinguish between five forms of business entities, namely:

  1. joint-stock companies (JSCs);
  2. limited liability companies (LLCs);
  3. general partnerships;
  4. limited partnerships; and
  5. company partnerships limited by shares.

JSCs and LLCs, along with holding companies and offshore companies recognised as corporate entities since 1983, are the most widely used forms for setting up new companies in Lebanon. All such companies are required to be registered at the commercial registry, which is overseen by the president of the tribunal of first instance in the corresponding locality.

The liability of the shareholders of a JSC is limited to their contribution to the JSC's capital. The minimum share capital in a JSC is circa US$20,000, and the minimum number of shareholders is three. As per Law No. 75 of 27 November 2016, a JSC (including holding and offshore companies) is prohibited from issuing shares to the bearer,2 and all shares must be in the registered (nominative) form.

The JSC form is mandatory for certain business organisations such as insurance companies, banks and financial institutions. The JSC is run by a board of directors whose members are either shareholders or non-shareholders in the company, and are collectively responsible for running the JSC's affairs, while a chair or general manager is responsible for day-to-day matters. The chair or general manager may propose that the board of directors appoints a deputy general manager, but the latter shall act on behalf and under the responsibility of the chair or general manager. One-third of the board of directors of a JSC must be Lebanese.

The transfer of shares of a JSC between shareholders or to third parties is unrestricted, subject only to the right of first refusal of the JSC or the other shareholders, or both, if it is expressly provided for in the JSC's articles of association or in a separate shareholders' agreement. It is not a requirement that the transfer deed be notarised. The transfer of shares of a JSC is tax free and exempt from stamp duty.

The liability of the partners of an LLC is limited to their contribution to the LLC's capital.

Following the enactment of Law No. 126 dated 1 April 2019, an LLC may be composed of a sole partner who may exercise wide authorities. The minimum share capital is circa US$3,334. An LLC can be fully non-Lebanese-owned, and the management of the company can be controlled by non-Lebanese parties. When the LLC is formed by more than one partner, the transfer of shares to a non-partner is subject to the approval of partners representing at least three-quarters of the company's capital. The transfer deed should be notarised and notified to the LLC's director and to all the partners.

Holding and offshore companies follow the legal form of a JSC and are respectively governed by Legislative Decree No. 45 (on holding companies) dated 24 June 1983 and amended by Law No. 772 dated 11 November 2006, and Legislative Decree No. 46 (on offshore companies), dated 24 June 1983 and amended by Law No. 19 dated 5 September 2008, Decree No. 7861 dated 24 March 2012 and Law No. 85 dated 10 October 2018.

The holding company's purpose consists of:

  1. acquiring shares or interests in existing Lebanese or foreign JSCs and LLCs, and participating in the incorporation of the same;
  2. managing companies in which it holds shares or interests;
  3. granting loans to companies in which it holds shares or interests exceeding 20 per cent and guaranteeing said companies towards third parties;
  4. acquiring patents, licences, registered trademarks and other protected rights, and leasing the same to entities operating in Lebanon and abroad; and
  5. acquiring chattels or real estate, provided the same are only employed in the context of its activities and subject to the provisions of the law governing the acquisition by foreigners of real estate rights in Lebanon.

The holding company is exempt from income tax and withholding tax on dividend distributions, and is instead subject to a progressive tax rate, depending on its capital, to a maximum of circa US$3,400 per year.

The purpose of the offshore company was considerably extended in 2008 to attract foreign investments and now includes:

  1. entering into agreements to be implemented outside Lebanon;
  2. managing other offshore companies;
  3. carrying out commercial operations overseas;
  4. acquiring shares in non-resident companies; and
  5. opening branches and representation offices outside Lebanon.

Following the enactment of Law No. 85, offshore companies can be formed by a sole shareholder, who may be a natural person or a legal entity, Lebanese or foreign.

An offshore company may not perform activities in Lebanon except for opening bank accounts, renting offices and owning Lebanese treasury bills, and may not carry on banking or insurance activities. The offshore company is exempt from income tax and withholding tax on dividend distributions and is instead subject to an annual lump sum amount of circa US$666. A foreign non-resident chair or general manager of a holding or an offshore company is exempt from the obligation to hold a work and a residency permit.

Both holding companies and offshore companies are also exempt from share transfer tax, stamp duty on share transfers, etc., and present other advantages, such as the exemption from having at least one-third Lebanese members on their boards of directors.

ii Non-corporate

Physical persons may register themselves as traders at the commercial registrar of the locality where their main business is located. Traders may own commercial establishments that are deprived of legal personality. Traders are subject to income tax on their personal income at a progressive rate ranging between 4 and 25 per cent.

The Code of Commerce expressly recognises joint ventures, which are created by virtue of a contract and are deprived of legal personality except if the joint venture itself issues invoices, in which case it shall be subject to paying value added tax. Joint ventures are not subject to registration or publication requirements, and their existence should not be disclosed to third parties. Each partner in a joint venture who deals with a third party is considered to be dealing in his or her own name and for his or her own account, and is solely responsible for the debts incurred in relation to such third party.

Direct taxation of businesses

i Tax on profits

Determination of taxable profit

Tax is levied on the net income generated during the previous year. The net income is calculated by deducting all charges and expenses determined in the law from the turnover of the taxpayer.

There are three tax assessment methods: the effective profit method (used mainly for JSCs and LLCs); the lump-sum profit method; and the estimated profit method.

Income tax applies to earnings from business ventures carried out in Lebanon or the taxation of which is attributed to Lebanon pursuant to a double taxation treaty.

Capital and income

Income and capital gains are taxed at different rates according to Income Tax Law No. 144 dated 12 June 1959 and its amendments (the Income Tax Law). Income tax applies at a rate of 17 per cent for corporations, and at a progressive rate ranging between 4 and 25 per cent for physical persons. Capital gains resulting from the re-evaluation of assets are subject to a 10 per cent tax (with the possibility of total exemption in certain cases) and those resulting from the transfer of assets are subject to a 15 per cent tax (with partial deductions being allowed when the transferred assets consist of real estate properties). Pursuant to the enactment of Budget Law No. 144 dated 31 July 2019, physical persons or corporations may benefit from an exceptional re-evaluation of assets to mitigate any inflation before 31 March 2020. This deadline was subsequently extended until 5 September 2020 by virtue of Budget Law No. 6 dated 5 March 2020. The surplus resulting from such re-evaluation is subject to a new proportional tax at a rate of 3 per cent in lieu of (1) the current higher rate applicable to the re-evaluation of assets, or (2) 15 per cent applicable on the transfer of assets. However, the privileged rate shall cease to apply if any of the assets that were subject to re-evaluation are sold within three years from the date of the re-evaluation. The regular tax rate shall then apply retroactively and the difference must be paid to the Treasury.


Losses may be carried forward for a period of three consecutive years and survive any change of ownership.


Corporations (JSCs and LLCs) are subject to flat income tax at a rate of 17 per cent. The payment of dividends or any other dividend-like distributions to shareholders is subject to withholding tax at a rate of 10 per cent. The effective tax payable is thus 25.3 per cent.

Branches of foreign companies are subject to income tax at a rate of 17 per cent. According to the Income Tax Law, profits earned by branches of foreign companies are deemed distributed in full as dividends, and such distribution is subject to a 10 per cent tax on dividend distribution. The effective income tax rate payable by branches of foreign companies is, thus, 25.3 per cent.

Individuals are subject to a progressive tax rate ranging between 4 and 25 per cent on their income, after deducting circa US$5,000 for single individuals, in addition to approximately US$1,700 for married individuals and US$300 for every legitimate dependent child (up to five children), subject to certain conditions.

The reduced tax on dividend of 5 per cent previously given to certain listed companies has been cancelled. The standard tax on dividend rate is 10 per cent for all companies.


Tax returns are due annually and must be filed before the tax authorities at the Ministry of Finance. The tax authorities may re-audit or reassess the amounts included in the tax declarations. The tax authorities may also challenge any scheme for tax avoidance or any practices contrary to the purpose of the law, in which case the violators may incur substantial penalties.

Guidance and comfort may be sought from the tax authorities regarding the interpretation of taxes and regulations, or regarding factual matters. The decisions of the tax authorities may be subject to an opposition filed by the taxpayer before the tax authorities in cases of an error or an unjustified imposition of additional taxes. The Income Tax Law also provides for a judicial recourse against decisions of the tax authorities.

The statute of limitations on taxes in Lebanon is five years.

ii Other relevant taxes

Lump sum tax

Law No. 20 dated 10 February 2017 reintroduced a new lump sum tax payable per annum (which was originally provided for in the Budget Law No. 173 dated 14 February 2000 but remained ineffective ever since), as detailed in the table below.

TaxpayerTax amount (Lebanese pounds)
Joint-stock company (SAL)2 million
Limited liability company (SARL)750,000
Partnerships and personal establishments taxed on the basis of real profit550,000
Branches of foreign companiesX*
Individuals taxed on the basis of ratio profit250,000
Individuals taxed on the basis of estimated profit50,000
*The lump sum tax applies to the head office and each branch of a taxpayer operating in Lebanon. The term 'branch' shall be deemed to include, without limitation, offices, shops, points-of-sale and factories that conduct administrative, sales or business activities, and any other location at which the taxpayer conducts activities or receives clients.
The corporate form of the foreign company is used as a reference to calculate the amount of the lump sum tax payable by the branch.

This lump sum tax was meant to apply irrespective of whether the target company has recorded profits and was in principle not deductible for income tax purposes. The application of Law No. 20 was suspended for three years as of 1 January 2018 by virtue of Law No. 108 dated 30 November 2018.

Law No. 108 also provides that taxpayers who had settled the annual lump sum licence fee have the right to apply for a refund, which will be set by a decision from the Ministry of Finance. In this respect, the decisions of the Ministry of Finance No. 260 and 261 dated 30 May 2019 postponed the payment of the annual lump sum licence fee until the beginning of 2021 and set the mechanism for claiming back a refund for taxpayers who have already settled that fee.

Tax on interest

Pursuant to Budget Law 2019 and the Ministry of Finance's Decision No. 193/1 dated 1 June 2020, tax on bank interest is currently payable at a rate of 10 per cent. This rate is effective starting 1 August 2019 and applied for a period of three years, following which a 7 per cent rate will apply.

Non-resident tax

Tax on payments made in return for services provided by a non-resident is applied at a rate of 7.5 per cent (15 per cent on the deemed profits, estimated at 50 per cent of the gross proceeds). Tax on payments made other than for services performed, such as the supply of goods, is applied at a rate of 2.25 per cent (15 per cent on the deemed profits, estimated at 15 per cent of the gross proceeds). This tax must be withheld by the resident party and paid to the relevant tax authorities.

Value added tax

Value added tax (VAT) is an indirect tax on consumption levied at each stage of the production and consumption process. It is currently applied at a rate of 11 per cent. All companies whose revenues in any given quarter or year exceed approximately US$66,700 are subject to mandatory VAT registration.

Companies located in the Port of Beirut or the Port of Tripoli free zones are exempt from VAT for export purposes.

Following the enactment of Budget Law 2019, a temporary import duty at a rate of 3 per cent is imposed on imported goods that are subject to VAT for a period of three years. Such goods exclude gasoline and raw materials, equipment and products used in the industrial and agricultural sectors.

Stamp duties

The standard stamp duty amounts to 0.4 per cent of the amounts provided for in a contract. However, a lump-sum stamp duty of 5,000 Lebanese pounds (LBPs) shall apply on agreements that do not refer to an amount or refer to the potential payment of an amount that is undetermined in the agreement or undeterminable at the date of the agreement. The variable stamp duty referred to above becomes payable once the amount is determined or settled. Specific types of contract are subject to a lump-sum stamp duty ranging between approximately US$0.07 and US$1,334.

Built property tax

Built property tax is a progressive tax applied on annual net rental proceeds and ranges between 4 to 14 per cent, according to a progressive tax scheme. A taxpayer may submit a request of extraction to the Ministry of Finance subject to specific conditions.

Municipality tax

Municipality tax is a flat tax paid annually at a rate of 8.5 per cent of the yearly rent amount or the rental value of premises.

Tax residence and fiscal domicile

i Corporate residence

Income tax in Lebanon is territorial. Profits realised in Lebanon and profits derived from an activity in Lebanon are subject to Lebanese income tax. Accordingly, profits realised outside Lebanon but generated from an activity executed in Lebanon are subject to Lebanese income tax.

Profits made outside Lebanon through the exercise of a profession are subject to the tax provided for under Title 1 of the Income Tax Law.

The taxpayer must combine this income with its annual income and declare it in its annual declaration within the deadlines provided for by law.

Individuals and legal entities residing in Lebanon that receive foreign movable capital are subject to the tax set out under Title III of the Income Tax Law. This tax is currently fixed at a rate of 10 per cent.

ii Branch or permanent establishment

Foreign companies may open branches and representative offices in Lebanon.

Branches of foreign companies are subject to the same income tax rate as Lebanese companies in respect of their profits realised in Lebanon. Representation offices of foreign companies are prohibited from undertaking any commercial activity or from deriving profit in Lebanon.

Foreign commercial companies wishing to operate a branch or a representative office in Lebanon must register at the commercial registrar and at the Ministry of Economy and Trade (MoET). The establishment of a branch or agency in Lebanon is subject to a resolution of the foreign company's board of directors or any other authorised governing body, which should clearly indicate the nature of the prospective business in Lebanon and nominate an authorised representative.

Although registration formalities and tax rates are substantially similar for branches of foreign companies and Lebanese LLCs, a branch is the most common form for foreign investments in Lebanon.

Any foreigner who spends more than 183 days per annum in Lebanon shall be considered as a Lebanese resident for taxation purposes.

Tax incentives, special regimes and relief that may encourage inward investment

i Holding company regimes

Holding companies are exempt from income tax, withholding tax on dividend distributions and the lump sum tax on companies introduced by virtue of Minister of Finance Decision No. 993/1 of 31 October 2016. Holding companies are subject to an annual lump sum tax, the amount of which is proportional to their capital and ranges between approximately US$1,200 and US$3,400.

The Income Tax Law provides that the sale of shares by a holding company is subject to capital gains tax at a rate of 15 per cent if such shares have been held by the holding company for less than 24 consecutive months at the date of transfer. The sale of shares that have been held by the holding company for more than 24 consecutive months is exempt from capital gains tax. As per Instruction 1365/S1 of 31 August 2007, capital gains resulting from the disposal by a holding company of its shares or parts in companies located outside Lebanon are exempt from capital gains tax.

Share sale agreements are exempt from the 4 per mille stamp duty.

A holding company may charge interest on loans given to its subsidiaries (at a rate not to exceed certain limits set under law, depending on the source of the amount given in the loan) and receive management fees from its subsidiary in an amount not exceeding 2 per cent of the subsidiary's annual turnover.

As per Instruction 1365/S1 of 31 August 2007, holding companies are subject to tax at a rate of 10 per cent on interest from loans granted by the holding company to its subsidiaries when the maturity of such loans is less than three years. Interest from loans that have a maturity exceeding three years is tax-exempt.

A holding company is liable to pay social security contributions and payroll taxes for its employees. It is also subject to a 5 per cent tax on management fees received from its subsidiaries, and to a 10 per cent tax on royalties received from its subsidiaries from the licensing of trademarks.

ii IP regimes

Existing intellectual property rights laws cover copyright, patents, trademarks and geographical elements. All intellectual property rights registered at the MoET enjoy protection under Lebanese laws. Such registration has to be published in the Official Gazette. There is no special IP tax regime in Lebanon.

iii State aid

Tax incentives are also granted by Investment Development Law No. 360 (the Investment Law) dated 16 August 2001 and its subsequent amendments, which instituted IDAL.

IDAL offers a wide range of competitive investment incentives depending upon the qualifications and criteria for each project. These incentives include:

  1. exemption from income tax and tax on distribution of dividends for a number of years;
  2. grant of work permits for various categories exclusively needed for the project;
  3. fee reduction on work permits and residency; and
  4. fee reduction on construction permits, if required for the project.

IDAL also offers a business-matching service, a one-stop shop for facilitating administrative formalities and a basket of incentives referred to as the 'package deal', granted after approval by the Cabinet.

The Investment Law divides Lebanon into three investment zones, with different incentives provided in each zone, and encourages investments in the fields of technology, information, telecommunications and media, tourism, industry, and agriculture and agro-industry. The Investment Law also allows for the introduction of tailor-made incentives through package deals for large investment projects, regardless of the project's location, including tax exemptions for up to 10 years, reductions on construction and work permit fees, and a total exemption on land registration fees.

Other laws and legislative decrees provide tax incentives and exemptions depending on the type of investment and its geographical location. Industrial investments in rural areas benefit from tax exemptions of six or 10 years, depending on specific criteria, and exemptions are also available for investments in south Lebanon, Nabatiyeh and the Bekaa Valley.

The 2017 Budget Law No. 66, dated 3 November 2017, introduced a new income tax exemption for a period of five years in favour of new institutions established in one of the areas that the government wishes to promote and develop. The areas to be developed shall be determined by the Council of Ministers, and the exemption shall be granted by the Minister of Finance. In contrast, the 2018 Budget Law No. 79, dated 19 April 2018, as well as the 2019 Budget Law No. 144, dated 31 July 2019, did not provide for any similar tax incentives and exemptions. Minor reductions on registration fees were introduced as well as reductions on penalties for the late settlement of all due taxes and fees for 2019 and 2020.

Budget Law 2020 granted industrial companies a 5 per cent subsidy on products manufactured in Lebanon and exported for the first time, and on products manufactured in Lebanon with an export that is higher than the previous year.

iv General

The following enterprises are exempt from corporate tax: educational institutions, cooperative associations, trade unions and other types of professional associations, Lebanese maritime and airline companies, public institutions, and holding and offshore companies.

Moreover, industrial enterprises could benefit from temporary exemptions in the event of the reinvestment of generated profits for the purchase of new industrial assets.

Law No. 296, dated 3 April 2001, which amended the 1969 Law No. 11614, governs the foreign acquisition of property. The new law eased legal limits on foreign ownership of property to encourage investment in Lebanon, especially in industry and tourism; abolished discrimination for property ownership between Arab and non-Arab nationals; and lowered real estate registration fees to 5 per cent for both Lebanese and foreign investors. The law permits foreigners to acquire up to 3,000 square metres of real estate without a permit; acquiring more than 3,000 square metres requires Cabinet approval.

Domestic and foreign investors may benefit from a 4.5 per cent subsidy on interest on new loans granted after 1 January 2012 amounting to up to US$10 million per project (with a ceiling of US$40 million) provided by banks, financial institutions and leasing companies to industrial, agricultural, tourism and information technology establishments. The subsidy extends to a maximum of seven years. Investors can also benefit from loan guarantees from Kafalat, a semi-private financial institution that assists small and medium-sized enterprises (SMEs) in accessing subsidised commercial bank loans.

On 10 February 1981, Lebanon and the United States signed an Overseas Private Investment Corporation (OPIC) agreement in Beirut, but no investment using OPIC insurance coverage was undertaken until 1996. OPIC is currently engaged with Lebanon in three areas: insurance, financing and investment. Since 2006, OPIC has worked with Citibank on a programme that offers loans to the private sector (SMEs, retail and housing) through selected Lebanese commercial banks. This programme began in January 2007 and, to date, OPIC has provided circa US$300 million in credit line guarantees.

The government's National Institute for the Guarantee of Deposits continues to insure new investments against special risks. Other major trade and investment insurance programmes operating in Lebanon include COFACE (France), ECGD (UK), HERMES (Germany), SACE (Italian) and IAIGC (Arab Consortium). Lebanon has been a member of the Multilateral Investment Guarantee Agency, which is part of the World Bank, since 1994.

Withholding and taxation of non-local source income streams

i Withholding on outward-bound payments (domestic law)

Unless reduced by virtue of a tax treaty: (1) dividends paid to non-residents are subject to a 10 per cent withholding tax; and (2) remuneration paid to non-residents is subject to a 7.5 per cent withholding tax.

ii Double taxation treaties

Lebanon has entered into double taxation treaties with the following countries: Algeria, Armenia, Bahrain, Belarus, Bulgaria, Cuba, Cyprus, the Czech Republic, Egypt, France, Gabon, Iran, Italy, Jordan, Kuwait, Malaysia, Malta, Morocco, Oman, Pakistan, Poland, Qatar, Romania, Russia, Senegal, Sudan, Syria, Tunisia, Turkey, Ukraine, the United Arab Emirates and Yemen.

These treaties are aimed mainly at preventing double taxation. Nationals of the above-mentioned countries benefit from tax exemptions insofar as such exemptions are expressly provided in the treaty between their country of origin and Lebanon.

However, owing to the principle of territoriality applicable in Lebanon, the implementation of double taxation treaties has proven to be difficult, with many impediments arising in this respect.

iii Taxation on receipt

Capital gains derived from the sale of shares held by resident companies are subject to capital gains tax at a rate of 15 per cent.

Taxation of funding structures

Entities are funded either internally through equity financing (capital funding, retained earnings, etc.) or externally through debt (bank loans, debt instruments, etc.). Particular preferences for the mode of financing depend on the business sector and on the investors' inclination to leverage their business.

i Thin capitalisation

The Code of Commerce does not regulate thin capitalisation or provide for mandatory debt-to-equity ratios, and companies can in principle freely determine their financing scheme as they prefer. However, traders and commercial companies are required to pay their commercial debts as they fall due and to maintain their creditworthiness, failing which they may be declared bankrupt. Accordingly, any trader who uses unlawful means to sustain its creditworthiness or incurs commercial debts beyond its repayment ability may be declared bankrupt and, in certain cases, may face criminal charges.

The Code of Commerce also provides that the partners in an LLC should decide to either liquidate it or decrease the capital within four months following the approval of the accounts evidencing a loss of three-quarters of their capital. JSCs are subject to similar conditions following the loss of three-quarters of their capital.

Banks are subject to the circulars of the Central Bank of Lebanon governing their indebtedness, in accordance with the Basel II accords.

ii Deduction of finance costs

The taxable net income of a company is calculated after deduction of all general expenses, financial charges, depreciation and legal reserves. Finance costs are thus taken into account and deducted for the calculation of the net income of the company. No specific scheme governs finance costs per se.

iii Restrictions on payments

Pursuant to the Code of Commerce, shareholders decide whether to distribute dividends at the annual general assembly meeting held for this purpose.

The Code of Commerce subjects the payment of dividends to the existence of a net income validly documented in the company's financial statements, and holds members of the board of directors, as well as auditors, criminally liable in the event of fraud in such financial statements. It also requires companies to make yearly deductions of 10 per cent from their net income to constitute the legal reserve amounting to one-third of the capital of JSCs and half of the capital of LLCs, and the statutory reserve, if any. The payment of fictive dividends engages the liability of the directors as well as the liability of auditors.

The Code of Commerce provides for different treatments regarding the redemption of dividends resulting from a fictive income: partners of an LLC are required to return such dividends without any conditions, whereas shareholders of the other forms of companies (including a JSC) cannot be forced to return such dividends other than in the case of an established bad faith or wilful misconduct.

There are no restrictions on the movement of capital in Lebanon, capital gains, dividends or the inflow of funds. In light of the ongoing unprecedented economic, financial, political and social crisis since the last quarter of 2019, banks have imposed 'informal' unregulated controls on cash withdrawals in foreign currencies and overseas transfers. These de facto capital controls have categorically limited the outflow of funds in foreign currencies.

iv Return of capital

To return part of the capital to their shareholders, JSCs and LLCs may elect to decrease their share capital.

Such a decision must be taken by virtue of an extraordinary general shareholders or partners' assembly meeting, which shall decide the redemption of part of the capital on a pro rata basis between the shareholders or partners.

In the case of LLCs, the decision of the general assembly to buy back parts and thus reduce the capital should be seconded by a decision to cancel the redeemed parts.

JSCs, holding and offshore companies can decrease their capital through buying back their shares by allocating some of their profits in a special reserve established for that purpose. The shares acquired by the company are in such a case replaced by enjoyment shares, which do not entitle their holders to any nominal amount following the subsequent liquidation of the company.

In all cases, the decision to enforce a decision to return part of the capital is subject to the creditors' approval: a reduction of the capital is often perceived by creditors as a reduction of the commitment of the partners or shareholders and, thus, a reduction of the collateral that is meant to protect their rights. Such a decision is thus subject to publication requirements, and creditors making no objection thereto within three months for JSCs and within two months for LLCs.

Acquisition structures, restructuring and exit charges

i Acquisition

Credit is allocated on market terms, and foreign investors can get credit facilities on the local market. The private sector has access to overdrafts and discounted treasury bills, in addition to a variety of credit instruments such as housing, consumer or personal loans, and loans to SMEs.

The Code of Commerce governs the sale and purchase of shares, but does not specifically regulate the acquisition of assets, although the latter may be transferred in accordance with the general principles of law.

There are no entry barriers that would affect or restrict foreign investments, except in certain sectors specified by law (commercial representation, media, aviation, etc.).

The transfer of the shares of JSCs is tax free and exempt from stamp duty. The financing structure is not related to tax considerations but rather to the investor's entry strategy.

Acquisition transactions are subject to capital gains tax.

ii Reorganisation

Mergers often give rise to a new legal structure, and all asset transfers resulting from such a merger are in principle subject to a 15 per cent capital gains tax.

Law No. 126 of 1 April 2019 introduced new rules relating to mergers and split-ups (or demergers). The process of merging or splitting-up companies is now regulated with respect to the decision-making bodies, publication formalities and assets' allocation. Law No. 126 further provides for some tax exemptions whereby capital gain tax shall apply on merger and split-up operations with reduced rates subject to specific conditions.

Merger and split-ups transactions are exempt from fiscal stamp duties, transfer, inheritance, notary public and registration fees. Such exemptions shall cease to apply if the split company has benefitted an existing company.

Merged and split companies must settle all taxes due before the merger or split-up operations take place. A discharge from the National Social Security Fund is not required.

In principle, there are no restrictions on a merger between a local and a non-local entity, as long as the entity resulting from such merger is located in Lebanon.

iii Exit

All companies incorporated and operating in Lebanon should have their head office on the Lebanese territory.

Relocation within Lebanon is possible subject to publication formalities and registration in the commercial registrar.

Relocation to an address outside Lebanon is not allowed, as the Code of Commerce links the nationality of the company to its country of incorporation.

The partners in an LLC can decide to change the nationality of the company by virtue of a resolution that needs to be unanimously approved. The Code of Commerce provides that 'extraordinary general assemblies [of JSCs] cannot change the nationality of the company' and this text has been widely interpreted as forbidding any relocation of JSCs outside Lebanon.

Anti-avoidance and other relevant legislation

i General anti-avoidance

General anti-avoidance rules regarding tax avoidance, consequences and sanctions are tackled in the Income Tax Law and Tax Procedure Law No. 44, dated 11 November 2008 (the Tax Procedure Law), Law No. 60, dated 27 October 2016, and the decrees and decisions taken in application thereof. The Budget Law 2019 went one step further and introduced an exhaustive definition of 'tax evasion' to be added to the Tax Procedure Law. The Budget Law 2019 also imposed an obligation on municipalities and notaries public to inform the Ministry of Finance of all companies and businesses established within their municipal territory, verify their compliance and report all relevant details in this regard, including sale agreements and irrevocable proxies.

All companies should file an 'initiation of work' application before the Ministry of Finance within two months of their incorporation, failing which they shall be subject to late filing penalties. The Ministry of Finance issues a certificate evidencing such initiation of work, and the company should thereafter comply with periodic tax filing obligations.

All companies should present true, accurate and timely tax filings, and are subject to penalties in the case of false or late declarations, concealment of information, or obstruction of tax controls or tax collections.

The Tax Procedure Law provides for the right of the tax authorities to requalify any operation whenever tax evasion or fraud is suspected. The tax authorities may also reassess the amount of a transaction by application of the arm's-length principle, especially in the context of related-party transactions.

Tax avoidance may also be subject to criminal proceedings. Lebanon recognises low-tax jurisdictions and any company incorporated therein without discrimination. However, the tax authorities would always apply Lebanese tax laws to foreign companies deriving profits in Lebanon (in application of the territoriality principle) unless a double taxation treaty exists between Lebanon and the country where the foreign company is incorporated.

ii Beneficial owner declaration

Pursuant to the Ministry of Finance Decision No. 1472/1 dated 27 September 2018, all legal entities, irrespective of their form, are under the obligation to:

  1. identify their beneficial owner or owners, that is to say any natural person, irrespective of his or her place of residence, if any of the following conditions are met:
    • the individual holds, directly or indirectly, a minimum of 20 per cent of the legal entity's share capital;
    • the individual holds, directly or indirectly, the majority of the voting rights in the legal entity including the right of appointment or removal of the directors or members of other supervisory bodies; and
    • the individual occupies a managerial position (i.e., exercises significant influence or control over the company); and
  2. declare the required information to the Ministry of Finance upon the filing by the legal entity of the start of business certificate or the submission of the annual tax declarations, or both, as applicable.

All legal entities are required to maintain a special register of beneficial owners and maintain records demonstrating the ownership structure of the company and the control exercised over it, as well as all information and documents related to the beneficial owners for a period of 10 years, irrespective of if the person in question is no longer a beneficial owner in the company, or if the company has ceased its activity in Lebanon.

iii Controlled foreign corporations

There are no rules governing controlled foreign corporations per se, but Lebanon allows the incorporation in Lebanon of branches of foreign companies.

iv Transfer pricing

Transfer pricing is subject to the arm's-length principle. The tax authorities may interfere and reassess the amount of a transaction, especially if it takes place between related parties. Particular scrutiny takes place whenever tax evasion or a manipulation of accounts is suspected. The tax authorities apply the principle lato sensu and are usually stringent in its application.

v Tax clearances and rulings

The tax authorities regularly deliver tax attestations indicating all due taxes paid by a taxpayer. Such certificates may also be issued following an inspection performed by the tax authorities, or upon a spontaneous regularisation request made by the taxpayer by virtue of a petition requesting the issuance of such a certificate.

Year in review

Lebanon has been assailed for over two years by compounded crises. The country is mired in a severe economic and financial crisis that the World Bank has described as one of the three worst economic disasters since the mid-nineteenth century, coupled with political instability and violent unrests that started in October 2019.

The official currency of Lebanon, historically pegged to the US$ at the official rate of 1,500 LBP to the dollar, has witnessed a massive devaluation, losing more than 90 per cent of its value in less than a year. There are now a multitude of official (through decisions by the Central Bank of Lebanon (BDL)) and unofficial currency exchange rates in the market, including the official exchange rate of 1,500 LBP to the US$, the black market rate vacillating between around 13,000 LBP and 26,000 LBP to the US$, and a number of other hybrid exchange rates that fluctuate depending on the type of commodities, goods or services being purchased, and the issuance of new regulations by the BDL. Banks are applying intensive capital controls, which remain unregulated by a law to date, involving the rationing of deposit withdrawals and strict restrictions on cross-border transfers.

In March 2020, Lebanon defaulted for the first time on its sovereign debt (Eurobonds). The deep recession led to more than 70 per cent of the population now living below the poverty line, with an unprecedented unemployment rate that has quadrupled in a year. In 2020, Lebanon defaulted for the first time on its sovereign debt. With the country already stumbling, a deadly blast, one of the strongest non-nuclear explosions in history, shook the capital Beirut in August 2020, killing hundreds and injuring thousands. The explosion caused colossal destruction to the capital, with a direct economic damage estimated at US$4.5 billion, and severe implications at the national level on all vital sectors and the business environment at large. Since the massive blast in Beirut's port, Lebanon's unprecedented financial meltdown was aggravated, with a deep humanitarian crisis ensuing. The Lebanese have been grappling with hyperinflation, fuel shortages and power outages of up to 20 hours a day.

These exceptional circumstances have affected the business sector and hindered foreign investments.

Budget Law 2020 introduced some tax amendments and discounts on penalties, as well as an extension of the deadline of several tax amnesties and tax rebates set by the Budget Law 2019. Further discounts and extensions were granted by virtue of decisions issued by the Ministry of Finance.

Outlook and conclusions

The tax rates in Lebanon remain relatively low and the tax regime relatively stable. Owing to the wide panoply of services offered to foreign investors, Lebanon is perceived as a tax-friendly jurisdiction.

It is expected that the Lebanese government's upcoming regulatory and taxation policies will be focused on attracting foreign investment to Lebanon with the aim of tackling the devastating effects of Lebanon's unprecedented economic and financial crisis.


1 Simon El Kai and Souraya Machnouk are partners, Hachem El Housseini is a senior associate, and Thierry Abou Jaoude is an attorney at Abou Jaoude & Associates Law Firm.

2 Existing companies with capital constituted in whole or in part of bearer shares are required to convert such shares to registered (nominative) shares within the one-year deadline set out in Law No. 75 of 27 November 2016.

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