The Budget Law 2020 (Law #6) was published in the Official Gazette appendix #10 dated 5th March 2020 (attached a scanned copy of the tax related articles) and includes some major 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 (article 41 of the Law No 144 dated 31/7/2019). We hereby give you a summary of the main articles and provisions of Chapters 3 & 4 of this Budget Law 2020 (the “Law”) related to discounts on penalties and various tax amendments, measures and incentives:
EXTENTION OF DELAYS
The Article 22 of the Budget Law 2020 has extended the deadlines of the articles 21, 22, 28, 29, 30 and the below mentioned articles of the Budget Law 2019 (Law #144 dated 31 July 2019) for 6 months from the publication date of this Law (i.e. till the 5th September 2020):
DISCOUNT ON PENALTIES & INSTALLMENT OF LATE PAYMENTS
Articles 32 to 36 of the Budget Law 2019: 85% discount on late payment penalties due to government entities, including all Taxes and duties (except those requiring the approval of the Council of Ministers), Municipality taxes and Mechanic fees provided that the late payment taxes, duties and fees as well as the discounted penalties are paid before the 5th September 2020.
Article 37 of the Budget Law 2019: 100% discount on penalties due to the National Social Security Fund (NSSF) if related to periods up to the year 2000 (inclusive) and 85% discount on penalties related to the year 2001 and onward provided that the underlying late payments and their discounted penalties are paid before the 5th September 2020. However, the unpaid NSSF contributions and their discounted penalties can be paid by installments to the NSSF over 5 years with an interest rate of 5% per year provided that 20% of the late payments and the discounted penalties are paid before the 5th September 2020. In case of a failure to pay an installment, all the unpaid NSSF contributions will be due in addition to 12% interest.
Article 39 of the Budget Law 2019: Total exemption on penalties due by taxpayers concerned by the application of the Article 53 of the Income Tax Law (i.e. taxpayers who work in several places or are self-employed at the same time that should fill and declare the R8 tax form) for violations occurred till the year 2018 provided that the taxes are paid before the 5th September 2020, knowing that they can pay these taxes by installments over 3 years without interest provided that 25% of the late payments are paid before the 5th September 2020. This exemption doesn’t cover the penalties already paid before the publication of this Law and wish are considered as vested rights for the Treasury.
Article 40 of the Budget Law 2019: Unpaid taxes withheld at the source and Value Added Tax (VAT) related to periods before the 31st December 2018 can be settled by installments based on a written request and provided that 15% of the late payments are paid before the 5th September 2020. In case of a failure to pay an installment on time, all the late payments will be due in addition to 12% interest.
EXTENSION OF THE TAX OBJECTION DEADLINE
Article 38 of the Budget Law 2019: The taxpayers who have been notified of a tax adjustment and who did object this tax adjustment within the deadline set by the Tax Procedures Law (Law #44/2008) or whose objection were rejected in form at the level of the tax administration or the objection committee while they didn’t fully pay the adjusted taxes as of the publication of this Law, will be granted 6 months from the publication of this Law (i.e. before the 5th September 2020) to file their objection towards the tax administration or the objection committee provided that 10% of the adjusted taxes and duties are paid prior to submitting such objection. The tax administration will have one year from the publication of this law to conclude on these tax objections.
REAL ESTATE REGISTRATION FEES & EXCEPTIONAL REVALUATION OF FIXED ASSETS
Article 29 of the Budget Law 2019: Real estate sale contracts or irrevocable proxies concluded before the issuance date of this Law (i.e. before 31/07/2019) are granted exceptional reduced registration fees provided that the registration is executed before the 31st March 2020 (extended by article 22 of the Budget Law 2020 till the 5th September 2020): 2% for residential apartments with a value up to LBP 375 million (i.e. US$ 250,000) owned by Lebanese nationals and 3% for residential apartments exceeding this value as well as for any other real estate property.
Notaries public have to send a copy of any real estate sales contracts or irrevocable proxies concluded before them to the Ministry of Finance after the issuance date of this law and until the establishment of an automated transfer of these documents.
According the Article 53 of this Law, all proxies or sale contracts related to rights in kind should be executed with the real estate registration secretary and pay the related registration fees within 3 years from the date of the proxy or sale contract, otherwise a double registration fees will be due. The double registration fees are also applied if the contract is cancelled and a new contract is concluded with the same buyer or a close relative. Taxpayers who concluded proxies or sale contracts related to rights in kind before the publication of this Law have 4 years from this date to execute them at the real estate registration secretary and pay the related registration fees to avoid the penalties mentioned above.
Article 49 of the Budget Law 2019: An Exceptional Revaluation of Fixed Assets is allowed for one time only, to mitigate the effects of inflation, to any taxpayer (companies and establishments) except the real estate companies (i.e. companies holding properties available for sale in their current assets) before the 5th September 2020. The purpose of this exceptional revaluation that covers any kind of fixed asset (lands, buildings, machineries, shares in other companies, etc…) is to adjust their book values to their fair market values. These fixed assets should be recorded in the books of the taxpayer before the 1st January 2019 at the condition that its revaluated value should not exceed its market value as at 31 March 2020. This revaluation can be done by any certified accountant or sworn expert of the taxpayer’s choice. The revaluation variance resulting from this exceptional revaluation is subject to 3% tax – 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) and/or assets- and should be paid together with a request for approval from the Ministry of Finance who has the right to refuse this revaluation. Taxpayers who benefit or used to benefit from an income tax exemption are not allowed to undertake such exceptional revaluation of their fixed assets. If the taxpayer disposes part or the entire revaluated fixed asset within a period of 3 years from the revaluation date, this disposal is subject to the 15% capital gain tax on the difference between the selling price and the net book value of the fixed asset before revaluation.
Another exceptional revaluation is also granted in article 49 (B) until 05/09/2020 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. Thus, the taxpayers who fulfilled the conditions set in the paragraph 3 of the article 13 of the Law #64 dated 20 October 2017 (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), can reevaluate their assets for one time only before the 5th September 2020. This exceptional revaluation is subject to 2% tax to be paid within two months, knowing that the capital gain realized by this category of taxpayers on disposal of real estate properties are subject to 15% capital gain tax since the publication of the Law #64, with the exception of their primary and secondary residence as well as for any real estate properties (built or not) exceeding the threshold and wish is held for more than 12 years (8% deduction per year held).
AMNESTY ON TAX ADJUSTMENTS HELD AT THE OBJECTION COMMITTEES
Article28: An amnesty equal to 50% of the amounts of the objected tax adjustments (excluding late declaration and payment penalties) held at the objection (Appeal) committees but not yet settled by the latter as atthe publication of the Budget Law 2020 (i.e. March 5, 2020). To benefit from such amnesty, the taxpayers should submit a written request to the tax authorities and pay the discounted amount due as per this amnesty before the 31st March 2020. The taxpayer is not allowed to benefit from such amnesty on part of the objected tax adjustment. This amnesty covers all points of the objected tax adjustment. The objection committee will stop deliberating on any tax objection covered by this amnesty. The taxpayers who benefited from the same amnesty mentioned in the previous budget laws (especially the article 41 of the Budget Law 2019) and have chosen to settle the discounted amounts by installments but didn’t settle yet the balance, can only benefit from this 50% discount on the amount of claimed tax not settled yet.
OTHER PROVISIONS, TAXES & INCENTIVES
Article 33: Industrial company can benefit 5% subsidy on their export of products produced in Lebanon on their exports in excess of the previous year or on the products that are exported for the first time.
Article 34: All default of payment clauses of subsidized home, industrial, agricultural, touristic, technological and environmental loans are suspended until the 30th June 2020 where there will be no legal or contractual penalty on the borrower (including no interest delay penalty) for late payment or default of payment starting from the 1st October 2019. All legal procedures that have been initiated from the 1st October 2019 will be suspended until the 30th June 2020.
Articles 17, 18, and 19: Amendment of the Value Added Tax (VAT) Law No 379 dated 14/12/2001 (articles 16 & 59) in order, on the one hand, to restrict the exemption to NGOs with Public Utility feature as well as specific association that look after and take care of special needs, handicapped, orphans, disabled persons and elderly persons to the exclusion of all other NGOs, associations or similar organizations that should be bound as of the entering into force of this Law to register, apply and be liable to the VAT in case the turnover threshold exceeds LBP 100 million over a period of one to 4 consecutive quarters. On the other hand, the Budget Law has exempted from the VAT the import of raw materials that are used for the manufacturing of medicinal and pharmaceutical products.
Article 38: Amendment of article 14 of the Law No 28 dated 9/5/1967 and its amendments notably article 14 of the Law No 110 dated 7/11/1991 (Supplemental Regulations Covering Banks and Establishment of the National Deposit Guarantee Institution (NDGI) by increasing the minimum guarantee from 5 million LP to 75 million LP.