Category: Laws & Decrees

The Law No.126 of 29/03/2019 (here below), published in the Official Gazette No 18 dated April 1, 2019, has amended the Lebanese Code of Commerce to meet local and international standards and evolutions. These amendments introduce new legal concepts resulting from the development of business in Lebanon. Hereinafter, a glimpse of the main changes and additions:

 

• Limited Liability Company (SARL)- Single Partner:

 

These amendments extended the concept of Limited Liability Company by allowing a physical person to incorporate a one-person (Single Partner) limited liability company in accordance with the following principle: “The limited liability company is set up by one or more people who only bear the losses up to the amount of their contributions.”

 

• Amendments concerning the Lebanese Joint Stock Company (SAL):

 

• Concerning the Board of Directors of the SAL, this new law provides that 1/3 of the members of the Board must Lebanese instead of the half (1/2) currently. In addition, this law allows the Chairman-General Manager to be a foreign national (work permit not required) and the Chairman-General Manager of a company can only perform this function in six companies. Regarding the cumulating of the directors’ mandate, it has been modified from six to eight (concerning physical persons).

 

• Concerning the General Manager of a company, he can only perform this function in three other companies. This law brings an innovation compared to our current situation: it no longer prohibits a person over 70 years old to be a director of more than two companies.
• In addition, the mandate of the Principal Auditor may no longer be renewed for more than five years.

 

• This law provided a separation between the chairman of the board of directors of the company and the general director. It also admitted the separation between shareholders and board members since the latter may not be shareholders (the qualifying shares having been cancelled).

 

• Regarding certain formalities and procedures:

 

• This law gives the possibility to the members of the board of directors to use electronic means within the framework of the transactions of deposit and registration of the company before the Trade Register according to a mechanism to be determined by the Minister of Justice. This innovation aims to facilitate the incorporation of companies in the Trade Register.

 

• This law also allows the founders of a company to recover the amounts deposited in a bank account (which represents their subscription to the capital of the company), in case the company is not established within six months the date of signature of the articles of association of the company with the notary.

 

• In addition, in the context of a total transparency, this law put at the expense of the members of the board of directors, an obligation which is to publish before the trade register or by an electronic way, the obligatory declarations (بيانات إلزامية ) and periodical reports and thus, after the meeting of the general meeting approving the annual accounts of the fiscal year.

 

• Moreover, this law also innovates by exempting a company to obtain the quitus (discharge) issued by the National Social Security Fund for the completion of any deposit or formality in connection with the yearly reports and ordinary general meetings adopting the accounts and thus, in order to facilitate the access of third parties information relating to the financial situation of the company.

 

 

• Other various modifications and new provisions:

 

• Regarding the transformation of a company:

Confirmation of the court’s tendency aiming to consider that the transformation of the form of a company does not entail the extinction of its moral personality and the emergence of a new one.

 

• Repartition between the bare ownership and the usufruct:

The legislator has also officially established and recognized the mechanism of repartition between the bare ownership and the usufruct in the shares by distributing the rights relating to each of the bare owner and the usufructuary. Thus, and without prejudice to cases of delegation and representation between bare owner and usufructuary or mutually consented repartition adopted by virtue of side written agreements notified to the Company, the attendance and vote in the Ordinary General Meetings belong to the beneficiary of the usufruct of the share; and the votes in the Extraordinary General Meeting belong to the owner of the share (bare owner).

 

• Regarding bankruptcy:

This law broadened the circle of responsibility of persons in the event of bankruptcy of the company, namely the members of the board of directors and the general manager and any person responsible for the management or control of the company. Thus, the responsibility of the auditor can be engaged in case of bankruptcy and the directors of the company cannot release themselves from their responsibility unless they prove that they acted as diligent and active professionals.

The same law introduces a new amendment protecting the estate of the spouse of the bankrupt in order to promote equality between men and women.

 

• Adoption and regulation of the Preferred Shares (article 212 of the Code) and of the Global Depositary Receipts (GDR).

 

• Adoption and regulation of the mergers and demergers of companies.

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The Law No. 110 dated 30th November 2018 (hereinafter), published in the Official Gazette No 52 dated December 6, 2018, has extended till the 31st January 2019 the discounts on the tax penalties and the objection deadlines set in the Budget Law 2018 which provides for the following:

 

DISCOUNT ON PENALTIES

Article 17: 100% discount on penalties on (i) failure to maintain accounting records for taxpayers taxed on estimated profit basis and (ii) issuance of invoices not compliant with the tax law and regulations.

90% discount on all other tax violations provided that the taxes and the discounted penalties are paid within 6 months from the publication of this law (i.e. now before the 31st January 2019).

 

Articles 18 to 22: 90% discount on late payment penalties due to government entities, including Municipality fees, Mechanic fees and National Social Security Fund (NSSF) provided that the late payment duties and fees as well as the discounted penalties are paid within 6 months from the publication of this law (i.e. now before the 31st January 2019). However, the unpaid NSSF contributions and their related 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 payment and the discounted penalties are paid within 6 months from the publication of this law. In case of a failure to pay an installment, all the taxes will be due in addition to 12% interest.

 

Article 24: 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 2016 provided that the taxes are paid within 6 months from the publication of this law. This exemption doesn’t cover the penalties already paid before the publication of this law.

 

 

EXTENSION OF THE TAX OBJECTION DEADLINE

Article 23: The taxpayers who have been notified of a tax adjustment after the 1st January 2009 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. now before the 31st January 2019) 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.

 

INSTALLMENT FOR PAYMENT OF TAXES WITHHELD AT SOURCE AND VALUE ADDED TAX (VAT)

Article 25: Unpaid taxes withheld at source (i.e. tax on interest, tax on dividends, etc.) and Value Added Tax (VAT) related to the fiscal periods up to 31 December 2016 can be installed based on a written request submitted to the tax administration within 6 months form from the publication of this law provided that 15% of the taxes due is settled within this period of 6 months. In case of a failure to pay an installment, all the taxes will be due in addition to 12% interest.

 

AMNESTY ON INCOME TAX AND VALUE ADDED TAX (VAT) ADJUSTMENTS HELD AT THE OBJECTION COMMITTEES

Article 32: An amnesty equal to 50% of the amounts of the objected tax adjustments (excluding late declaration and payment penalties) held at the objection committees but not yet concluded by the latter as of the publication of this Law for income tax adjustments covering years up to 2012 (inclusive) and Value Added Tax adjustments covering years up to 2016 (inclusive). To benefit from such amnesty, the taxpayers should submit a written request to the relevant tax department and pay the discounted amount due as per this amnesty within 4 months from the publication of this Law. The taxpayer has also the option to pay 25% of the discounted amount due within the 4 months period mentioned above and settle the remaining balance over 3 consecutive yearly installments subject to the interest rate set in the Tax Procedure Law. In case of a failure to pay an installment, the remaining balance will be subject to 12% interest. 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 committees will stop deliberating on any tax objection covered by this amnesty.

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The Law No. 108 (hereinafter), published in the Official Gazette No 52 dated December 6, 2018, has suspended the application of Article 29 of the Budget Law No. 173 of 14/02/2000 and its amendments, relating to the Lump Sum Tax, for a period of three years as of the enactment of this Law. As a matter of fact, the flat rate tax is in contradiction with the tax fairness principle, as it only applies to a certain class of taxpayers and it does not make any distinction between the taxpayers who generate profits and those who incur losses.

 

Moreover, in compliance with the tax fairness principle, taxpayers who have already paid the flat rate tax are entitled to recover the said tax. The recovery mechanism will be determined by virtue of a decision to be adopted by the Minister of Finance within one (1) month as of the publication date of this Act.

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The Law No. 106 of 30/11/2018 (hereinafter), published in the Official Gazette No 52 dated December 6, 2018, has defined the “beneficial owner” as follows: a Beneficial Owner is any natural person, who actually and ultimately owns or controls, directly or indirectly, an activity implemented by any natural person or legal entity on the Lebanese territory, regardless of his place of residence.

 

Under this law, public authorities, public institutions and municipalities, as well as private sector authorities are required to cooperate with the tax authorities and to provide them with the information they request.

 

Moreover, taxpayers subject to actual, fixed and estimated profit regime, as well as taxpayers exempted from income tax but subject to VAT, should keep a special register related to the beneficial owners. These taxpayers have also the obligation to preserve the documents certifying the ownership structure of the legal entity and thus, for a period of 10 years, even after the loss of the status of beneficial owner or even after cessation of the activity by the concerned legal entity.

 

The law also requires the following:

– Any declaration of beginning of activity must specify the name of the beneficial owner.

-Any change or modification of the information related to the beneficial owner must be reported to the tax authorities.

 

However, one of the most important provisions of the said law remains in the sanctions and penalties imposed on any person who fails to disclose information relating to the beneficial owner of the shares of a corporation or members’ shares of a partnership or the beneficial owner of any activity. These penalties apply to both persons who act for the benefit of the beneficial owner and to those who are responsible for completing and submitting the declarations provided for by the laws in force to the tax authorities.

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The Law No. 83 dated October 10, 2018 has established a protection regime that benefits any natural or legal person who would denunciate to the National Anti-Corruption Commission any past, present or future act related to corruption.

One of the most important provisions of the law is the protection of the whistleblower at all times in order to encourage the disclosure of information. As such, the whistleblower’s identity shall remain secret, even after the procedure has unfolded. He/she shall be protected from any damage that he/she may suffer in performing his duty  (disciplinary sanctions, dismissal, suspension, demotion, etc.) by imposing a fine varying between LBP /10,000,000/ and LBP /100,000,000/. Similarly, any person who causes damage to the whistleblower outside of work or to his family members or his employees (pressure, threats, physical or moral violence, material damage etc.) shall be subject to strengthened penalties. In the event of a serious risk to the safety of the whistleblower or to a member of his/her family or other, the Commission may request from the public authorities to provide all the necessary protective measures to ensure their protection. If the information disclosed to the public authorities is of great value, the whistleblower may receive a reward and additional help in accordance with the provisions of the law. However, it should be noted that the award is not guaranteed and is up to the discretion of the Commission.

This initiative is a great step for the Lebanese system, which has become notorious for its large scale corruption. Often, the average Lebanese citizen, employee or public official does not dare to communicate the acts of corruption witnessed out of fear of retribution. We are hopeful that this law will be able to achieve its purposes and serve the aim it has been enacted for.

 

Kozma Nadine & Spagnolo Valéria

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