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MoF reply on conditions for 75% tax exemption on export profits

Law No. 163 dated 08/05/2020 organizing Private Investment Companies (PIC)

Posted on Monday June 15th, 2020 by citylog

The Law No. 163 dated 08/05/2020 (hereinafter) organizing Private Investment Companies (PIC) was recently adopted and published in the Official Gazette No.20 dated 14thMay 2020. The main characteristics of this law are summarized in the following developments:

1- Object of the Company:  

2- Applicable rules:The provisions of the Code of Commerce relating to limited partnerships which are not in contradiction with this Law shall apply. Consequently, general partners are personally and jointly liable for the Company’s debts. However, the limited partners are liable to the extent of their contributions, provided that they do not interfere in the management of the PIC. Nevertheless, the Law No. 162/2020 provides the limited partners with the possibility to be appointed as managers of the PIC or of the portfolio management company of PIC, in which case their liability remains limited.

Invest in financial instruments issued by private companies and funds, non-

negotiable on regulated financial markets on the day of the investment.

Manage the aforementioned private companies and funds.

Grant loans to the aforementioned companies and funds in case they hold

participations in the said companies that are not less than 10%.

Acquire movable and immovable properties allocated to the exercise of its activities.

3

3- Incorporation Procedure
-  Articles of Association: The articles of association may be notarized by a notary public or by private deed and must be registered near the trade register within 1 month + great flexibility as for the possible adjustments (choice regarding the determination of the fiscal year, voting rights allocated to the partners, majorities required for decision-making, etc.).
-  Subscription: Any fund, legal person or physical person authorized by virtue of the articles of association may subscribe or acquire the parts of the general partners. However, the subscription to the limited partners’ parts is reserved: (i) the professional investor; (ii) the general partners; (iii) the company responsible for the assets’ management; (iv) investors whose value of shares amount to at least 150 million LBP (refer to article 7).
4- Management of the PIC:The Articles of Association define the methods of appointment, dismissal and replacement of the manager. The manager does not require the Financial Markets Authority’s authorization.
5- The management of the PIC portfolio:The management of the PIC investment portfolios may be entrusted to one or more companies authorized by the Financial Markets Authority for the assets’ management.
6- The depositary:
-  The depositary must have the authorization from the Financial Markets Authority.
-  He/it must be independent from the manager and from the company responsible formanaging his investment portfolio.
-  The financial instruments held by the company are registered in the name of thedepositary and constitute an independent body of its assets and liabilities (off-
  balance sheet) with all the resulting legal consequences.
-  He/it executes the directives of the manager or of the investment portfoliomanagement company.
7- The status of the PIC parts:
-  The parts do not necessarily grant identical rights for all the partners (for instance the distribution of revenues may be done differently; the parts may be reserved for different investment sectors…).
-  The Company is compelled to open a bank account in Lebanon. 4

 The parts of the limited partners are deemed to be negotiable financial instruments. However, these parts are not subject to the conditions applicable to financial instruments offered for public subscription as provided for by the Law on the financial markets.
 The parts of the general partners are non-negotiable instruments. It is even possible to provide in the articles of association for restrictions on their free transferability.

8- Tax Status of the PIC:

 Although the PIC has a legal personality, the profits are deemed to be made directly in the assets of each partner just like for the limited partnerships (article 35 of the Income Tax Law).
 The realized income of the general partners and limited partners are exempted from tax (chapters 1 and 3 of the Income Tax Law) as a result of the activity of SICAP or the transfer of shares as well as the tax provided for in article 77 of the Income Tax Law (for the proceeds of foreign shares and bonds).
 Are not exempt from the distribution tax: (i) the dividends paid by Lebanese capital companies in which PIC invests; (ii) the income earned in Lebanon listed in article 51 of the Law No. 497/2003 as amended by article 31 of the Law No. 144/2019; as well as (iii) on interests generated by loans granted by PIC to Lebanese companies in which it invests, whenever the loans are granted for less than 3 years.
 Income generated by the management of the companies in which SICAP invests shall be subject to a 5% tax.
 All the activities of the PIC are not liable to VAT. However, VAT shall nonetheless be applied to income generated by the management of the companies in which it invests. However, the VAT borne by the PIC due to services provided by third parties shall not be recoverable.
 Are exempted from the fiscal stamp duty: (i) the articles of association; (ii) the subscription to shares and any commitment relating thereto; (iii) the loans granted to PIC by its partners.

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Decision No. 193/1 dated 01/06/2020 relating to the determination of the implementing provisions of article 51 of the Law No. 497/2003 (income from movable capital).

Posted on Monday June 15th, 2020 by citylog

The Ministry of Finance (MoF), has issued the here below Decision No. 193/1 dated 1/6/2020 published in the Official Gazette No. 25 dated 11/06/2020 defining the implementing provisions of article 51 of the Law No. 497/2003 modified by virtue of Laws No. 64/2017 (article 17), No.79/2018 (article 36) and No.144/2019 (article 31).

According to this Decision, are subject to the Income Tax Law and to the tax provided for by Chapter 3 of the said Law, interest and income from movable capital resulting from:

1- Creditor accounts opened with banks operating in Lebanon, including savings accounts.
2- Bank deposits and commitments regardless of their currency, including those belonging
to non-residents. Such commitments include particularly:

 Deposit certificates issued by the Banque du Liban.
 Deposit certificates and debt securities issued by banks operating in Lebanon.
 Loans granted to banks operating in Lebanon, including those held by the Banque du
Liban.
 Documentary Credit insurance and guarantees.

3- Fiduciary accounts and investment portfolio management, including those established by virtue of Law No. 520 dated 6/6/1996 (development of the financial market and fiduciary contracts) or Law No. 234 dated 10 / 6/2000 (relating to the regulation of the financial intermediation profession)
4- Bonds and Debt securities issued by Lebanese Joint-Stock Companies.
5- Treasury Bonds in Lebanese currency, including those to which the Banque du Liban has
subscribed.

Thus, interest and income of movable capital derived by fiduciary accounts and investment portfolio management provided for in either clause 3 of paragraph 1 of article 51 of Law No. 497/2003 and its modifications, Laws No.520/1996 and No. 234 dated 10/6/2000, include inter alia the amounts resulting from the operations provided for in article 1 of the Law No. 520/1996 and article 2 of the Law No.234/2000 as well as the decisions rendered by the Central Bank (Banque du Liban) in this regard which are executed and implemented by banks, financial institutions and financial intermediation institutions for the benefit of their clients.

It should be noted in this regard that the following are exempted from the tax:

 Debtor accounts opened with banks operating in Lebanon on behalf of the Lebanese Government, municipalities and public institutions.

 Debtor accounts opened with banks operating in Lebanon on behalf of foreign diplomatic and consular missions.

 Interbank deposits which constitute deposits whose term does not exceed 15 days as from the date of their deposit by the deposited bank with the depositary bank.

The adopted rates relating to the calculation of the tax of all net income subject to the tax of article 51 of Law No. 495/2003 are as follows:

  

7% until 07/31/2019 (included).
10% as from 08/01/2019 and until 07/31/2022 (included).

7% as from 08/01/2022.

However, income from movable capital which is not subject to the tax provided for in article 51 of the Law No. 497/2003 and its amendments remains subject to the general tax at the rate of 10% as provided by article 72 of the Income Tax Law. However, revenues falling within the scope of this article but derived abroad by a Lebanese resident will be assimilated to the revenues from foreign movable assets (proceeds from foreign shares and debentures) in compliance with the provisions of article 77 of the Income Tax Law and subject to the tax at the general rate of 10%. .

Interest and income from movable capital subject to the tax provided for in article 51 of the Law No. 497/2003 and its amendments belonging to taxpayers subject to the income tax on the basis of real profit, remain subject to the tax provided for in article 51. This tax is however deductible from the net profit but the revenue should be added to the profit of the company subject to corporate income tax.

Concerning interest and income from movable capital subject to the tax provided for in article 51 of the Law No. 497/2003 and its modifications belonging to taxpayers subject to the income tax on the basis of deemed profit taxation (lump sum profit) according to article 44 of the Income Tax Law, such interest and income will be subject to the tax provided for in the said article 44 (i.e. it is considered as part of the taxable income subject to deemed profit taxation) after the deduction of the paid tax.

It is to note however that in order to avoid double taxation, it has been set forth that, in the assumption that a tax has been already withheld at source on the investments of the fiduciary accounts and investment portfolio management, the revenues distributed by the said structures to the beneficiaries will not be taxed again as regards to the tax of article 51 of the Law No. 497/2003. Besides, it should be highlighted as well that no set-off or compensation may occur between the revenues subject of the aforesaid article and any realized loss on other investments and transactions of movable assets.

Before paying the interest and capital income subject to the tax provided for in article 51 of the Law No. 497/2003, all institutions are required to withhold the due tax, declare this tax and pay it to the Treasury within fifteen days following the end of the month during which the withholding tax was effected, under penalty of being held responsible for the unpaid amounts in addition to a penalty for late payment provided for by the Law on Tax Procedures.

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MoF Decision No. 171/1 dated 2705/2020 relating to the extension of deadlines provided for the exchange of information for tax purposes

Posted on Monday June 15th, 2020Monday June 15th, 2020 by citylog

The Ministry of Finance (MoF) owing to the COVID 19’ circumstances, has issued and published the here below Decision No. 171/1 dated 27/05/2020 relating to the extension of deadlines provided for the declaration and sending of the required information by virtue of the Decree No. 1022 dated 07/07/2018 and its modifications relating to the exchange of information for tax purposes. Indeed and on the one hand, the deadlines provided for the declaration and sending by the financial institutions and banks of the information provided for in clause (3) of article 5 Decree No. 1022 for the year 2019 are exceptionally extended until September 30, 2020 instead of June 30 initially.

On the other hand, the deadlines provided for the transmission by the Ministry of Finance of information to the Partner States to which Lebanon is committed to automatically exchange financial account information (for the year 2019) provided for in clause (3) of article 5 of the Decree No. 1022 are also extended exceptionally until December 31, 2020 instead of September 30.

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MoF Answerback No. 425/S2 dated 12/05/2020 relating to the implementation of certain provisions of the Decree No. 3692/2016 determining the implementing provisions of the non-residents’ tax.

Posted on Monday June 15th, 2020Monday June 15th, 2020 by citylog

With reference to the Decree No. 3692 dated 22/06/20216 adopted by the Council of Ministers determining the implementing provisions of the non-residents’ tax, and the confusion left by the taxation of non-residents dealing with residents in Lebanon, the Lebanese Association of Certified Public Accountants has submitted a written request on January 14th, 2020 to the Ministry of Finance in order to clarify its position on the aforementioned issue. The Ministry responded by considering that:

A non-resident person dealing with resident persons in Lebanon (with the exception of petroleum companies) is subject to the provisions of articles 7 and 8 of the abovementioned Decree No. 3692/2016. In other words, non-resident persons carrying out pubic or civil works’ activities in Lebanon for more than six months, or services of various types for more than three months, in a successive period of twelve months, are required to register near the Ministry of Finance and must comply with the obligations imposed on the persons at the time they proceed with the activities, in accordance with the provisions of article 32 of the Law on Tax Procedures and articles 38 to 47 of the Decision No.453/1 dated 22/4/2009.

The tax treatment of persons carrying out activities or rendering services on behalf of companies subject to the Law No. 57/2017 (tax provisions relating to petroleum activities) differs from the tax treatment of non-resident persons in Lebanon dealing with taxpayers subject to the provisions of the Income Tax Law. This distinction manifests in three points:

1- No distinction is made between works and services with regard to the duration of continuity of these works and services in order to consider the work executor or the service provider as a resident in Lebanon, whenever this duration exceeds 183 days, while according to the Decree No. 3692/2016 it is 6 months for works and three months for services.

2- The profit percentage and the tax rate at which persons subject to the provisions of the Law No. 57/2017 are as follows:

– 15% of the whole income to determine the deemed profit taxation for the work, and a tax at the rate of 20%;

– 50% of the whole income to determine the deemed profit taxation for services and a tax at the rate of 20%.

However, the tax rate according to the Income Tax Law is 15%.

3- The deadline for declaring and settling tax is quarterly, within 20 days following the end of the quarter, while the deadline for declaring and settling the tax for taxpayers dealing with non-residents is within the deadline of their annual declaration.

As for the non-occasional and repetitive expression provided for in article 2 of the aforementioned Decree No. 3692, it fits in the context of natural persons resident in Lebanon carrying out occasional work, and not in the context of non-residents; in other words, it has no incidence on the fact that the executor of the work or the service provider will be considered as a resident in Lebanon whenever its activity exceeds the two aforementioned periods.

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ALDIC has the pleasure to announce that one of its eminent members, Mr. Joseph Otayek, has just been appointed to the prestigious position of Director of the American University of Beirut Medical Center (AUBMC).

Posted on Wednesday June 3rd, 2020 by citylog

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MoF Decision No. 111/1 dated 17/03/2020 relating to the taxpayers’ obligation covered by the provisions of article 82 of the Income Tax Law to declare the income of foreign movable capital by electronic means.

Posted on Wednesday May 27th, 2020Wednesday May 27th, 2020 by citylog

The Ministry of Finance (MoF), has issued and published the here below Decision No. 111/1 dated 17/03/2020 relating to the declaration (tax return) of foreign movable capital’s income electronically. Indeed, all taxpayers (physical or legal persons) covered by the provisions of article 82 of the Income Tax Law, must exclusively declare, by electronic means and within the deadlines provided for in the aforementioned article, foreign movable capital income generated during the year 2019 and beyond (the years that follow).
Besides, taxpayers who do not have an account before the website of the Ministry of Finance (www.finance.gov.lb) can submit requests to obtain such account, by connecting to the aforementioned website, by filling the adopted registration form and submitting it electronically.
Similarly, the central department of taxpayers’ information and services, as well as the departments and branches of taxpayers’ services affiliated to the Revenues Directorate, shall provide taxpayers with electronic personal keys (username, password, code) which will entitle taxpayers to use the electronic declaration service.
Liban Post offices will stop receiving declarations on paper (form w4/c) relating to the income from foreign movable capital generated during 2019 and beyond, as of the entry into force of this Decision.

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Call for implementation of Article 95 of the constitution

Posted on Wednesday May 27th, 2020 by citylog

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Lutte contre la corruption : Les outils disponibles

Posted on Tuesday May 26th, 2020 by citylog

Sorry, this entry is only available in French. For the sake of viewer convenience, the content is shown below in the alternative language. You may click the link to switch the active language.

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Anti-corruption Law in the public sector No. 175 of 08/05/2020 and the creation of a National Commission to combat corruption.

Posted on Tuesday May 26th, 2020 by citylog

The Anti-Corruption Law in the public sector and the creation of a National Commission to combat corruption No. 175 of 08/05/2020 (hereinafter) has been published in the Official Gazette No.20 dated 14^thMay 2020.

First, the said Law defined corruption as “the abuse of power or activity in connection with public money for the purpose of generating illicit personal profits or advantages for his benefit or for the benefit of third parties whether directly or indirectly.”

Besides, this Law listed comprehensively the acts of corruption referring on the one hand to the crimes of corruption provided for in the Penal Code such as bribery, gratuities, trading in influence, subtractions, embezzlement or other illicit uses of properties or funds, post abuse as well as illicit enrichment and all acts of corruption defined in international conventions to which Lebanon has acceded. This Law also assimilates corruption, offenses or influence peddling which illegally facilitated the obtaining of market concessions and public contracts or licenses or the delegation of public services or their improper performance by personal private interest.

Moreover, the abovementioned Law assimilated corruption to insider trading and the misuse of confidential or sensitive information resulting in an illegal profit or advantage.

The Law No. 175 provided for penalties ranging from three months to three years of prison in addition to a fine amounting to up to the double or triple the amount of the foreseeable or realized material profit.

Thus, criminal investigations and prosecutions can be carried out for crimes of corruption without the need to obtain any prior authorization, as long as such prosecutions are carried out by virtue of the National Commission’s request.

This Law provides also for the possibility to carry out criminal prosecutions for crimes of corruption even in the event of the resignation of the offender, dismissal, retirement or retirement.

The National Commission has a legal personality, and a financial and administrative independence. This Commission is formed of six members (two judges, one lawyer, one public accountant and two experts in the banking and public finance sector) one appointed by decree issued by the Government for six (6) years that shall not be renewable. The National Commission is responsible for ensuring the fight against corruption and compliance with international conventions ratified by Lebanon.

This Commission must particularly:

Fight against corruption, carry out the necessary prospecting and investigations and collect complaints relating thereto;
Investigate complaints and refer suspects to the competent authorities while following the files;
File a complaint against the suspects whenever it deems necessary and request the concerned judicial authorities to take the necessary preventive measures;
Assess the situation of corruption and prepare reports and suggestions relating to this matter;
Disseminate the principles of integrity and prevention as widely as possible;
Receive asset and assets from officers and public agents;
Receive complaints relating to the complaints related to the Access to information Law (Law No.28/2017);
Protect and financially reward whistleblowers.

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Law No. 160 of 08/05/2020 relating to the suspension of legal, judicial and contractual deadlines until 30/06/2020

Posted on Tuesday May 26th, 2020Tuesday May 26th, 2020 by citylog

The Law No. 160 of 08/05/2020 (hereinafter), published in the Official Gazette No.20 dated 14thMay 2020, has suspended all legal, judicial and contractual deadlines as from 28/10/2020 and until 30/07/2020 (inclusive)
The aforementioned suspension covers all deadlines relating to administrative, civil and commercial matters as well as legal deadlines provided for the meeting of public organizations of syndicates and cooperatives.
It should be noted that are excluded from the provisions of this Law, the following deadlines:

Judicial deadlines which are left to the discretion of the judge;
Deadlines granted by the administration or those provided by the latter and which fall within its discretion;
Limitation periods and freed on bail deadlines in criminal matters provided that the deadlines relating to the exercise of personal rights shall be also suspended.
All the legal deadlines relating to the meeting of public organizations of syndicates and cooperatives provided for before the promulgation of the said Law;
Deadlines relating to familial matters, such as pension, guardianship, visit…
Deadlines provided for by the Rental Law dated 05/09/2014 which was modified by the Law No. 2/2017.

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