Category: Notifications & Regulations

The Ministry of Finance (MoF), has issued and published the here below Decision No. 620/1 dated August 21, 2019  defining the implementing provisions of articles 23, 47 and 48 of the Budget Law No. 144 dated 31/07/2019.

This MoF decision clarifies on the one hand that a seventh tax bracket was added for taxpayers whose salaries and wages exceed 225 million Lebanese Pounds (150,000 USD) (article 23 of the Budget amending article 58 of the Income Tax Law).

The new progressivity is as follows:

• 2% on the portion of the net taxable income not exceeding 6,000,000 LBP.
• 4% on the portion of the net taxable income exceeding 6,000,000 LBP and not exceeding 15,000,000 LBP
• 7% on the portion of the net taxable income exceeding 15,000,000 LBP and not exceeding 30,000,000 LBP
• 11% on the portion of the net taxable income exceeding 30,000,000 LBP and not exceeding 60,000,000 LBP.
• 15% on the portion of the net taxable income exceeding 60,000,000 LBP and not exceeding 120,000,000 LBP.
• 20% on the portion of the net taxable income exceeding 120,000,000 LBP and not exceeding 225,000,000 LBP.
• 25% on the portion of the net taxable income exceeding 225,000,000 LBP.

 

The tax rebates currently in force (a deduction applied to a given amount before the calculation of the taxable income) defined by virtue of article 31 of the Income Tax Law will be applicable and deducted from the taxable base.

 

On the other hand, the said decision determines the implementing provisions of the taxation of retirement pensions on income tax.

This taxation will be as follows:

 

• 1% on retirement pensions not exceeding LBP 6 million (4,000 USD).
• 2% on pensions ranging from 6 million Lebanese pounds (4,000 USD) to 15 million Lebanese pounds (10,000 USD).
• 3,5% on pensions ranging from 15 million Lebanese Pounds (10,000 USD) to 30 million Lebanese Pounds (20,000 USD).
• 5,5% on wages and salaries and pensions ranging from 30 million Lebanese Pounds to 60 million Lebanese Pounds (40,000 USD).
• 7,5% on pensions ranging from 60 million Lebanese Pounds (40,000 USD) to 120 million Lebanese Pounds (80,000 USD).
• 10% on pensions ranging from 120 million Lebanese Pounds to 225 million Lebanese Pounds (150,000 USD).
• 12.5% on retirement pensions over 225 million Lebanese Pounds.

 

A tax rebate (a deduction applied to a given amount before the calculation of the taxable income) of ten million Lebanese Pounds (LBP 10,000,000) or approximately 6,600 USD is added to the other granted family allowances and will be deducted from the taxable base.

 

Finally, this decision assimilates the indemnities paid by the professional orders (including liberal professions), mutuals and insurance companies (insurance pensions) to the retirement pensions covered by this decision.

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Decision No.609 issued by the Ministry of Finance on 14/08/2019 (below), has determined the delays concerning the execution of procedures and formalities before the tax departments in charge of the inheritance tax as follows:

Nature of the formality	Working days
Receipt of the declaration of the assets of the Estate and surrender of the authorization to establish the liquidation of the Estate	1
Issuing tax rolls on the life insurance policy	4
Application of the inheritance tax on the assets of the Estate, gift, will or endowment funds, which all fall within the scope and area belong to the same fiscal unit, excluding establishments and shares in companies, whose value is estimated by the units in charge of the income tax	30
Establishment of a report concerning the real estate valuation request submitted from one specialized tax unit to another, after receiving the request, contacted the concerned person, examined the premises and completed the documents	30
Establishment of a study regarding the objection to the tax assignment on the Estate subject to the inheritance tax belonging to the same tax unit, excluding establishments and shares in companies whose value is estimated by the units in charge of the income tax, and its transmission to the competent authority	90
Establishment of a study regarding the opposition to a tax assignment pertaining to the Estate and connected inheritance tax and belonging to several tax units, excluding establishments and shares in companies whose value is estimated by the units in charge of the income tax, and its transmission to the competent authority	120
Establishment of a request for the exemption of a property or several properties from the tax base of the inheritance tax	15
Establishment of an inheritance tax exemption study and its transmission to the competent authority	20
Issuance of an authorization to dispose of the assets of the Estate after receiving an approval to exempt them from inheritance tax	5

 

 

The aforesaid deadlines for the abovementioned procedures and formalities above are maximum delays and start as from the day following the date of the field control, the receipt of all the documents from the inspector. The delivery of the required formalities to the citizens will occur the day following the date of the expiration of said delays.

This decision also indicates the procedures to be followed upon registration of the procedure before the register of the competent unit:

1. Upon registration of the declaration of the assets of the Estate before the register, an electronic statement of the deceased’s assets (real estate assets, establishments). Companies and any other information that may be provided subsequently by the units in charge of the inheritance tax) is issued.
2. The applicant is requested to declare the assets that have not been declared or to prove their exclusion from the Estate. A detailed letter informing about the required documents should be delivered before proceeding with the file review and shall be provided to the applicant.
3. Once the necessary documents for the reviewing of the file are completed, the head of the specific local tax department or of the inheritance tax service should transmit the said documents to the controllers within a maximum of three (3) working days as from the date of completion of the scan.
4. Upon receipt of the file by the controller, the latter should complete the following:
5. If it turns out that additional documents are required, within a maximum of five (5) working days as from the date of receipt of the file, a letter should be sent to the taxpayer’s competent unit in order to inform the person concerned that additional documents are required in accordance with the hereto attached form.
6. If it turns out necessary to carry out a field control, the person concerned must be contacted within a maximum period of five (5) working days; and the date of control must be fixed to that end in advance.

• If it turns out that the completion of the report requires the transmission of one or more real estate valuation requests to other tax units, the controller shall prepare the valuation transmissions within a maximum delay of five (5) days as from the date of receipt of the completed file or as from the date of receipt of the additional documents.

 

1. If the completion of the transaction requires a field control, it shall be carried out in accordance with the subsequent approval of the Head of the specialized tax unit.
2. The unit in charge of the taxpayers’ services must contact the concerned person within a maximum period of two (2) working days as from the date of receipt of the letter requesting the necessary documents in order to inform the person concerned of the content.

 

1. Once the additional documents are provided by the concerned person, said documents are registered before the concerned unit of the taxpayers’ services and are delivered to the competent agent within a maximum period of two (2) business days following the completion of the scan.
2. In case the Estate includes establishments or shares in companies, their estimation is entrusted to the units in charge of the income tax, and the necessary delay for the said completion before the competent units is added to above mentioned delays.

In addition, this decree also stipulates and enumerated the documents to be provided for each type of procedure.

 

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Decision No.616/1 issued by the Ministry of Finance on 20/08/2019 (hereinafter), has modified the direct estimations subject to the property tax for dwellings occupied by non-tenants (owners, usufructuaries and alike) as of 01/01/2019 as follows:

 

• Increase of 150% of the estimations attributable to occupations prior to 01/01/1997, after application of cost-of-living increases stipulated in Rent Act No. 160/92 for occupations prior to 23/07/1992.
• Increase of 125% of the estimations attributable to occupations carried out as of 01/01/1997 and until 31/12/1999.
• Increase of 100% of the estimations attributable to occupations carried out as of 01/01/2000 and until 31/12/2002.
• Increase of 75% of the estimations attributable to occupations carried out as of 01/01/2003 and until 31/12/2006.
• Increase of 40% of the estimations attributable to occupations carried out as of 01/01/2007 until 31/12/2008.
• Estimations attributable to occupations committed as of 01/01/2009 until 31/12/2014 remain unchanged.
• Decrease of 20% of the estimations attributable to occupations that occurred as of 01/01/2015 until 31/12/2018. However, taxes and real estate fees paid prior to the coming into force of said amendment are considered to be as a non-refundable Treasury right.

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The Ministry of Finance (MoF), has issued and published the here below Decision No. 652/1 dated September 3^rd, 2019 defining the implementing provisions of article 68 of the Budget Law No. 144 dated 31/07/2019 related to the rescheduling of the taxes instalment schedules due to the tax authorities but not settled by the taxpayers before the issuance date of this law. provided that the taxpayer submits a request for rescheduling the tax payments and settles a first payment of 25% of the due taxes within 3 months from the issuance date of this law (before 31/10/2019), the payment of the remaining taxes can be rescheduled for a maximum period of 3 years from the first payment with an annual interest rate of 12%. If one of the instalments is not paid, all instalments will be due with an interest of 15%.

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The Ministry of Finance (MoF), has issued and published the here below Decision No. 640/1 dated 28/08/2019 which has updated the list of Partner States to which Lebanon is committed to automatically exchange financial account information of their resident taxpayers for the year 2019 and the following years. This list includes the following Partner States:

Argentina	Croatia	Honk Kong, China	Liechtenstein	Pakistan	South Africa
Australia	Czech Republic	Iceland	Lithuania	Panama	Spain
Austria	Denmark	India	Luxembourg	Poland	Sweden
Azerbaijan	Estonia	Indonesia	Malaysia	Portugal	United Kingdom
Belgium	Faroe Islands	Ireland	Malta	Russia	Uruguay
Brazil	Finland	Isle of Man	Mauritius	San Marino
Bulgaria	France	Italy	Mexico	Saudi Arabia
Canada	Germany	Japan	Monaco	Seychelles
Chlle	Greece	Jersey	Netherlands	Singapore
China	Greenland	Korea	New Zealand	Slovak Republic
Colombia	Guernsey	Latvia	Norway	Slovenia

 

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The Bank of Lebanon (BDL) issued the Decision No.13100 (Basic Circular No.147) of 3 September 2019 (below) concerning the opening of bank accounts. The circular states that by opening a bank account for a physical or legal person residing in Lebanon to carry on commercial, professional or service activities, banks should obtain from the said person  a copy of the registration certificate from the Ministry of Finance.

The circular further stipulates that banks should take the necessary measures to update the records of its relevant customers with respect to their accounts opened prior to the date of issuance of said Decision and thus should be provided with a copy of the certificate of registration before the Ministry of Finance.

The Circular also indicates that banks have until the 31^st of December 2020 to comply with the new requirements.

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Decision of the Ministry of finance No. 545/1 dated 22/07/2019 regarding the principles of determination of the value of a business (or goodwill) or participations and shares held by a deceased person and their results in the context of the assessment of the elements of the inheritance.

 

This Decision determines, on the one hand, the principles to be followed and implemented by the competent services of the Ministry of Finance within the income tax, in order to determine the value of the company or business belonging to the deceased or the value of his shares in partnerships or of his shares in companies in order to include them among the elements of the estate patrimony; and on the other hand, the tax treatment in case of transfer by the heirs of property devolved to them by succession.

The value of the goodwill is determined, by virtue of  the Decision, on the date of the death of the deceased and thus, on the basis of the estimate of its fixed assets and its assets having recorded a capital gain, in order for the positive differences (i.e. the realized added value) resulting from the evaluation  to be added to the deceased’s personal account/portion if it is subject to the real profit basis, as well as to its share of the profits at the date of death following the audit of the accounts and the declared balance sheet of the business, or either to the profit derived from the application of the flat rate of the fixed profit if the deceased falls under the said regime or to the percentage of the profits determined by the tax authorities for the year in which the death occurred, if the deceased is a taxpayer on the basis of the estimated profit.

 

I- Concerning the value of the share in companies:

A- In capital companies:

The value of shares in Lebanese capital companies is determined on the basis of the value of equity after:

– the revaluation of the company’s tangible and intangible assets, such as goodwill, proprietary rights in trademarks, and financial rights such as equity and contribution securities and the inclusion of their differences within the private capital.

– the revaluation of real estate assets that are part of the negotiable assets and the inclusion of the positive differences in the equity.

In the two aforementioned cases, the assets that have recorded a capital gain are amortized on the basis of the new discounted value, and the deceased’s share in the equity is credited from the balance of the creditor current account, or would be if necessary amputated from the balance of the debtor’s current account.

In the event that the audited results of the company up to the date of death are negative and exceed the deceased’s share of the capital, the value of his share will be considered to be null.

 

B- In partnerships:

The value of the deceased’s share is determined on the basis of the percentage of participation in the capital of the company. In addition to the balance of its current account, its share in the result of the financial cycle (operating result) up to the date of death will be taken into account, as well as its share in the revaluation differences of fixed and current assets of the company, will be taken into account.

 

C- In foreign companies that do not operate in Lebanon:

The share is determined on the basis of all available data on the financial position of these companies on the financial markets or on the world stock exchanges; and this, taking into account the balance sheet of the year preceding that of the death. Account should also be taken of the report of the chartered accountant and possibly the result of the last tax audit carried out by the tax authorities of the country in which the company concerned is located, in addition to the deceased’s current account balance.

The relevant tax unit is entitled to ask the foreign tax authority to provide information on the real value of the deceased’s share estimated by the said administration at the date of death.

In all the aforementioned cases, the department in charge of inheritance tax is required, upon the liquidation of the estate, to submit a detailed report to the heirs and to the tax service on the estimated value of each element of the company, or of the shares or of any other element of the estate and the value of the right due by  each heir.

II- Concerning the tax treatment in case of transfer of the company (business) or one of its assets or shares in the partnerships or shares in the companies of capital.

In order to determine the value of the profit generated by the transfer of the transferred business or its assets or the shares or even of the transferred (assigned) shares, the difference between the transfer value and the estimated value of these elements, subject to the right of the tax authorities to requalify the assignment in accordance with the provisions of article 10 of the Income Tax Law (Code of Fiscal Procedures) as regards to fictive transactions or transactions entered and between connected persons.

The current basic principles for determination of the value of the profit realized by the assignment of the company and its assets, as well as the shares, remain unchanged, i.e. the difference between the transfer value and the book value, subject however to the right of the tax authorities to requalify the transfer transaction in accordance with article 10 of the Code of Tax Procedures (Law No. 44 dated 11/11/2008 and its amendments). This difference is subject to the income tax.

The relevant tax departments in charge of income tax are responsible for the execution of the operations relating to the determination of the deceased’s share within the deadlines specified in Decision No. 826/1 dated 25/09/2008.

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Decision of the Minister of Justice No. 46/1 dated 18/07/2019 regarding the determination of the conditions of participation of the shareholders in the meeting of the Board of Directors in SAL companies through the audiovisual communication technique and through others similar technical means.

This Decision determines the conditions of participation of the shareholders to the meetings of the Board of Directors in SAL companies through the audiovisual communication technique or through others technical means that should be adopted as part of the calculation of the majority and the quorum during said meetings in SAL companies according to the provisions of new article 156 of the Code of Commerce.

These Companies should create, for this purpose, a specialized dedicated website to which shareholders have access in order for them to participate to the meetings of the Board of Directors in SAL companies by means of a teleconference and in order for them to exercise their right to discuss and their voting right and thus, after identifying themselves by means of a code provided to them before the meeting.

The aforementioned technique should ensure the security and continuity of the communication and enable the voice of the participants to be sent without interruption. The teleconference should be recorded and attached to the Minutes of Meeting.

The participating members to the Board of Directors’ meetings by means of said technique are considered as being present in order to calculate the required quorum and majority at the time of the vote, according to the company’s articles of association; provided however, that the presence and the transmission should be continuous (without interruption) via the teleconference until the vote.

Any interruption in the transmission or any technical issue or constraint occurring during the meeting of the Board of Directors through the audiovisual communication technique or through any other similar technical means should be recorded in the Minutes of the Meeting.

The invitation to the meetings of the Board of Directors should include the participation of the members through the audiovisual communication technique, as well as the right of objection and thus, according to the articles of association of the company.

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Banque du Liban (BDL) Intermediate Circular No 13087 (Basic Circular #521) dated 18^th of July 2019 amending Intermediate Circular No 7776 (Basic Circular #81) dated 21/02/2001 on the operations of financial institutions that are related to credit, investment, shareholding and participation.

In the course of what appears to be a concerted and coordinated action with the authorities to fight tax evasion, Banque du Liban (BDL) has issued an Intermediate Circular No 13087 (Basic Circular #521) dated 18th of July 2019 (here below), that amends Intermediate Circular No 7776 (Basic Circular #81) dated 21/02/2001 on the operations of financial institutions that are related to credit, investment, shareholding and participation. The Circular prohibits banks and financial institutions from extending or renewing credit facilities to an institution or company that generates an annual turnover of LBP 1,500,000,000 (equivalent to US$ 1,000,000) or more, unless the firm fulfils the two hereinafter cumulative conditions:

• the company has to submit to the bank its audited financial statements (balance sheet, income statement, P&L and cash flow statement), which the bank will use to assess the company’s credit profile.
• the circular stipulates that the financial statements that a company submits to the bank should be identical to the ones submitted to the tax authorities.

The circular indicated that banks and financial institutions have until the 30 of September 2020 to comply with the new requirements. It added that banks and financial institutions should ask existing clients to immediately pay the amount of their outstanding credit facilities, if these clients fail to regularize their files by end of September 2020 deadline. In case a company does not comply with the bank’s request to settle its outstanding credit facilities, the bank will have to place at BDL an amount equivalent to the credit facilities of the company. This amount has to be denominated in the same currency as the credit facility and will be placed in a blocked non-interest bearing account at BDL until the non-compliant company regularizes its situation.

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Decision No. No. 139/1 issued by the Minister of Finance on 12/03/2019 (hereinafter), has defined the implementing provisions of article 41 of the Asset Securitization Law No 705 dated 09/12/2005. This Decision confirms an administrative practice rejected by the Council of State (Decisions No. 180 and 181 dated 29/11/2016 – BSEC/ State of Lebanon) which aims to subject to VAT the mutual funds and the activities undertaken by the managers of said funds and more specifically securitization transactions; although, on the one hand, the VAT law considered as subject to the tax only entities with legal personality (Article 3)- something that is denied to the fund – and exempted from the VAT in an explicit way all financial transactions related to the securitization and management of mutual funds (Article 16 (4) of Law No. 379/2001 and Decree No. 7485 dated 27/02/2002 – exemption that extends to all banking and financial services and activities as well as all entities which activities are licensed by the BDL); and on the other hand, owing to exemptions specific to securitization which exempt all transactions undertaken by a third party (the manager) on behalf of and in the name of the fund. Bearing in mind that the aforementioned Article 41 of the Law No. 705 doesn’t include any provision intended or referring to a decision or to a Decree in order to define the implementing provisions of the text or to clarify them. In addition, the said Decision applied the tax rate of 10% to both profit distributions (dividends) and interests generated by bonds and securities, although the text of the Law doesn’t provide the word “interest” (Article 41(4) of the Law No. 705/2005) and that the latter should normally be subject to the special tax of 7% (Article 51 of the Finance Law No. 497/2003).

It should be noted that the Decision No. 139/1 has interpreted implicitly the intention of the legislator and even distorted it by adding provisions which are not envisaged by the law. Therefore, it is to be feared that this does not correspond to an extensive interpretation of the law and therefore to an excess of power and consequently to an infringement of the principle of parallelism of forms and competences and hierarchy of norms, given that a law can only be changed by another law. In this respect, and as stated in the Administrative Jurisclass (Fasc 1152, n ° 99 and 100): “are in particular vitiated by error of law, decisions based on grounds which are not provided for by the law, those which, more widely, manifest an incorrect interpretation of the rule and those which distort the powers granted to the authority … impose a condition which is not provided by law and contrary to the applicable rule, whether the law or a regulation , is a frequent case of error of law”.

Needless to precise in this regard that such decision may be qualified and considered as an action ultra vires (عمل تنظيمي ضار يتجاوز حدّ السلطة) in accordance with articles 65 and 105 of the State Council’s regulations (Legislative-decree No 10434 dated 14/6/1975 and its amendments) and may be challenged as such within a two months delay as of its publication.

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