Category: Notifications & Regulations

The Ministry of Finance (MoF), has issued and published the here below the Decision No. 1472/1 dated September 27, 2018 with respect to the mechanism of defining the “Beneficial Owner” in accordance with the provisions of the Law No 74 dated 27/10/2016 (kindly refer to the folder Taxes in Your Rights). This MoF decision clarifies on the one hand the mechanism of defining the “Beneficial Owner” as regard to entities (20% of the shareholding or decision maker) and trusts (Settlor/Trustee/Protector/Beneficiary); and, on the other hand, reminds the taxpayers that they should keep accounting records and relevant papers showing all information related to the “beneficial owner” they are dealing with preserve these records and documents for a period of ten years; as well as to report to the concerned authorities the requested information in accordance with the above mentioned law No 74 and the anti-money laundering Law No 44 dated 24/11/2015.

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The Ministry of Finance (MoF), by virtue of the enclosed Decision No 1476/1 dated 28/09/2018, has postponed the term of payment of the lump sum tax of the year 2018 from September 30, 2018 till 31/10/2018. Kindly find hereinafter the aforesaid Decision.

Needless to precise however that this Decision may be qualified and considered as an action ultra vires (عمل تنظيمي ضار يتجاوز حدّ السلطة) and a violation of the principle of “formal parallelism” parallelism of powers; since a law may only be amended by a law.

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The Ministry of Finance (MoF) has issued, by virtue of the enclosed Decision No. 1432/1 dated September 17, 2018, new forms to be adopted for the tax on moveable capital and movable assets under title III of the Income tax Law; that are published to your kind attention here below:

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The Ministry of Finance (MoF) has issued the decision #838/1 dated 21 May 2018 on the application of article 32 of the Law  No 79 dated 19 April 2018 (Budget Law 2018) related to the amnesty of the amount of taxes objected.

 

According to the aforesaid article 32 of the Law No 79, an amnesty equal to 50% of the amount of taxes (to the exclusion of any late/false declaration and late payment penalties due) is applicable for Income Tax and Value Added Tax (VAT) assessments which were objected at the level of the Appeal Committee but were not yet concluded by the latter as of the publication date of this Law 79. To benefit from such Amnesty tax payers have to file a written request to the relevant tax department and to settle the amount due as per the Amnesty within 4 months from the publication date of the Budget Law No 79/2018. Obviously, in this article, to the contrary of other articles applicable to similar exemptions such as articles No 40 of the Budget Law 66 and No 23 of the Budget law No 79, the condition precedent aiming to ensure that no tax has been fully paid yet, does not exist in the original text. The result of this is that the taxpayer was likely to retrieve 50% of the paid tax. The MoF noticed this loophole that was left by an oversight and settled the ambiguity through the issuance of the Decision No 838/1 dated 21/05/2018 (here below) and published in the Official Gazette (No26). This Decision denies to taxpayers that have already settled and paid the full amount of the challenged taxes, the right to benefit from the provisions of article 32 above mentioned.

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.

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The Ministry of Finance (MoF) has issued the decision #836/1 dated May 21, 2018 with respect to definition of “tax resident” based on the Law No. 44 dated November 11, 2008 (Code of Tax Procedures). It mainly clarify the definition and reiterate the criterion of the Decree N° 3692 dated 22/6/2016 which determines the mode of application of tax on nonresidents as regards to what is meant by “Location for undertaking the activity”. It means a place that allows the taxpayer to perform his business for more than 6 months within a period of 12 months for public and private works and for a period exceeding 3 months within a period of 12 months for the other activities.

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The Ministry of Finance (MoF) has recently issued a notification #1657/S1 dated 21^st May 2018 (attached a scanned copy) related to the Article 29 of the Law #173 dated 14/2/2000 (Budget Law of the year 2000) amended by the Law #20/2017 (attached a scanned copy) that has set an annual lump sum fee (lump sum tax) on all taxpayers to be paid before the 30^th September of each year starting from the year 2018 (as confirmed by the MoF decision #993/1 dated 31^st October 2016).

 

According to this MoF notification, the taxpayers (individuals and corporations) who haven’t perform any professional activity during the fiscal year 2017 and are still not performing any effective activity related to their business in 2018 (“non-active taxpayers”) are exempted from this annual lump sum fee provided that they submit a written commitment to the MoF before the 30^th September 2018 (commitment forms attached to this MoF notification) that they didn’t perform any professional activity in 2017, are still not performing any professional activity in 2018 and will notify the MoF as soon as they resume their professional activity. The tax authority will verify the accuracy of these commitments and will do its best effort to implement an electronic declaration for non-active taxpayers starting from the fiscal year 2018.

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The Ministry of Finance (MoF) has issued the decision #837/1 dated 21st May 2018 (here below) whereby it provides the special tax forms for the capital gain tax on the disposal of real estate properties made by the individuals not subject to income tax or individuals subject to income tax but selling real estate properties that are not part of their professional business (tax form T1) or entities not subject to income tax or permanently  or exceptionally exempted from the income tax (tax form T2) according to the Article 13 – paragraph 3 of the Law #64 starting from the 27th October 2017.

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MoF Directives #1349/S1 dated  April 24^th, 2018 on the application of Annual lump sum fee on taxpayer

 

The Ministry of Finance (MoF) has issued and published the Directives #1349/S1 dated April 24th, 2018 (here below) on the application of article 29 of Law No. 173 dated 14 February 2000 and its addendums (Annual lump sum fee), originally intended to start from the year 2015 but postponed to 2018 by the Law #20 dated 10/02/2017. The annual lump sum fee is due on all taxpayers even in the absence of profit.

 

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MoF Decision #517/1 dated 17th April 2018 on the application of the article 13 of the Law #64 dated 20th October 2017 related to the revaluation of fixed assets and the introduction of the capital gain tax of 15% on individuals and tax exempted entities

 

The Ministry of Finance (MoF) has issued the decision #517/1 dated 17th April 2018 (here below) on the application of article 13 of the Law #64 dated 20th October 2017 that amended the Article 45 of the Legislative-Decree #144 dated 12/6/1959 (Income Tax Law) related to the revaluation of fixed assets and the introduction of the capital gain tax of 15% on individuals and tax exempted entities.

 

In the first sections of this decision, the MoF has clarified the application of article 45 of the Legislative-Decree #144 dated 12/6/1959 (Income Tax Law) related to the revaluation of fixed assets held by taxpayers subject to real profit taxation (companies and establishments) and companies subject to lump sum profit tax as defined by the article 45 of the Legislative-Decree #144 and the way the capital gain resulting from this revaluation is either taxed or exempted in case it is used by the company for a capital increase, knowing that the capital gain tax has been increased from 10% to 15% starting from the 27th October 2017 according to the Law #64.

 

Furthermore, the MoF has defined in the section 3 (articles 18 to 22) of this decision the new categories of taxpayers subjects to the Capital Gain Tax of 15% on the disposal of real estate properties. These taxpayers are all the individuals and entities exempted so far from the income tax or individuals subject to income tax but selling real estate properties that are not part of their professional business according to the article 13 – paragraph 3 of the Law #64 starting from the 27th October 2017.

 

The capital gain on the disposal of a real estate property or part of it is defined as the difference between the acquisition price and the selling price. The acquisition price is defined by the MoF decision as follows:

• In the case of an inheritance or a donation, the acquisition price is equal to the value used by the MoF to define the inheritance tax on this property.
• In the case of a purchase, the acquisition price is equal to the value registered in the cadaster or in the purchase contract if not registered.
• If the property was built by the owner without justification documents supporting the construction cost, the capital gain is defined as being 15% of the selling price.

 

In order to calculate the capital gain subject to tax, a deduction of 8% of the capital gain is applied per year from the acquisition date according to the registration date or as set in the purchase contract till the selling date.

 

However, the primary and secondary residence of individuals (maximum of 2 residences occupied by the taxpayer during his lifetime) and real estate properties held by this category of taxpayers for more than 12 years (8% deduction from the capital gain per year held) are exempted from capital gain tax. The capital tax has to be declared according to special tax forms prepared by the MoF and paid within 2 months from the transaction date.

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MoF Decision #514/1 dated 17th April 2018 on the application of article 49 of the Law #66 dated 3rd November 2017 (Budget Law 2017) related to the exceptional revaluation of fixed assets

 

The Ministry of Finance (MoF) has issued the decision #514/1 dated 17th April 2018 (here below) on the application of article 49 of the Law #66 dated 3rd November 2017 (Budget Law 2017) in connection with the exceptional revaluation of fixed assets.

 

According to the said MoF decision, an Exceptional Revaluation of Fixed Assets is allowed for one time only to any taxpayer subject to the real profit taxation (companies and establishments) within a period of 12 months from the date this law was published (before the 8th November 2018), with the exception of the real estate companies (incorporated according to the article 21 of the Legislative-Decree #69 dated 9/9/1983) and the taxpayers who benefit or used to benefit from an income tax exemption or not subject to the income tax or subject to income tax but for fixed assets not related to their activity.

 

The fixed assets that may be revalued according to the Article 49 of the Law #66/2017 are those defined in the Article 1 of the application decision #111/1 dated 22/2/1982 (Lebanese Chart of Accounts) and its appendix n˚2, including lands, buildings, general installations, vehicles, equity participations, bonds issued by companies and other similar tangible and financial assets registered in the accounting books of the company before the 1st January 2016, knowing that their revaluation should be based on their market value as at 31st December 2015. The intangible assets (e.g. Intellectual Properties or licenses, whether bought or internally developed by the company) and the current assets (e.g. properties or stock available for sale) are excluded from this exceptional revaluation.

 

The exceptional revaluation of fixed assets should be done by a Certified Public Accountant or by a sworn expert or many experts of the taxpayer’s choice. The revaluation report of the CPA or sworn expert should be submitted to the MoF together with the advance payment notice (S1 form) for the payment of the related tax.

 

The revaluation variance resulting from this exceptional revaluation is subject to 5% tax and should be paid together with a request for approval from the Ministry of Finance who has the right to refuse this revaluation. According to the MoF assessment of the revaluation variance presented by the taxpayer, any addition on the revaluation amount will subject the taxpayer to an additional 5% tax on this amount that will be notified to the taxpayer who will have one month to settle this additional tax adjustment from the notification date.

 

Should the taxpayer dispose totally or part of the revalued fixed asset within a period of 3 years from the revaluation date, the capital gain resulting from the disposal of this fixed asset will be subject to the 15% capital gain tax set in the Article 45 of the Income Tax Law modified by the Article 17 of the Law #64/2017. However, the 5% tax paid on the revaluation variance of this disposed fixed asset would be refunded to the taxpayer. Any delay or default or understatement in the declaration of the disposed fixed assets will subject the taxpayer to the penalties set in the Tax Procedures Law (Law #44/2008).

 

The exceptional revaluation variance can be added to the acquisition cost of the revalued asset and depreciated over its useful life according the depreciation rates set by the MoF, while the counterpart of this exceptional revaluation variance accounted in the net equity of the company remains subject to the 10% distribution tax (Chapter III tax) if it is distributed to the shareholders or partners.

 

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