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The parliament has passed on Thursday 28th November 2024 the Law #330 on the Exceptional Revaluation of Fixed Assets, Inventory and Foreign Exchange adjustment of the LBP Devaluation effect on receivables, payables and cash & bank accounts till the 31st December 2026, along with the Law #328 that Suspended the legal obligations and deadlines (copy attached), including tax deadlines, from the 8th October 2023 till the 31st March 2025 (similar to the Law enacted during the Covid and Beirut Port explosion period). The latter will further add one year and a half on the tax prescription period.
These two Laws have been published in the Official Gazette #49 (Appendix 2) on Thursday 5th December 2024 and should be effective from the date of the application decrees that are under preparation. In the meantime, we will give you a summary on the main components of this exceptional revaluation law.
The Law #330 on the Exceptional Revaluation of Fixed Assets, Inventory and Foreign Exchange adjustment of the LBP Devaluation effect on receivables, payables and cash & bank accounts (copy attached) has two main sections:
– First section amending the article 45 of the Decree #144/59 (Income Tax Law) related to the Revaluation of Fixed Assets. According to the amendments of this Law, taxpayers are exceptionally allowed to revalue their fixed assets every year (instead of every 5 years) starting from the end of the year 2023 till the 31st December 2026. If the revaluation of the fixed assets exceeds the acquisition cost in the currency it was initially purchased or its net book value after depreciation, the revaluation variance is subject to 15% capital gain tax, unless it is kept in an independent account in both the assets and liabilities (i.e. not affected to the related revalued assets and depreciated) or used to cover accumulated losses. Individuals of not for profit organizations undertaking such revaluation are exceptionally subject to only 1% capital gain tax until 31st December 2026 [according to the article 86 of the Budget Law #324 of the year 2024].
– Second section covering the Foreign Exchange adjustment of the LBP Devaluation effect on Fixed Assets, Inventory and other balance sheet items:
o Fixed Assets: Companies and taxpayers subject to real profit (including those who have already undertaken previous revaluations) have the option to revalue their fixed assets (Properties, Plants and Equipment as well as Financial assets such as equity participations in subsidiaries and affiliates) every year starting from the end of the year 2022 till the 31st December 2026 to adjust the effect of the devaluation of the Lebanese Pound (LBP) on the value of these assets, provided that the revalued amount doesn’t exceed the market fair value of this asset [i.e. contrary to the first section of this law, the revalued asset should not exceed its acquisition cost in the currency it was initially purchased). The revaluation of real estate properties should be done through a sworn real estate expert while the remaining fixed assets can be revalued by an auditor member of the LACPA. The revaluation should be submitted to the Ministry of Finance (MoF) for approval, partial amendment or refusal. The MoF has one year to reply, otherwise the revaluation will be considered tacitly accepted. The revaluation variances resulting from this Exceptional Revaluation are not subject to tax and they can be used either to cover accumulated losses, increase the capital of the company or distributed as dividends. The distribution as dividends of these revaluation variances is subject to 10% distribution tax if done within 5 years from the revaluation process and is exempted from this distribution tax if done after the period of 5 years. The totally depreciated fixed assets subject to revaluation cannot be further depreciated while the revalued amount of assets with a residual net book value can be depreciated over the residual useful life of this asset.
o Inventory: Companies and taxpayers subject to real profit (including those who have already undertaken previous revaluations) have the option to revalue their inventory every year starting from the year 2022 till the 31st December 2026 to adjust the effect of the devaluation of the Lebanese Pound (LBP) on the value of the inventory. The request for revaluating the inventory of the year 2023 should be submitted to the MoF within 2 months from the application date of this Law and one month after the closing date for the following years. The revaluation of inventory should be done through an auditor member of the LACPA. The MoF has one year to reply, otherwise, the revaluation will be considered tacitly accepted. The inventory should be revalued based on its cost in the currency it was initially purchased and the Effective Exchange rate at the end of the related year. The revaluation variance [in LBP] is added to the inventory from one side and is recorded in a separate equity account from the other side. The taxpayer should make available to the MoF a list of supporting documents mentioned in the Law together with a statement showing the initial cost of the inventory items and the revaluated value accepted by the MoF. The revaluation variances resulting from this Exceptional Revaluation are not subject to tax and they can be used either to cover accumulated losses, increase the capital of the company or distributed as dividends. The distribution as dividends of these revaluation variances is subject to 10% distribution tax if done within 5 years from the revaluation process and is exempted from this distribution tax if done after the period of 5 years. The taxpayers who didn’t file for their income tax returns for the years 2020, 2021 and 2022 are not allowed to benefit from this exceptional revaluation. The taxpayers, who recorded their transactions related to inventory at an exchange rate different from the Effective Exchange rate and recorded the related differences of exchange in their P&L account, have the obligation to adjust their accounting records at the Effective Exchange rate and adjust their income tax declarations for the related years before submitting a request for an exceptional revaluation of their inventory.
o Adjustment of the LBP devaluation effect on receivables, payables and cash & bank accounts: Companies and taxpayers holding accounting books have the obligation to adjust their accounting books to correct the effect of the LBP devaluation starting from the end of the year 2022 till the 31st December 2026 by applying the Exchange rate adopted by the Central Bank (BDL) at the end of each year on the class 4 and 5 accounts (i.e. receivables, payables and cash & bank accounts). Positive and negative differences of exchange resulting from this adjustment [i.e. the difference between the BDL-adopted exchange rate and the rate previously used by the taxpayer] should be excluded from the taxable income, excluding the differences of exchange related to salaries.
We are waiting for the application Decree of this Exceptional Revaluation Law to give you more details on its application.