Under the income tax law in Lebanon, tax is levied based on income type. Accordingly, the income tax law divides income into the following three categories:
- Chapter I: Profits from industrial, commercial, and non-commercial professions.
- Chapter II: Salaries and wages and pension salaries.
- Chapter III: Revenues from moveable capital (Chapter III mainly covers all types of dividend income, board member appropriations from profits, and interest income, including interest on bonds and treasury bills).
The income tax law does not provide for a single tax on income. Accordingly, where a taxpayer has income from different sources, each type of income is taxed according to the tax chapter it falls under. The applicable rates are as follows:
- CIT: 17% (15% applicable for the period starting 1 January 2017 till 26 October 2017 inclusive, while 17% starting 27 October 2017).
- Capital gains on disposal of fixed assets: 15% (10% applicable for the period starting 1 January 2017 till 26 October 2017 inclusive, while 15% starting 27 October 2017).
- Dividend distribution withholding tax (WHT): 10%.
- Non-resident WHT: 7.5% for services and 2.25% for other than services.
- Payroll tax: From 2% to 20%.
- WHT on interest income: 7% (5% applicable for the period starting 1 January 2017 till 26 October 2017 inclusive, while 7% starting 27 October 2017).
Not all businesses are taxed in the same manner. Depending on the relative size and structure of a business, the tax method applied is assessed depending on real (or actual) profits or deemed profits.
Real profit method
In Lebanon, tax is charged on the total income or profits derived in Lebanon. Based on the income tax law and the principle of territoriality, the main premise for considering a profit to have been realised in Lebanon is if it was generated through an effort or activity exerted in Lebanon.
The tax base (the determination of profits) and the tax rates differ between resident and non-resident taxpayers.
For resident corporate entities, CIT is computed at 17% based on the taxpayer’s accounting profits after adjustments resulting from tax rules through the schedule of accounting-to-tax calculation.
The use of the real profit method is mandatory for the following:
- Corporations (SAL).
- Limited liability companies (SARL).
- Companies of individuals.
- Branches of foreign companies.
- All entities employing more than four employees or importing goods.
Small entities may choose voluntarily to be subject to the real profit method; however, once they choose the real profit method, they cannot revert back to the deemed profit method.
Concerning tax on non-residents, WHT applies at 2.25% on payments for goods and 7.5% on payments for services.
Deemed profit method
A deemed profit method is imposed on insurance and savings institutions, taxable transport companies, oil refineries, and public work contractors.
Taxation is based on deemed profits and is levied at a flat rate of 17%.
The rate of deemed profit for public work contractors, as approved by the MoF, is currently set at either 10% or 15% of total amounts collected per year, based on the type of activity performed by the contractor.
For insurance companies, the deemed profit rate ranges between 5% and 10%, depending on each insurance activity.
Local income taxes
There are no governorate or local government taxes on income in Lebanon.