Value-added tax (VAT)
The standard VAT rate in Lebanon is 11%. Unless specifically exempt, VAT is levied on all commercial transactions undertaken by business entities. Export of goods and services and export-related services, international transport, and some of the intermediate operations are zero-rated. Banking, financial services, and insurance operations are exempt from VAT. As per the 2022 Budget Law, solar power equipment used to generate electricity is exempt from VAT from the date this Law is published (November 2022) until 31 December 2023.
Note that the recharge of expenses from an entity in Lebanon to another entity abroad is subject to VAT at 11%.
The threshold for mandatory registration is a turnover that exceeds 100 million Lebanese pounds (LBP) in four consecutive quarters.
On 27 April 2023, the MoF published Decree no. 11230 in the Official Gazette, whereby Article 18 of the VAT Law no. 7308, which states that VAT should be calculated following the official exchange rate, was replaced to mention that in instances where the price of the service or good is denominated in foreign currency, and until a unified exchange rate is set, the counter value of the foreign currency to be used for VAT calculation purposes should be the Sayrafa rate.
Modern, simple, and efficient assessment means are adopted by the customs authorities (e.g. electronic declarations, declaration in advance, applying international procedures in clearing the goods, selective inspection, auditing the goods after their release, and adopting the unique declaration).
Customs rates are imposed and modified according to decisions from the Lebanese customs authorities. These decisions are adopted based on the need of the Lebanese markets of some goods and the will to protect national production sectors.
Safeguard measures are provided for in relation to imported goods. The purpose behind such measures is to protect the domestic production sectors when an increase of imports is witnessed when compared to the same period during the previous year.
The rates are determined based on a specific schedule created in conformity with the Harmonised System of Nomenclature. This conformity with the unified system allows Lebanon to represent an ‘importer friendly’ environment for importers.
The normal rates are applied where there is no preferential agreement. When the origin of the good or part of the good is from a country with which Lebanon has a preferential customs treatment, preferential rates apply.
Customs rates in Lebanon are either determined in percentage or paid as a lump sum per unit of imported products.
Based on Article 59 of Budget Law 2019, 3% in additional custom fees is enforced for three years on imported goods that are subject to VAT, except for fuel, industrial equipment, and raw materials used in manufacturing and agriculture. The 2022 Budget Law imposed an additional customs fee of 3%, to be applicable for an additional year (i.e. until 31 December 2023). An exemption of customs and 3% additional duty is applied for solar power equipment used to generate electricity from the date this Law is published until 31 December 2023.
In addition, a customs fee of 10% is imposed on imported goods with similar substitutes manufactured in Lebanon in sufficient quantities and on imported luxury items. This fee is applicable for a period of five years.
Excise taxes are mainly applicable in Lebanon on certain beverages and spirits, tobacco products, gasoline, and vehicles.
Built property tax (BPT)
The BPT is an annual progressive tax, ranging between 4% and 14%, on built property.
The 2022 Budget Law amended the net income brackets subject to built property tax starting from the year 2022.
Two kinds of stamp duties are levied. A proportionate stamp duty of 0.4% is levied on all deeds and contracts (written or implied) that mention specific payments or other sums of money. A fixed stamp duty ranging between a minimum of LBP 1,000 and a maximum of LBP 2 million is applicable on documents in accordance with schedules appended to the stamp duty law.
The 2022 Budget Law amended the Stamp Duty Law to state that the fixed stamp duty due on invoices, receipts, and debit and credit notes should be settled through monthly declarations within 15 days after the end of the month starting 1 January 2023.
The MoF issued Decision no. 684 on 23 November 2022 to clarify that the Sayrafa rate is the exchange rate that should be used to convert the value of contracts and deeds (and any other similar documentation) denominated in foreign currency into the local currency (Lebanese pounds) for the purpose of calculating the respective stamp duty.
Capital gains tax
Under local legislation, companies are permitted to revalue their fixed assets every five years. Capital gains recognised from such a revaluation, as well as any profits that may be realised from the disposal of fixed assets, are subject to a capital gains tax of 15%.
Income from disposal of fixed assets realised by a company is subject to 15% capital gains tax. In case of sale of shares and parts in Lebanese and foreign companies, any capital gains realised by a Lebanese corporate entity (other than holding, offshore, or a company whose activity is to trade in financial investments) is subject to tax at 15% if those financial assets are classified as non-current assets on the company’s balance sheet.
Income from disposal of shares realised by a resident company whose main activity is the acquisition of investments is subject to 17% CIT.
Income from disposal of shares realised by a non-resident company is subject to 10% movable capital tax when the shares are not classified as financial non-current assets on the company’s balance sheet.
The estimated cost of establishing a company in Lebanon is around 7,500 United States dollars (USD). This includes lawyer’s fees and registration fees. The registration fees will increase if the company is established with capital exceeding the minimum requirement. However, the registration fees should not normally exceed 1% of the value of capital.
For branch offices and representative offices, establishment costs are lower and may be estimated at USD 5,000.
When transferring ownership of real estate, registration fees of approximately 6% are applicable.
Employers are responsible for withholding and declaring payroll taxes on behalf of their employees. The 2022 Budget Law clarified that the employer must withhold the payroll tax due on the wages and salaries paid to the employees in Lebanese pounds based on the actual value of the foreign currency determined in accordance with a decision to be issued by the MoF and the Central Bank. Later on, the MoF and the Central Bank of Lebanon issued a decision to determine the 'actual' value in Lebanese pounds for salaries or wages that are paid or accrued in US dollars or any other foreign currency as follows:
- Whenever salaries and wages are paid in cash in foreign currency: Based on Sayrafa rate.
- Whenever salaries and wages are paid through a check or local bank transfer in foreign currency: Based on the exchange rate as per Circular no. 151 dated 21/04/2021 and its amendments issued by the Central Bank of Lebanon.
The 2022 Budget Law has also amended the brackets of employment income subject to progressive payroll tax rates. Payroll tax is now levied at progressive rates of 2% to 25% on annual payroll tax brackets between LBP 18 million and LBP 675 million instead of annual payroll tax brackets between LBP 6 million and LBP 225 million effective 1 January 2022. The annual family exemptions were also increased.
The MoL issued Decree no. 9129, dated 19 May 2022, relating to the increase of the cost-of-living allowance to employees subject to the Labor Law. The increase is applicable starting 1 April 2022.
The employees’ basic monthly salary (as of 1 March 2022) is subject to an increase as follows:
- For salaries that do not exceed LBP 4 million, an increase of LBP 1,325,000 is applicable starting 1 April 2022. The increase is considered part of the basic salary.
- For salaries that exceed LBP 4 million, the increase should be based on a mutual agreement between the employee and employer, taking into consideration any local collective agreements and the International Labor Organization Convention.
Subsequently, on 20 October 2022, the MoL issued Decree no. 10598, which stated that a monthly increase of LBP 600,000 should apply to employees earning monthly salaries, subject to the Labor Law. The second increase is applicable starting 20 October 2022.
Furthermore, on 26 April 2023, the MoF issued Decree no. 11226, which stated that a monthly increase of LBP 4.5 million should apply to employees subject to the Labor Law to reach a minimum wage of LBP 9 million for monthly basic salary. The third increase is applicable starting 26 April 2023.
Social security contributions
Social security contributions prior to 31 March 2022 were the following:
- Borne by the employer: 8% for the maternity and sickness benefit schemes, on a maximum of LBP 2.5 million per month, and 6% for the family benefit schemes, on a maximum of LBP 1.5 million per month, in addition to 8.5% of total annual earnings for the end of service indemnity, with no ceiling.
- Borne by the employee: 3% for the medical scheme, on a maximum of LBP 2.5 million per month.
Following Decree no. 9129 issued by the MoL, the NSSF issued Circular no. 686, dated 6 June 2022, increasing the monthly ceilings of the 'sickness and maternity' and 'family allowance' schemes starting 1 April 2022 as follows:
- The monthly ceilings of the sickness and maternity contributions increased LBP 1,325,000 to become LBP 3,825,000.
- The monthly ceilings of the family allowance contributions increased LBP 1,325,000 to become LBP 2,825,000.
Subsequently, the MoL issued Decree no. 9415, dated 16 June 2022, related to the adjustment of the monthly ceiling of the 'sickness and maternity' scheme for the purpose of calculating the NSSF contributions:
- The monthly ceiling of the sickness and maternity contributions should increase to become LBP 5 million.
The Decree is applicable starting 1 July 2022.
Following Decree no. 10598 issued by the MoL, the NSSF issued Circular no. 694, dated 25 October 2022, increasing the monthly ceilings of the 'sickness and maternity' and 'family allowance' schemes starting 1 October 2022 as follows:
- The monthly ceilings of the sickness and maternity contributions increased LBP 600,000 to become LBP 5.6 million.
- The monthly ceilings of the family allowance contributions increased LBP 600,000 to become LBP 3,425,000.
Following Decree no. 11226 issued by the MoF, the NSSF issued memorandum no. 710 clarifying that the additional high cost of living should be included as part of the calculations of social security contributions for employees subject to the Labor Law.
Moreover, following Decree no. 11928 issued in the official gazette dated 24 August 2023, the annual ceiling amount for the calculation of sickness and maternity social security contributions is set at LL 216,000,000 per year (equivalent to LL 18,000,000 per month) starting September 2023.
Furthermore, the National Social Security Fund issued Memorandum no. 714 dated 5 September 2023 which pertains to the settlement of contributions for salaries paid in foreign currencies. According to this memorandum, these contributions should be settled in Lebanese Pounds, and their value should reflect the actual exchange rates as outlined in Article 35 of the 2022 Budget Law and Decisions no. 1/2 and 1/3 (LBP 8,000 from 1 January until 14 November 2022 and LBP 15,000 from 15 November 2022 onwards).