DOING BUSINESS IN LEBANON 2024

SETTING UP BUSINESS IN LEBANON

General Aspects

Lebanon is located on the eastern shore of the Mediterranean sea characterized by its natural beauty, bordering by two countries, its capital is Beirut. The monetary unit is the Lebanese Pound (LBP) and the country’s surface area is 10452 square kilometers. There is approximately 4 million people living in Lebanon, but wherever you go in the world

you are likely to come across a Lebanese since there are more than five times as many people of Lebanese origin living abroad than in Lebanon. The national language is Arabic but French and English are widely spoken and written.

Legal Forms of Business Entities

Topic Feature

Partnership Partnerships are formed of two or more people.

The main characteristic of this form is the personal contribution of each partner, all the partners are personally liable for the company’s debts and obligations. No required capital is requested by law.

It must be registered at the commercial register since it is doing a commercial activity.

The company name includes the names of some or all of the partners and is usually followed by the words ‘and Co.’

Remarks

A partnership in commendams is a limited partnership with two types of partners.

General partners who own and manage the business. These are liable for all its obligations. Each partner has the legal position of a merchant and is therefore subject to commercial and bankruptcy laws i. e. the bankruptcy of the company might lead to the personal bankruptcy of the partner. Creditors of the company can sue one partner or all partners personally and seize their private estates in settlement of their claims, if the company fails partially or totally to do that. This responsibility on the part of partners is collective in that .the creditor can sue even one partner for all the debts of the company. The title of the company should carry either the name of one partner or the names of some partners added the word «partners». A partner is not permitted to sell his share in the company to others without the consent of the other partners. Limited – or silent – partners are financial contributors and do not participate in the management. Their liability is limited to their contribution. This company is usually created between two kinds of persons: those who want to invest the capitals they have in the company in anticipation of profits. They prefer to be partners ready to bear risks and to share profits rather than being lenders especially in cases when the company is not willing to borrow. These are the silent partners whose names do not appear publicly and who are not allowed to take an active part in the management of the business; their functions are those of management control, and any appearance as partners in the company shifts them into acting or authorized partners

Co-Partnership

A co-partnership is a partnership known only to the parties concerned in order to achieve a certain project and, since it is secret, cannot be registered. An association agreement sets down the partners’ rights and obligations, as well as their participation in profits and losses. Each party is responsible for their own liabilities.

Despite their secrecy, the agreements inherent in co-partnership are enforceable at law in cases of dispute.

Limited liability company– SARL

According to the Law n. 126 of 29/03/2019, a limited liability company is set up by one or more people who only bear the losses up to the amount of their contributions.

Its trade name is usually anonymous, and is sequenced by the initials SARL and name of the partners could be included in it.

The capital of 5 000 000 Lbp-Lebanese Pounds must be fully paid up.

The liability of each partner is strictly limited to the value of shares held by this partner.

The capital must be fully deposited in a bank under the company’s name.

Management could be given to one or more partners, and a manager cannot achieve on the company’s behalf any deal or transaction in which he has any kind of interest. Excepted in case of prior authorization is granted.

Limited liability companies may not perform the following activities : Banking, financial operation and insurance.

The company must be formed with the mutual consent of the members embodied in the articles of incorporation/ memorandum of association which must be notarized or signed before the clerk of the Commercial Register where it is filed.

Legal incapacity or bankruptcy of a member does not entail dissolution of the company. Shares in a limited liability company are not negotiable and cannot be transferred to third parties ,except in case the prior approval of members representing at least 75 percent of the capital.

Joint Stock Company – SAL

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A joint stock company is formed by three or more persons.

It should have a minimum authorized capital of 30 million LBP.

The shares in the company entitles the shareholder to membership in the company, a right to participate in management and a right to vote. These shares are negotiable or transferable.

The liability of each shareholder is strictly limited to the value of the shares held. The Board of Directors must put aside 10 percent of the net profits to form a statutory reserve fund until such time as this reserve fund becomes equivalent to one-third of the capital of the company. A joint stock company must appoint an auditor.

LLebanese law does not limit foreign interest in joint stock companies.

Another limitation to joint stock companies is, whose object is the acquisition of and trading in real estate in Lebanon.

With a small number of exceptions as mentioned above, such as real estate, insurance, media companies, and banks), there are no real limits on the amount of capital that can be held by foreigners.

The unlimited foreign participation principle is however mitigated by requirements that a number of members of the board of directors should be Lebanese and each member of the board is holder of a limited number of shares.

Concerning the board of directors, the law n.126of 29/03/2019 provides that 1/3 of the members of the board must be Lebanese. This Law allows the Chairman-General Manager to be of foreign nationality (no work permit required), the Chairman-General Manager can perform this function in six companies, the cumulating of directors’ mandate is eight.

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Branch Offices Foreign companies wishing to do business in Lebanon have the possibly of opening local branch or representative office.

To set up a branch office, the foreign company’s Board of Directors must issue a proxy/power of attorney in favor of a person residing in Lebanon granting him the authority to register the company in Lebanon, to represent it and to sign documents and do all the necessary measures on its behalf.

The General Manager of a company can only perform this function in three other companies, the mandate of the Principal Auditor may no longer be renewed for more than five years.

This law provides separation between Chairman of the Board of Directors and the general director. Also the separation between shareholders and the board members. The qualifying shares have been cancelled.

* In case of share transfer, the Commercial Registry requires a copy of share transfer document or of the minutes of meeting showing the share transfer amount, a 3 per million fee is charged on such transfer.

Joint stock companies have, as well, the option to issue shares and bonds convertible to shares. Each joint stock company incorporated in Lebanon must have its registered office in the country.

By law, This kind of office can not perform any commercial activity which could generate any business or profit. Therefore costs and expenses are to be borne by the outside foreign head office. Because of its nature, the representative office is not subject to corporate income tax.

A branch office, can undertake in general any commercial activity, except that which by law requires a certain legal form or conditions and/or that which is exclusively reserved for Lebanese nationals and/or companies.

Commercial Representation

Commercial representation is governed and defined by a Legislative Decree of 1967 according to which a commercial agent may negotiate for the conclusion of sales or the supply of services on behalf of his principal.

The agent can act, in this case, in the name of and for the accounts of the principal.

An agreement granting exclusive representation or distributorship to a person is considered as an agency agreement and may be granted only to Lebanese nationals, unless the foreign agent is a national of a country that assumes the same reciprocal treatment to Lebanese nationals.

An agreement granting exclusive representation or distributorship to a person is considered as an agency agreement and may be granted only to Lebanese nationals, unless the foreign agent is a national of a country that assumes the same reciprocal treatment to Lebanese nationals.

Holding Companies A Holding company is a special type of joint stock company.

Therefore, the activities of a holding company are strictly limited to the following:

• Own shares and participations in Lebanese or foreign anonymous or limited liability companies, established or participate in their establishment.

• Administrate companies in which it owns shares or participations

• Give loans to the companies in which it owns shares or participations and guarantee these loans towards third parties. For this purpose, the holding may contract any loans or borrow monies from banks or issue securities pursuant to the provisions of the code of commerce (trade), save that the total value of the issued bonds do not exceed, at any given time, five times the capital of the holding plus the provisions according to the last balance approved.

• Own patents, inventions, privileges and trademarks as well as any other registered rights; lease the same to the companies operating in Lebanon and abroad.

• Own movable and immovable assets save to use the same for the purpose of its activities and business exclusively in conformity with the code on the acquisition of real estate rights by foreigners in Lebanon.

Offshore Companies The Offshore company is one diversion of joint stock companies It removed the condition of having two Lebanese nationals in the company’s Executive Board which eases the conditions for foreign investors and gives them more incentives to invest in offshore companies in Lebanon.

As for the The chairman, he may be a non-Lebanese resident abroad and may operate without a permit. Off shores companies are formed in Lebanon, however they operate only in the Lebanese free zone and/or outside the Lebanese territory.

The activities are as follows:

• Negotiation and conclusion of agreements concerning goods and products located outside the Lebanese territory or in the Lebanese Free Zone

• Offering studies and consultations for the benefit of foreign institutions,

• Using free zone facilities in order to stock imported goods for reexportation,

• Buying or renting real estate in Lebanon to the extent they are necessary for the operation of the off shore company.

The chairman can be a non-Lebanese, provided he is resident abroad and he can practice without a work permit.

Members of the board and shareholders can be non-Lebanese as well.

Board and shareholders’ meetings can be held outside Lebanon.

The company must be registered in the Commercial Register and in a special register for holding companies.

Holding companies as well benefit from tax exemptions and advantages.

According to the official budget dated 15/11/2022 Holding companies are exempt from tax on profit and tax on dividend distributions, instead they are subject to a lump sum tax capped at 50 million LBP per year. Gains derived from the sale of an investment in a Lebanese subsidiary or associate is exempt if the investment is held for more than two years. No tax applies on gains derived from the disposal of an investment in foreign subsidiary.

An offshore company can not engage in banking operations, insurance or any other commercial activity in Lebanon and can not make any profits or revenues through movable or immovable assets in Lebanon, or through providing services to companies located in Lebanon, except for the interests on its bank accounts.

It may invest in Lebanese Treasury Bills.

Off shore companies benefit from tax exemptions since they are only subject to an annual flat tax of LL 50,000,000 (Official Budget 15/11/2022)

Formalities & Procedures

The Law n. 126 of 29/03/2019 modifications regards the following:

*gives the possibility to the members of the board of directors to use electronic means within the framework of the transactions of deposit and registration of the company before the Trade Register according to a mechanism to be determined by the Ministry of Justice.

*allows the founders of the company to recover the amounts deposited in a bank account in case a company is not established within six months the date of signature of the articles of association of the company with the notary.

*in the context of a total transparency, this law put at the expense of the members of the board of directors, an obligation which is to publish before the trade register the obligatory declarations and periodic reports after the meeting of the general meeting approving the annul accounts of the fiscal year.

*This law innovates by exempting a company to obtain the discharge issued by the National Social Security Fund for the completion of any deposit or formality:

• Obtaining a certificate true copy of any document in a company’s records

• Updating company’s bylaws

• Issuing of new commercial circular

• Approving annual financial accounts

• Transfers or changes in a board of directors

• Request of an already existing document in the company’s record

*The NSSF clearance is required for the renewal of a board of directors’ composition.

*This Law also broadened the circle of responsibility of persons in the event of bankruptcy to the members of the board of directors and the general manager and any person responsible of management or control.

Employmen

Topic Feature

Work permit To obtain a work permit your employer need to present your application to the General Security. Before doing so he or she needs to get a preapproval from the Labor Ministry.

The rules for obtaining a work permit differ a bit depending on the type of work you intend to do. The official rule is just like in many other countries - that the employer has to prove that the work cannot be done by a Lebanese person.

Labor law The ministry of Labor set guideline to regulate hiring and work conditions of all employees. Every company with more than 15 employees must send a copy of its working regulations to the ministry of Labor.

A normal working day should be eight hours, and in some cases up to 12 hours, knowing that employees should be given 9 consecutive hours of rest between each working day.

Public sector working hours are from 8:00 am till 3:30 pm. Private sector’s working hours are from 8:00 am till 5:00 pm.

Full time employees are entitled to 15 days to 23 days paid vacation according to working period. After an employee has been employed for more than three months, he is entitled to a half-month sick leave on full pay plus a half month half paid first year of employment up to two months and a half full pay and two months and a half half pay to whom the working period is more than 10 years.

Employers and employees can mutually agree to break a written work contract at any time, in such case there is no payment for damages or entitlements. However, in situations where one party breaks the contract, the injured party is entitled to seek compensation

Remarks

If you obtain a work permit, you can apply for a temporary residency at the General Security within three months of your arrival to Lebanon. A person eligible for residency may also apply for the same type of residency for their spouse, children and “servants and drivers” (as stated in the General Security’s official documents.) Your spouse does not have the right to work in Lebanon on your work permit.

Social System The National Social Security Fund (NSSF) provides employees with insurance coverage for sickness and maternity care. It also covers family allowances, end of- service pension, and work related accidents and diseases. Any employee or labor in any sector is eligible to enroll in the program. Employers are required to register in NSSF all employees working for local and international firms. Foreign employees with a valid work permit and residence permit are entitled to join NSSF, provided their home country offers equivalent or better programs to Lebanese residents employed there.

Employers must cover their employees’ medical, family allowance and end of service indemnities contributions as follows:

• 6% of the salary toward family allowances

• 8% of the salary for health indemnity fund from the salary),

• 8.5% of the salary for end of service fund

Employees are entitled to family, and education allowances, attached to the husband rather than wife’s salary, except if the female employee is a widow or sole provider.

Taxation

Foreign Nationals are not entitled for end-of-service benefits.

• 6% of the salary toward family allowances (with a ceiling of 12,000,000 L.L from the salary),

• 8% of the salary for health indemnity fund (with a ceiling of 45,000,000 L.L from the salary), The employee contributes by 3% for health coverage with a monthly ceiling of LBP 1,350,000.

• 8.5% of the salary for end of service fund (without any ceiling)

Topic Feature Remarks

Corporate Tax Taxable profits consist of all commercial, industrial profits and professional revenues earned by the enterprise after deduction of all charges necessary for carrying out the business. Corporations and limited partnerships are subject to corporate tax on profits of any business carried on in Lebanon at a flat rate of 17% of their business income. Individuals and partners in a private company are subject to tax on profits, after deduction of family allowances, on a progressive scale as follows:

• 17 % for corporations and limited partnerships

• The tax rate for non-residents is 8.5% on services and royalties (17% on 50% corporate income tax).

• The tax rate for non-residents is 3.4% on goods (17% on 20% corporate income tax).

• The tax rate for oil and gas companies is 20%

• For individuals and partners: Progressive rates from 4% to 25% for taxable profit: Up to LBP 540 million 4% LBP [540-1440] million 7% LBP [1440-3240] million 12% LBP [3240-6240] million 16% LBP [6240-13500] million 21% over 13500 million LBP 25%.

*Temporary Tax increase on bank interests from 7 to 10%

Entities exempted from paying the corporate income tax

• Educational institutes

• Hospitals, orphanages, etc

• Consumers’ cooperative companies, trade unions, and agricultural cooperatives of a non-commercial nature

• Agricultural investors not engaged in trading of their produces

• Local air and sea transport companies and foreign ones if Lebanese companies receive reciprocal treatment in the foreign country

• Touristic establishments classified as artisanal

• Profits that are reinvested

• Profits resulting from the production of new products for which there were no local industry before in Lebanon Holdings and Offshore companies

• As per 2024 Budget Law non-resident tax will be due on a quarterly basis within 15 days after the end of each quarter.

Payroll Tax Income tax law imposes a tax on all wages, salaries including overtime, gratuities and fringe benefits, after deduction of family allowances. Employers withhold the amounts due from salaries and remit them to tax authorities. *Payroll tax rates on wages and salaries increase progressively from 2% to 25% as follows with some exemptions: Up to 360 million 2% 360-900 million 4% 900-1800 million 7% 1800-3600 million 11% 36007200 million 15% 7200-13500 million 20% Over 13500 million 25%.

*These rates are reduced to half for retirement pensions and similar benefits.

Starting from the 1st January 2024, the family deductions for tax purposes applied on the deemed or actual profits of taxpayers will be as follows:

• LBP 450,000,000 for any individual taxpayer

+ LBP 225,000,000 for non-working spouse

+ LBP 45,000,000 for each legitimate dependent child (up to 5 children maximum).

Building Tax The property Tax covers all properties located in Lebanon and ranges from 0-14 percent. The expenses borne by the owner on behalf of the tenant are deductible. 360 million of income is deducted of each unit owned starting 2024. Exemptions are listed in article 8 of the Property Tax Law with some examples mentioned below: LBP less than 1200 Million 4% LBP [1200-2400] Million 6% LBP [2400-3600] Million 8% LBP [3600-6000] Million 11% Higher than 6000 Million 14%

Each owner or partner can benefit from this annual residency exemption according to his share in two residences only.

Any taxpayer owning or exploiting a built property or a share in a built property generating an annual rental income of more than LBP 1200 million starting from January 1st 2024 has the obligation to submit a built tax declaration before April 1st of the following year

*The Budget grants natural persons or legal entities obliged to keep regular accounts, in accordance with the texts of the laws and regulations, the possibility of carrying out an exceptional revaluation of the elements of their fixed assets to mitigate the effects of inflation. This disposal can only be done once and before the deadline of 31/03/2020.

Exceptionally, the capital gain tax on the disposal of real estate properties made by individuals is reduced to 1% until 31/12/2026.

Entities exempted from paying payroll taxes

• Subject to reciprocity: salaries and allowances of ambassadors of foreign states and their foreign staff

• Disablement pensions

• Wages of agricultural laborers

• Wages of nurses and cleaners in hospitals, orphanages, asylums and other medical and first aid institutions

• Wages of foreign employees in the Union of Arab Capital and Financial Markets.

• Pensions of the martyrs and wounded of the army and the security forces are exempted from the taxation of retirement pension.

Exemptions Buildings owned by the government, hospitals, religious authorities, political parties, foreign governments etc

Value Added Tax VAT applies to imports, and the supply of goods and services carried out by a taxable person. The rate is 11% with several goods and services exempted from the tax. A taxable person is every natural or juridical person who, in the course of an independent economic activity, performs taxable supplies of goods and services or exempted supplies with the right of deduction (zero-rated) in accordance with the provisions of this law, providing that he achieves a total turnover covering four successive quarters that exceeds 5 billion LBP.

Optional VAT registration threshold has been raised to LBP 1 billion over 4 consecutive quarters.

Stamp Duty 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 LL 20,000 and a maximum of LL 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.

Custom Duties Custom duties are levied on most of imports at varying rates, ranging from 0% to 70%. Tariffs on all industrial goods, tobacco and most of agricultural goods range between 0 and 5%.

*Establishment of a temporary tax of 3% on imported products subject to VAT, excluding gasoline, raw materials and equipment and materials used by the industrial and agricultural sectors.

Penalties Failure to submit a VAT return is subject to a penalty of 10% per month capped at 100% and late payment is subject to a penalty accruing at a rate of 2%(3% for withholding tax and VAT) per month. If the tax return is adjusted, a 20% penalty applies on the difference between the net tax owed and the net tax due. In the case of gas and oil companies, a 300% penalty applies on that difference.

Exemptions Essential goods and services Agriculture, Real Estate, Health, Education, NGOs, collective transportation of persons, financial services

Exemptions:

• Raw materials

• Semi-manufactured goods (total of over 2000 products)

• Computer hardware and software

• Textiles

• A customs fee of 10% is imposed for 5 years on imported goods with similar substitutes manufactured in Lebanon

Miscellaneous The Budget Law 2022 stated the following exemptions:

*Industrial and commercial companies incorporated after the date of this Law and up to 31 December 2024 and operating in regions the government wishes to develop should benefit from a total income tax exemption for a period of 7 years under certain conditions.

*Profit generated from the export of Lebanese manufactured products by industrial companies will benefit from a 75% discount on the related income for the five years starting from the year of the publication of this Law.

*Startup companies established within 5 years from the publication date of this Law shall benefit from a total income tax exemption for a period of 5 years provided that at least 80% of their employees are Lebanese citizens.

*Merging companies can benefit from a full income tax exemption for 3 years

This guide has been prepared by HATEM AUDIT FIRM, an independent member of Antea

HATEM AUDIT FIRM

Jal El Dib – Kettaneh Street

St Georges Square Bloc A 3rd Floor

P.O.Box 60-142 Jal El Dib, Lebanon

Tel.: +961 4 713040

gm@hatemcpa.com www.hatemauditfirm.com

Antea members in Lebanon:

BEIRUT

Contact partner: Hatem Hatem

Tel.: +961 4713040

Mail: gm@hatemcpa.com

Web: www.hatemauditfirm.com

BEIRUT (legal services)

Contact Partner: Amine Georges Bachir

Tel.: +961 1 488411

Mail: amine@bachirlawfirm.com

Web: www.bachirlawfirm.com

Mallorca, 260 àtic

08008 – Barcelona

Tel.: + 34 93 215 59 89

Fax: + 34 93 487 28 76

Email: info@antea-int.com www.antea-int.com

This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it. © 2024 ANTEA SETTING UP BUSINESS IN