Beirut GMT +2
EY Street address:
Mail address: Omar Daouk Street, Starco Building, South Block B P.O. Box 11-1639 9th Floor Riad El Solh 1107-2090 Mina El Hosn Beirut Beirut Lebanon
Indirect tax contacts
Romeo Gedeon +961 (1) 760-840 romeo.gedeon@lb.ey.com
Zeina Frenn +961 (1) 760-804 zeina.frenn@lb.ey.com
Elise Flayhan +961 (1) 763-823 elise.flayhan@lb.ey.com
A. At a glance
Name of the tax
Local name
Value-added tax (VAT)
Value-added tax (VAT)
Date introduced 1 February 2002
Trading bloc membership None
Administered by Ministry of Finance (http://www.finance.gov.lb)
VAT rates
Standard 11% Other Zero-rated (0%) and exempt
VAT number format
VAT return periods
Thresholds
Registration
General
Importers and exporters
Recovery of VAT by non-established businesses
B. Scope of the tax
Tax identification number (TIN), followed by a dash and a code (601 for taxable persons subject to VAT or 611 for exporters)
Quarterly
LBP100 million in any period varying from 1 to 4 prior consecutive quarters.
None
Yes, subject to certain conditions
VAT applies to the following transactions:
• The supply of goods or services made in Lebanon by a taxable person
• The importation of services by a person resident in Lebanon
• The importation of goods into Lebanon, regardless of the status of the importer
C. Who is liable
A taxable person is an entity or individual who makes taxable supplies of goods or services in the course of doing business in Lebanon, in excess of the registration threshold. Furthermore, an entity or individual who imports and/or exports taxable goods or services is also considered to be a taxable person, regardless of its turnover.
The VAT registration threshold is taxable turnover of at least LBP100 million in any period vary ing from one to four consecutive quarters. The deadline for registration is two months following the last day of the quarter in which the liability to register arose. Importers and exporters of taxable goods or services that are exempt with the right of deduction are obliged to register with the Directorate of Value-Added Tax (DVAT), effective 8 November 2017, regardless of their turnover.
Exemption from registration. The VAT law in Lebanon does not contain any provision for exemp tion from registration.
Voluntary registration and small businesses. Any taxable person performing taxable activities or activities related to goods and services that are exempt with the right of deduction may voluntarily register for VAT, provided that the latter had a minimum turnover of LBP50 million in a period of one to four consecutive quarters.
Group registration. Group VAT registration is not allowed in Lebanon.
Non-established businesses. A “non-established business” is one that has no fixed establishment in Lebanon. A non-established business must register for VAT if it makes taxable supplies in Lebanon. This is the case even where the supplies are made to a VAT-registered customer in Lebanon.
Tax representatives. A non-established business must appoint a tax representative resident in Lebanon before it makes any supplies of goods or services in Lebanon, regardless of its expect ed level of turnover. The tax representative is jointly and severally liable for the payment of all VAT liabilities and penalties with the non-established business that it represents. The tax representative is solely responsible for complying with all of the other provisions of the Lebanese VAT law.
Reverse charge. The reverse charge is a transfer of liability to account for and pay the VAT on imported services from the person providing the service (the supplier) to the person receiving the service (the recipient). If services are being supplied in Lebanon by a foreign non-established entity that has no agent in Lebanon to a Lebanese registered entity, it is the responsibility of the Lebanese taxable person to account for the VAT amount due on the service and declare it to the VAT department.
If a Lebanese resident receives a taxable supply of services consumed in Lebanon from a nonestablished supplier that has not appointed a tax representative in Lebanon, the Lebanese resident is liable to pay VAT and any penalties due to the tax authorities.
Domestic reverse charge. There are no domestic reverse charges in Lebanon.
Digital economy. There are no specific VAT rules regarding the digital economy in Lebanon. However, where a non-established business is selling digital services (e.g., electronically supplied services) to a Lebanon resident (i.e., business-to-consumer (B2C) supply), the non-established business is not considered to be performing services in Lebanon. As such, this means that the non-established business is not required to appoint a tax representative in Lebanon and is not required to register for VAT in Lebanon. Subsequently, no VAT is accounted for on the supply of digital services. The customer cannot self-account for the VAT due because it is a consumer not a business (i.e., B2C not business-to-business (B2B) supply). Therefore, no VAT is accounted for digital services.
At the time of preparing this chapter, this is a scenario that the Lebanese tax authorities have not yet addressed, and as such, there is no mechanism to declare VAT on supplies of digital services.
For other e-commerce supplies, such as imported goods, VAT is cleared at customs and there is no requirement for the supplier to register with the directorate of VAT.
At the time of preparing this chapter, no special VAT rules have been introduced (or announced by the tax authorities) for e-commerce supplies.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Lebanon.
Registration procedures. A taxable person registering with the DVAT is required to manually complete hard copies of the necessary registration forms (K1-1, K11-1 and K12-1) along with other required documents (this includes a copy of the commercial register, the company’s article of association, a detailed statement of the turnover number during the quarters preceding the date of submission, a pledge on the first VAT taxable supply and a copy of the first invoice that includes the delivery of taxable goods or services, a copy of the identity of the concerned person or a legal proxy to the company’s agent) and submit them in person or by email to the DVAT within two months from the last day of the quarter in which the liability to register arose (in case of mandatory registration). The DVAT takes an average of one week to complete the registration.
Deregistration. A taxable person that ceases to carry on business in Lebanon must cancel its VAT registration within two months from the cessation of taxable supplies. A taxable person whose turnover falls below the compulsory registration limit may also deregister within two months following the end of the calendar year in which the turnover fell below the VAT registration threshold.
A taxable person that is registered voluntarily may at any time request deregistration if its annual turnover does not exceed the compulsory VAT registration threshold.
Changes to VAT registration details. If there is a material change in a taxable person’s VAT regis tration details, it must notify the tax administration within two months of the date of change in the commercial register, by submitting manually form M4. Material changes may include name, address, type of activity, etc.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 11%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods and services, unless a specific measure provides for the zero rate or an exemption.
Examples of goods and services taxable at 0%
• Exported goods
• Exported services
• International transport (from/to Lebanon)
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Postal services and stamps
• Education
• Insurance
• Financial services
• Transfer of real estate
• Medical services and equipment
• Precious metals and precious and semiprecious stones
• Betting and gaming
• Collective transport of persons
• Agricultural activities and products, including livestock, seeds, animal feed and pesticides
• Books, newspapers and magazines
• Basic foodstuffs and baby food
• Diesel oil
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Lebanon.
E. Time of supply
The time when VAT becomes due is called the “time of supply” or “tax point.” The tax point is the earliest of the following events:
• When the goods are delivered or the services are performed
• When the consideration is paid if this occurs before the goods are delivered or services are performed
• When the invoice is issued if this occurs before the goods are delivered or services are performed
The time of supply for imported goods is when the liability to pay customs duties arises, that is, either on the date of importation or when the goods leave a duty suspension regime.
A Lebanese resident who uses a service in Lebanon that is acquired from abroad must account for VAT via the reverse charge on the service and pay VAT due to the tax authorities. The tax point is when the service is received and the consideration is paid. The Lebanese VAT law does not differentiate between companies and individuals. However, in practice, individuals do not self-account for the VAT and no VAT is charged on the supply.
Deposits and prepayments. For supplies of deposits and prepayments, if, before the date of deliv ery of goods and services, the price has been partly or wholly paid by the customer, then the VAT is due at the date of payment based on the value of the amount paid.
Continuous supplies of services. For supplies of continuous supplies of services, the VAT is due on the earliest of either the invoice issuance, installment payment or installment due date.
Goods sent on approval for sale or return. There are no special time of supply rules in Lebanon for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).
Reverse-charge services. There is no special time of supply rule in Lebanon for supplies of reverse-charge services. As such, the normal time of supply rules apply (as outlined above).
Leased assets. VAT on leased assets classified as operational leases is payable upon payment of each installment. If the asset is transferred to the lessee at the end of the lease term, the VAT is computed based on the purchase price.
The time of supply differs if the asset is classified as a financial lease, under any of the below criteria:
• Ownership transfers at the end of the lease (upon final payment or required buy out)
• Written option for bargain purchase
• The present value of the lease payments is equal to or more than 90% of the fair value of the leased property
• The lease term is equal or greater than 75% of the asset’s economic life
Where any of these criteria apply, VAT is due upon the earlier of effective receipt of the asset, issuance of an invoice or payment of an amount.
Imported goods. VAT is paid at customs at the time of importation and clearance of goods.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is the VAT charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from its output tax, which is the VAT charged on supplies made.
The time limit for a taxable person to reclaim input tax in Lebanon is four years.
Input tax includes VAT charged on goods and services supplied in Lebanon and VAT paid on imports.
A valid tax invoice or customs document must generally accompany a claim for input tax.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepre neur). In addition, input tax may not be recovered for some items of business expenditure.
The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to taxable business use.
Examples of items for which input tax is nondeductible
• Business entertainment
• Nonbusiness expenditure
Examples of items for which input tax is deductible (if related to a taxable business use)
• Accommodation
• Advertising
• Business gifts
• Conferences
• Purchase, lease and hire of cars, vans and trucks
• Business use of home telephone
• Mobile phones (80% provided that the invoices are in the name of the taxable person)
• Taxis
Partial exemption. Input tax directly related to making exempt supplies is not generally recover able. If a Lebanese taxable person makes both exempt and taxable supplies, it may not recover input tax in full. This is referred to as a “partial exemption.” Zero-rated supplies (sometimes referred to as “exempt with the right of deduction” supplies) are treated as taxable supplies for these purposes.
A taxable person that makes both taxable and exempt supplies may generally recover input tax that is related to taxable supplies only. Input tax directly allocated to taxable supplies is deduct ible, while input tax directly related to exempt supplies is not deductible. The remaining input tax that is not allocated directly to exempt and taxable supplies is apportioned. The apportionment may be calculated based on the value of taxable supplies made compared with total turnover.
Approval from the tax authorities is not required to use the partial exemption standard method in Lebanon. Special methods are not allowed in Lebanon.
However, certain VAT exempt entities, including hospitals, educational institutions and nonprofit organizations, known as “Article 59 entities,” are subject to a special VAT recovery regime. Article 59 entities use fixed recovery percentages to recover input tax, depending on the type of expenditure. The following are the fixed percentages:
• 100% recovery is allowed for purchases of fixed assets.
• 100% recovery is allowed for current expenses.
Capital goods. No specific treatment applies for input tax recovery on capital goods, with the exception of cars that have a special treatment. If the input tax can be allocated to taxable supplies, it may be deducted from the output tax. However, if the input tax cannot be allocated to taxable or nontaxable activities, it should be apportioned as mentioned above.
Refunds. If the amount of VAT recoverable in a quarter exceeds the amount of VAT payable, the taxable person earns a VAT credit. The VAT credit is generally carried forward to offset output tax in the following VAT period. A refund of any remaining VAT credit may be claimed at 20 days following year-end provided that the claimed amount would be a minimum of LBP5 million. However, exporters (i.e., anyone who exports) may claim a refund of the VAT credit at the end of each quarter.
The tax authorities should resolve the refund request within three months from the submission deadline. They have the right to extend this period once, for an additional three months, in the event of a tax audit.
If the VAT authority accepts the refund request, then it should pay the taxable person the excess amount of VAT within four months (seven months in the event of a tax audit). Otherwise, interest equal to the average interest of one-year treasury bills is due, and this interest amount should not exceed 9%.
Pre-registration costs. A taxable person who purchases fixed assets and inventory prior to regis tering for VAT can request a refund of input tax on these items once registered. The taxable person must submit a letter to the Ministry of Finance within two months from the date of regis tration in order to obtain a refund of the VAT. The amount to be refunded is deducted from the VAT amount to be paid starting from the period following the taxable period in which the refund request is approved.
Bad debts. Output tax accounted for on supplies that are not paid by the recipient (i.e., a bad debt) cannot be recovered in Lebanon.
Noneconomic activities. Input tax incurred on purchases that are used for to noneconomic activi ties is not recoverable in Lebanon.
G. Recovery of VAT by non-established businesses
The Lebanese tax authorities may refund the VAT incurred by businesses that are neither established nor registered for VAT in Lebanon under certain conditions.
Non-established businesses are defined to be foreign or Lebanese businesses and corporations residing outside Lebanon who do not have a permanent place of business nor a place of residence
in Lebanon and whose visits to Lebanon are limited to providing/participating in conferences, lectures or exhibitions.
If the above individuals or corporations wish to benefit from the VAT refund, they should be:
• Registered with the related tax authorities or commercial register in their countries of residence or in the place their business is conducted
• Not performing any taxable/nontaxable activities in Lebanon
The VAT paid by the latter for services or goods purchased in Lebanon should exceed LBP1 million (approx. USD665) during a single or multiple visit/s per year. The input tax to be refund ed should be specifically related to expenses arising from commercial activities in Lebanon (e.g., the conferences, lectures and exhibitions attended or provided should be business related).
H. Invoicing
VAT invoices. A taxable person must generally issue VAT invoices for all taxable supplies made to other taxable persons as well as for exports. Taxable persons that supply goods and services primarily to retail customers may issue cash receipts instead of full tax invoices subject to the tax authorities’ preapproval.
Credit notes. A VAT credit note may be used to reduce the VAT charged and reclaimed on a sup ply of goods or services. The value of the supply may be reduced if a supply is canceled, goods are returned (in full or in part) or the contractual price is reduced. The amount of VAT credited must be separately itemized in the credit note. The credit note must be cross-referenced to the original VAT invoice and must contain generally the same information.
Electronic invoicing. Electronic invoicing is allowed in Lebanon, but not mandatory. However, note that any stamp duty due should be settled in advance as the regular invoice has the stamp duty affixed on it, but not included on an electronic invoice.
Simplified VAT invoices. Simplified invoices can only be issued when issuing a regular invoice is impractical, e.g., for most retailers, noting that prior approval from the Ministry of Finance should be obtained beforehand and a regular formal invoice should always be prepared based on the client’s request.
Self-billing. Self-billing is not allowed in Lebanon.
Proof of exports. Lebanese VAT is not chargeable on supplies of exported goods – such supplies are zero-rated. However, to qualify as zero rated, an export supply must be accompanied by official customs evidence and port clearance documents, stating that the goods have left Lebanon.
Foreign currency invoices. When the value of goods or services is set in a foreign currency, the taxable person should calculate in their books of accounts the counter value of the VAT in the domestic currency, which is the Lebanese pound (LBP), by exchanging the foreign amount to LBP according to the official exchange rate at the date of transaction. If the official exchange rate at the date of the transaction could not be precisely determined, the taxable person should use the Banque du Liban (BDL) rates published one day before issuing the invoice and apply this exchange rate.
Supplies to nontaxable persons. Simplified VAT invoicing is not allowed in Lebanon. As such, full VAT invoices are required. A taxable person must issue invoices compliant with article 38 of the VAT law even if the supply of goods or services is provided to a nontaxable person (B2C). In addition, a taxable person that is not able to issue invoices compliant with article 38 of the VAT law (i.e., supermarkets) should obtain special approval from the tax authorities to issue simpli fied invoices.
Records. Records must be held at a taxable person’s place of work or place of residency. The records must be properly preserved to avoid any damages and they remain readable. Examples of such records that must be kept include trial balance, general ledger, journal vouchers, contracts and any other supporting documents.
Record retention period. Taxable persons must retain the records, invoices and other accounting documents for a minimum 10-year period.
Electronic archiving. Taxable persons can maintain records electronically, but if requested by the tax authorities in paper form at a later stage and in case of tax inspection, then they will have to provide them in the mentioned form.
I. Returns and payment
Periodic returns. Lebanese VAT returns are submitted for quarterly periods. VAT returns must be filed within 20 days after the end of each quarter.
Periodic payments. Payment of VAT due is required in full by the same deadline as the VAT return, i.e., within 20 days after the end of each quarter VAT liabilities must be paid in Lebanese pounds. Once the VAT return is submitted on the Ministry of Finance online portal, the online payment form should be extracted, and the payment should be processed through bank transfer to the Department of VAT bank account number.
Electronic filing. Electronic filing of VAT returns is mandatory for all taxable persons in Lebanon. To do so, the taxable person should register online and create an account with the DVAT through the Ministry of Finance’s website (www.finance.gov.lb).
Payments on account. Payments on account are not required in Lebanon.
Special schemes. No special schemes are available in Lebanon.
Annual returns. Annual returns are not required in Lebanon.
Supplementary filings. No supplementary filings are required in Lebanon.
Correcting errors in previous returns. An adjusted VAT return should be submitted on the Ministry of Finance online portal. There is no time limit for submitting amended returns. Penalties that may apply can be charged on a monthly basis, as outlined in Section J. Penalties below. However, if the amended tax return was submitted within 30 days from the original deadline, no false decla ration penalty should apply if the additional tax does not exceed 10% of the tax that was ini tially due.
Digital tax administration. There are no transactional reporting requirements in Lebanon.
J. Penalties
Penalties for late registration. Late registration for VAT triggers the following penalties:
• LBP2 million for joint stock companies
• LBP1 million for limited liability companies
• LBP300,000 for sole proprietorships and other taxable persons
Penalties for late payment and filings. A penalty is charged for the late submission of a VAT return at a rate of 5% of the tax due for each month or part of a month that the return is late. The minimum penalty is LBP750,000 for joint stock companies, LBP500,000 for limited liability companies and LBP100,000 for other taxable persons, and the maximum penalty is 100% of the tax due. For these purposes, a fraction of a month is considered to be a whole month.
A penalty is charged for late payment of tax at a rate of 1.5% per month or part of a month that the tax is unpaid.
Penalties for errors. Penalties apply to a range of VAT errors and offenses, including the submis sion of incorrect tax returns (penalty is 20% of the difference between the tax due and tax paid), the issuance of incorrect VAT invoices (penalty is 25% of the tax due on the invoice), the issuance of invoices by unregistered taxable persons (penalty is three times the VAT amount in the invoice).
Failure to notify the tax authorities of a change in a taxable person’s VAT registration details within the prescribed time period, may result in the following penalties (per return):
• LBP200,000 for joint stock companies
• LBP100,000 for limited liability and sole proprietorships companies
• LBP50,000 for individuals and other taxable persons
Penalties for fraud. The tax procedures law does not address specifically the penalties imposed in cases of fraud. However, the below governs the penalties imposed in case of obstruction of the tax control measures.
For each taxable person who refrains from presenting the accounting records and supporting documents for the submitted returns or refrains from booking certain accounting transactions, a penalty of 50% from the tax due is imposed. The minimum penalty is LBP750,000 for joint stock companies, LBP500,000 for limited liability companies and LBP100,000 for other taxable per sons.
To collect taxes, the tax authorities have the privilege to access the taxable persons’ funds. The privilege also encompasses the funds of the persons held responsible at the company.
For the tax authorities to collect their taxes, they have the privilege to access the taxable persons’ funds. The privilege also encompasses the funds of the persons held responsible at the company.
Under certain conditions, the tax authorities have the right to issue a decision to withhold the taxable persons’ funds in case the latter declines to settle their taxes.
Personal liability for company officers. The general manager of a limited liability company, the chairman and/or the general manager in a joint stock company can be held jointly liable with the company for the taxes resulting from failure to meet the tax obligations and for undertaking or performing acts leading to tax evasion, if proved by a court ruling.
Statute of limitations. The statute of limitations in Lebanon is five years. This time limit is appli cable to the tax authorities to carry out inspections and taxable persons to submit revised VAT returns (also within the years that are still open for any tax inspections being carried out).