Personal Income Taxation in Lebanon
Lebanon follows a territorial concept of taxation. Under this premise, it is important to note the fact that taxes are only due on salaries in the case where either of the following conditions are met:
- The beneficiary of the salary is classified as a resident within Lebanon. This is not dependent of the source of funding, from which the salary has been received.
- The services as a result of which income is received are mainly executed in Lebanese periphery. Similarly, they should have also contributed towards the welfare of the company that is located in Lebanon, regardless of the source of funding being outside Lebanon.
- The source of funding is classified to be within Lebanon, irrespective of where exactly the beneficiary resides, or where the work was actually construed.
Personal Income Tax Rates in Lebanon
Personal Income Tax is imposed in Lebanon on salaries in a progressive manner. In this regard, depending on the income slab, the rate varies from 2% and 25%.
However, in case of retirement pensions, or other similar benefits, these rates are mostly reduced to almost half.
Personal Income Tax is also imposed on income generated from business (including sole proprietorships as well as general partnerships) in a progressive manner. In this regard, the annual progressive brackets for income tax profits ranges between 4% and 25%.
Taxation on Capital Gains and Investment Income
In accordance to the tax regime in Lebanon, capital gains and investment income is taxed in Lebanon at rates of 15%. However, capital gains tax in not imposed on property disposals for up to 2 residential properties, and if they are owned for more than 12 years.
Taxation on Interest Income
Tax is also imposed on income earned through savings accounts, bank deposits, as well as credit accounts. All interest based income is subject to a Withholding Tax (WHT) rate of 10%.
Tax on Piecemeal Compensation
Lump-sum wages that are disbursed to wage earners for temporary (or non-regular, non-recurring work) are imposed tax at a rate of 3%. This is regardless of the volume of magnitude of wage that has been earned.
Revenues that are earned by non-residents in Lebanon are mostly subject to an effective tax rate of 2.25% of the revenue that is earned from the sale of materials and equipment. For sale of services, tax is imposed at a rate of 7.5%. For non-residents, income tax is supposed to be withheld at source.
Taxation on Corporate Income in Lebanon
As per the Corporate Income Tax regime in Lebanon, tax is mostly imposed depending on the type of income. In this regard, income tax is broadly divided into the following three categories. They include the following:
- Chapter I: Profits that arise from industrial, commercial, as well as non-commercial professions.
- Chapter II: Income that is derived from salaries, wages, as well as pension salaries.
- Chapter III: Revenues arising from moveable capital. This particular category includes all types of dividend income, board member appropriations, as well as interest income. This further includes interest on bonds as well as treasury bills.
Corporate Income Tax Rates in Lebanon
In accordance with the income tax law, each category of income is taxed depending on the respective category it belongs in. The applicable tax rates in this regard are as follows:
- Corporate Income Tax Rate: CIT is imposed at a rate of 17%.
- Capital Gains on Fixed Assets disposal: CIT is imposed at a rate of 15%.
- Dividend Distribution on Withholding Tax (WHT): CIT is imposed at a rate of 10%.
- Non-Resident Withholding Tax (WHT): CIT is imposed at a rate of 7.5% on services, and 2.25% for goods other than services.
- Payroll Tax: Payroll Tax is imposed from 2% to 25%, depending on the slab of salaries.
- Withholding Tax (WHT) on interest income: The currently applicable rate is imposed at 10%. However, this rate is subsequently expected to be reduced back to 7%.
However, it must also be noted that all businesses are taxed differently, depending on the industry type of the business, as well as the relative size of the business.
Real Profit Method of Taxation
In accordance to the applicable tax regime in Lebanon, tax is mainly charged on total income, or profits that are derived in Lebanon. The main premise that is followed in this regard is to get the surety that the profit has been realized in Lebanon, resulting from business activities within Lebanon only.
For all resident entities, CIT is imposed at a rate of 17% and that is based on the taxpayer’s accounting profits after adjustments have been made from the tax rules in accordance with the stated principles. This method is used by corporations, limited liability companies, individual companies, as well as other branches of foreign companies.
For non-residents, CIT is imposed in the form of WHT, at a rate of 2.25% for payment of goods, and 7.5% for service related payments.
Deemed Profit Method
Deemed Profit method is mostly imposed on insurance and banking related companies. It is also applicable on oil refineries, as well as public work contractors.
Taxation in this method is also imposed at a rate of 17%.
Other Taxation in Lebanon
- Value Added Taxation: VAT is imposed at a rate of 11% in Lebanon. It is imposed across all commercial transactions undertaken by almost all business entities.
- Excise Duties: Excise Taxes are mostly imposed on beverages, alcohol and tobacco related products.
- Built Property Tax: BPT is imposed an annual progressive tax ranging from 4% and 14% on all built property.
- Stamp Duty: There are two types of stamp duties imposed in Lebanon. A Stamp Duty of 0.4% is applied in a proportionate manner, whereas fixed stamp duty is imposed ranging from LBP 250 and LBP 2 Million.
- Social Security Contributions: Social Security Contributions are imposed on both, the employer, as well as the employee. For the employer, the rate of contribution is set at 8%, whereas the levy on employees is 3%.