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LIBS. Tax awareness conference February 2008. PwC. Agenda/Contents. Start up formalities Income tax VAT Stamp duty tax. Start up formalities at the Ministry of Finance. Start up formalities. Ministry of finance.

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  1. LIBS Tax awareness conference February 2008 PwC

  2. Agenda/Contents Start up formalities Income tax VAT Stamp duty tax

  3. Start up formalities at the Ministry of Finance

  4. Start up formalities Ministry of finance • Any time a business activity is to be carried out, the Ministry of finance must be notified within a 2 month period from inception of the business. • Notice of start of operations to be presented – no cost • Simple procedure – can be done by individual • Will result in a certificate issued for the business evidencing certification • Failure of presenting this notice on time will result in a penalty. Tax overview

  5. Taxation types Chapter I tax – Income tax on profits VAT Stamp duty

  6. Income tax Chapter I tax – Tax on profits • Basis • Self-employed individuals, partnerships and all other types of business entities are subject to business income tax on all business income derived in Lebanon. • Taxable business income is defined as income or profit from trade, the exercise of a profession or any other activity not subject to other types of income tax. As Lebanese tax laws are territorial, profits realised on transactions conducted abroad by agents, representatives and branches of local corporations are not subject to the business income tax. Tax overview

  7. Income tax Chapter I tax – Tax on profits • Basis • Entities are taxed on their net income, defined as all revenues less expenses applicable to carry out these activities, including and not limited to: • Cost of Sales • Rent • Salaries • Depreciation • Interest Tax overview

  8. Income tax Chapter I tax – Tax on profits • Rates: • Rates of taxation depend on the legal nature of a company. Private entities (such as sole proprietorship and general partnerships) are taxed at progressive rates of 4-21%. • Capital companies (such as joint stock corporations, limited liability companies as well as limited partnerships) are taxed at a flat rate of 15%. • Distributed post-tax profits are subject to the tax on moveable capital gains at the rate of 10%. Tax overview

  9. Income tax Chapter I tax – Tax on profits • Unincorporated entities with fewer than 5 employees and who do not import any goods, are allowed to use the deemed method of computing their taxes. Tax overview

  10. Income tax Chapter I tax – Choice of entities Tax overview

  11. Income tax Chapter I tax – Choice of entities Tax overview

  12. Unincorporated business (real profit) 000 LL Revenue 100,000 Cost 30,000 Net profit 70,000 Tax is based on persons family status If single: Exemption 7,500 Tax 5,325 ETR 7.6% Unincorporated business (deemed profit) 000 LL Revenue 100,000 Cost 30,000 Net profit 70,000 Deemed profit (design) 35,000 Tax is based on persons family status If single: Exemption 7,500 Tax 1,355 ETR 2% Income tax Chapter I tax – Tax on profits Tax overview

  13. Corporation 000 LL Revenue 100,000 Cost 30,000 Net profit 70,000 Salary director 35,000 Net taxable profit 35,000 Tax rate 15% 5,250 Distributable profit 29,750 Distribution tax 2,975 Available 26,775 Tax on salary Gross Salary 35,000 Exemption 7,500 Tax paid 2,300 Total Tax paid now: 7,550 ETR 10.7% Total tax paid full: 15% Income tax Chapter I tax – Tax on profits Tax overview

  14. Income tax Chapter I tax – Tax on profits Tax overview

  15. Income tax Chapter I tax – Withholding taxes • Withholding tax: • Businesses, companies and institutions that do not maintain a place of business in Lebanon are subject to special treatment under the business income tax rules. • They are deemed to earn a net profit of a fixed percentage of gross business income derived from services rendered in Lebanon or royalties earned in the country. • Services: deemed profit is 50% subject to tax at 15% - 7.5%. • Materials delivered in Lebanon by the buyer or his representative: deemed profit is 15% subject to tax at 15% - 2.25%. Tax overview

  16. Income tax Chapter I tax – Withholding taxes • Non-resident withholding taxes are applied on payments for: • services rendered, • payment for royalties, and • other acquired rights and management fees charged from the head office. It is computed and withheld at the rate of 15% on deemed profits equivalent to 50% of gross proceeds (or an effective tax rate of 7.5%). Taxes on payments for other than services to non-residents are computed and withheld at the rate of 15% on deemed profits of 15% of gross proceeds (or an effective tax rate of 2.25%). Tax overview

  17. Income tax Chapter I tax – Tax on profits • Formalities: • Income tax returns for un-incorporated businesses are due on 31/1 when reporting under the deemed profit and 31/3 when under the real profit • Income tax returns of corporations are due on 31/5 • SARL and SAL must be audited by an external auditor whose report must be filed with the tax authorities by 31/8. Tax overview

  18. Income tax Chapter I tax – Tax on profits • Accounting requirements: • Currently the majority of local companies rely on the Lebanese General Accounting Plan. From 1999 onwards all taxpayers are required to adopt the International Accounting Standards. • The following accounting records should be kept: • A general journal. • An inventory book that includes balance sheet items. • A register of commitments that includes details of all contracts and contractual liabilities Tax overview

  19. Income tax Chapter I tax – Tax on profits • All pages of the above documents should be stamped by the commercial court in the district in which a company’s head office is located. • All accounting records should be based on a double-entry book system. They should be supported by documentary evidence and must be recorded in a chronological manner. • Entities under the deemed profits method, are required to keep track of their revenues and fixed assets only, unless they are registered with the VAT department. Tax overview

  20. VAT Definition • VAT is levied on all commercial transactions undertaken by business entities • It is a final consumer tax, VAT registered entities supplying VAT taxable transactions do not suffer VAT • An entity supplying otherwise VATable transactions, but not registered with VAT is a final consumer and suffers VAT Tax overview

  21. VAT Rate and taxable persons and entities Rate: • The standard VAT rate in Lebanon is 10% • Export of goods and services and export-related services, international transport and some of the intermediate operations are zero-rated Taxable persons and entities: • Every natural or juridical person with a total turnover covering four successive quarters exceeding LL150m. • Those that are conducting or that have commenced to conduct activities that are subject to VAT may register voluntarily in the VAT department irrespective of the amount of their turnover Tax overview

  22. VAT Time and place of supply Time and place of supply of goods and services: • VAT is levied on goods located in the Lebanese territory at the date of supply and on services used within the Lebanese territory. Tax overview

  23. VAT Example of exempted activities • Services offered by medical doctors or those that are medical in nature, and hospital fees. • Education • Insurance and reinsurance • Banking and financial services (excluding financial leases, financial and legal advice and operating leases for commercial purposes which are not VAT exempt • Sale of built properties • Residential letting of built properties Tax overview

  24. VAT Example of exempted goods • Medical tools and equipment. Medicines, drugs and pharmaceutical products including items for health and pharmaceutical use • Seeds, fertilizers and animal feed and pesticides • Books, magazines; newspapers; paper and ink for printing books, newspapers, and magazines • Bread, flour, meat and fish, milk and yoghurt and their derivatives, rice, borghol, vegetal oil, sugar, salt and macaroni and all different kinds of pasta and baby food, salt. Tax overview

  25. VAT Zero-rated activities and goods • All exported goods and activities • Equipment or material for use on airplanes and ships Tax overview

  26. VAT Example • Example: Vatable transaction 10%. • Service rendered: 2,000 • Supplies purchased: 200 • Electricity paid 50 • Rent office 500 • Computer purchased 1,500 Tax overview

  27. VAT Example • Example: Vatable transaction 10%. • Service rendered: 2,000 • Supplies purchased: 200 • Electricity paid 50 • Rent office 500 • Computer purchased 1,500 Tax overview

  28. VAT Example • Example: Vatable transaction 10%. • Service rendered: 2,000 • Supplies purchased: 200 • Electricity paid 50 • Rent office 500 • Computer purchased 1,500 Tax overview

  29. VAT Example • Example: Exempt transaction • Service rendered: 2,000 • Supplies purchased: 200 • Electricity paid 50 • Rent office 500 • Computer purchased 1,500 • Additional cost 225 Tax overview

  30. VAT Example • Example: Zero rated transaction • Service rendered: 2,000 • Supplies purchased: 200 • Electricity paid 50 • Rent office 500 • Computer purchased 1,500 Tax overview

  31. VAT Insurance activities • Insurance and reinsurance activities are exempt activities that may not recover VAT, however accident inspection activities are vatable activities. Tax overview

  32. VAT Related insurance activities • Outsourced back office insurance activities are tax exempt provided that: • All decisions undertaken by such companies should be implemented by the insurance & reinsurance company & based on signed agreements. • All activities of such companies should be activities that are correlated to insurance & reinsurance activities. • Such companies should have clear separate records for each insurance & reinsurance company to whom they provide their services for ease of audit. Tax overview

  33. VAT Registration and return • Registration: • Taxable persons or entities should register within two months from the last day of the quarter where the conditions for being taxable are fulfilled. • Periodical tax return: • Within 20 days from the end of the tax period (quarters ended 31 March, 30 June, 30 September and 31 December) • Heavy penalties are charged if the taxable persons do not comply with the law. Tax overview

  34. Stamp duty Stamp duty • A fixed stamp duty of LL100 is due on invoices, receipts and other documents. • Contracts and deeds are subject to a 0.3% stamp duty of the amount of the contract; • Rental contracts • Agreements with suppliers/clients • Franchise agreements • Other Tax overview

  35. Stamp duty Stamp duty (continued) • The fixed stamp duty concerning documents relating to insurance are the following: • Insurance contracts, renewals or any adjustments to the contract (on 2 copies) LL 1,000 • Expert report LL 5,000 • Insurance quittance (release form) LL 5,000 Tax overview

  36. Stamp duty Stamp duty (continued) • The proportionate stamp duty concerning documents relating to insurance are the following: • Receipt for the premium amount of car insurance 3% • Receipt for the premium amount of other insurancecoverage excluding life 5% Tax overview

  37. © 2007 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). PwC Thank you for attending

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