Income Tax

The Lebanese Income Tax System

This Document Provides a brief description of the three taxes imposed under the income tax act:
(1) Income Tax on Business Profit
(2) Tax on Salaries
(3) Tax on Investment income
This documents is not intended to be detailed description of the income tax system.For specific issues, the reader should refer to the income tax Act (degree law N. 144 dated june 12,1959) or consult a tax specialist.

Income tax on business profits (Title I)

Persons subject to tax
Title I tax is applicable to persons undertaking a business activity in Lebanon (whether resident or not in Lebanon), including incorporated companies, sole proprietorships and professions. Entities exempt from Title I tax are listed under Article 5; they generally include not for profit organizations and public entities that do not compete with private companies.

Tax base

There are three methods for the determination of the tax base:
(1) The Real Profit Method;
(2) The Lump-Sum Profit Method;
(3) The Estimated Profit Method.

The application of one or the other of these methods depends on the legal status of the entity and/or its size.

Real profit method

Entities subject to the real profit method are listed under Article 11 of the Income Tax Act. This method is mandatory for certain entities, including corporations, partnerships, manufacturing and commercial entities, as well as private businesses with more than four employees. In addition, any entity earning a business profit may elect to be taxed on the basis of the real profit method; the election is irreversible.
The calculation of taxable income is based on accounting and tax rules. It generally involves two steps. First, accounting profit is adjusted in order to obtain an income measure based on tax rules. Second, losses of prior years are deducted from that income measure to arrive at taxable income.

Lump-sum profit

Entities not subject to the real profit method are taxable under the lump sum profit method or the estimated profit method. Generally, those subject to the latter method are small businesses with less than four employees.
Under the lump-sum profit method, taxable income is a percentage of sales, determined annually by the Ministry of Finance and based on sales figures reported by the taxpayer. This method is mandatory for insurance companies, transport companies and oil refineries.
The net profit rate under the lump-sum method depends on the business activity undertaken by the taxpayer. The rates range from 5% to as high as 50%. Typically, high-margin businesses and professions are subject to higher rates. The profit rates for insurance companies vary according to the type of insurance as follows: 5% for life insurance; 6% for accident insurance; 12% for fire insurance; 7% for sea transport; 5% for reinsurance; and 10% for unclassified types.

Estimated profit method

Under the estimated profit method, taxable income is determined directly by the Ministry of Finance based on a field audit of the taxpayer; the taxpayer is not required to file a tax return. The estimate is based on both financial and non-financial information that the taxpayer must make available to the tax authorities, which may take into consideration the taxpayer’s life style, the number of houses or apartments he or she owns, etc. The estimate is valid for three consecutive years.

Capital gains

Capital gains arising from the disposition of immovable assets are taxed at a rate of 10%.

Family abatement

The Family abatement is that individual taxpayers can deduct from their income under Article 31 of the Income Tax Act.
Single individual 7.5 Millions lbp
Married couple (spouse does not work) 10 Millions Lbp
Married couple (spouse works) 7.5 Millions Lbp each
Children 500 Thousands Lbp per child until 5 Children

Tax rates

The tax rate depends on the legal status of the taxpayer:

Corporations, joint stock companies and limited liability companies are subject to a flat rate of 15%.

Other entities, such as sole proprietorships, partnerships and professions, are subject to a progressive rate structure after deducting the related Family Abatement
as per the following Tax Schedule rate: