Tax changes for the oil and gas sector
Coming soon, Lebanon’s government is expected to issue new decrees on the application of the Petroleum Law no. 132 are expected to be issued. The Ministry of Finance is also developing new tax laws for the oil and gas sector in Lebanon. KPMG in Lebanon understands that the Ministry of Finance will recommend a different treatment for such companies from the current tax law, for both income tax and value added tax (VAT) purposes.
Round-up of 2014 tax rulings and laws to date
Numerous important tax rulings and tax laws were published in the Official Gazette from 1 January 2014 to date. The most important features of these changes, which apply from their publication date, are summarized below.
New tax declaration forms
A recent decision2 requires new tax declaration forms for tax declarations on income from moveable assets (i.e., under Chapter 3) submitted on paper or electronically with supporting documents as of 1 July 2014. This decision replaces tax declaration forms released in 2011 and 2013.3
New list of VAT accounts for recording transactions
VAT accounts have been added to appendix 2 of the Lebanese Chart of Accounts.4 As of 1 July 2014, these accounts must be used by taxpayers who are registered or not at the VAT Directorate as follows:
- All registered taxpayers must record transactions as per new VAT accounts for each supplier and each customer and for expense and revenue categories in relation to the company’s activity.
- All unregistered taxpayers who deal with taxpayers who are registered at the VAT Directorate must record transactions as per new VAT accounts (i.e., 44212, 44215, 44218).
VAT exemption for financial services
Banking and financial services provided only by banks, financial institutions and similar financial intermediary entities authorized under a license from the Central Bank of Lebanon are exempt from value-added tax.5 Financial services provided by a Lebanese holding company can also benefit from this exemption, for example, on:
- sale of shares/parts in its resident or non-resident subsidiaries
- interest resulting from loans given to its subsidiaries.
Other activities of the banks, financial institutions and Holding remain subject to VAT as stipulated by the VAT Law.
Reduction of penalties
A recent decision6 allows the Minister of Finance to reduce the penalties imposed and collected under direct and indirect tax laws (i.e., income tax, built-property tax, and inheritance tax, value-added tax and stamp duties).
The penalties for late filing, proportional or lump-sum, are reduced respectively by 85 percent or 60 percent until 30 September 2014, as long as the value of penalty after reduction in one tax period does not fall below 50,000 Lebanese pounds (LBP). Excepted from this reduction are:
- penalties for which reduction is subject to special laws
- penalties for which reduction is prohibited by special laws
- penalties with a value below LBP50,000
- penalties not settled after reduction with the due tax/fee within the fixed period
- penalties with a value over LBP1 billion in one tax period after reduction and thus is subject to the approval of the Council of Ministers (this exception extends to violations occurring to 15 March 2014).
Penalties for late payment imposed on the tax violations that should have been declared by 15 March 2014 are reduced by 75 percent, provided all taxes and penalties for late filing are settled by 30 September 2014. In these cases, the tax declaration should include:
- the type of the penalty
- whether the penalty is proportional or a lump-sum or repetitive
- whether the penalty can be settled as per this decision
- whether the penalty is meets the minimum LBP50,000 threshold.
The taxpayer’s right to this reduction is lost if the reduced penalty and the due tax are not paid during the fixed period. It is expected that these deadlines will be extended.
Exemption for industrial export profits
Under a new law,7 profits resulting from industrial exports of Lebanese origin are exempt from 50 percent of due income tax. Certified country of origin documentation is used as a proof and customs forms are used to confirm the value of the exports.
Excluded from this law are entities investing in resources located underground and specific entities identified by both the Ministers of Industry and Finance. The application of this law is to be issued later through a decision from the Minister of Finance.
Loss carry forward period
Under a new law, losses arising in years 2003 and 2004 can be carried forward for 1 extra year in addition to the 3 years provided by law, allowing a total carry forward period of 4 years. Losses arising in years 2005, 2006, 2007 and 2008 can be carried forward as follows:
- for 7 additional years (10 years in total) after the year in which the deficit occurred for companies that incurred losses because of the war between 12 July and 14 August 2006 or other terrorist acts
- for 4 additional years (7 years in total) after the year in which the deficit occurred for other taxpayers.
The value in the existing or new books and tax declarations should be considered in estimating these losses. The application of this law, including tax differentials, will be issued later through a decision from the Minister of Finance.
Maternity leave prolonged
Working women now have the right8 to 10 weeks of fully paid maternity leave on presenting their medical documentation, in addition to their annual paid holidays.
Social security – exemption and installments
A new law9 has introduced a new installment scheme for social security contributions that are due up to 31 December 2013. In order to benefit from the scheme, an application should be filed within 12 months starting 22 April 2014 and an amount equal to 5 percent of the social security debt must be paid up front.
The social security debt is split in equal installments as follows:
|60 – 120
|120 – 240
|240 – 360
|360 – 600
|600 – 1,200
Source: Law no. 269 dated 15 April 2014.
The social security debt to be paid is not subject to late payment or other penalties under the social security law. An annual 5 percent interest rate applies on the contribution due. The exemption from late payment penalties is not considered final until the entire social security debt is settled. Where three installments are not paid, the full amount of the social security debt becomes immediately due, along with all related penalties.
According to a new decision,10 taxpayers having a ‘virtual office’ – an office provided or leased by a third party with related services (e.g., secretariat, telephone, Internet, conference room) – should mention the term ‘virtual office’ in all commercial documents in addition to required documents and residence attestations for each part holder or shareholder, chairman and general manager.
Rental value of damaged property
After a renovation, the rental value of damaged or destroyed buildings because of war or terrorist acts should not change unless there is a new person renting the property or there is a change in the property’s use.11
Decision no. 135 dated 7 February 2014.3
Decision no. 18/1 dated 12 January 2011 and Decision 636/1 dated 3 June 2013.4
Decision no. 140/1 dated 11 February 2014.5
Decree no. 11359 dated 24 April 2014 amending Decree no. 7385 dated 27 February 2002 in application to Law no. 379 dated 14 December 2001.6
Decision no. 283/1 dated 21 March 2014 regarding the application of Law No. 662 dated 4 February 2005.7
Law no. 248 dated 15 April 2014.8
Law no. 267 dated 15 April 2014 amending Articles 28 and 29 of Labor Law dated 23 September 1946 and its amendments.9
Law no. 269 dated 15 April 2014.10
Decision no. 474 dated 19 May 2014.11
Instructions no. 664 dated 27 May 2014.