Lebanon has traditionally been a country open to foreign direct investment. Over the last three years, the GOL passed several laws and decrees to encourage investment. There is no specific legislation on foreign investments, but all aspects of setting up a business are governed by the Lebanese Commercial Code and Regulations and the Investment Development law n° 360 of 16 August 2001. A foreigner can establish a business under the same conditions that apply to a Lebanese national, provided the business is registered in the Commercial Registry. A foreigner must first obtain residence and work permits before registering his or her business. There are no sector-specific laws on acquisitions, mergers, or takeovers, except for bank mergers.
Lebanese law does not differentiate between local and foreign investors, except in the area of land acquisition. Several types of companies can be created: joint stock companies (Société Anonyme Libanaise - SAL), limited liability companies (Société à Responsabilité Limitée - SARL), partnerships limited by share (Société en Commandite par action - SCPA), holding companies, offshore companies, partnerships, joint ventures, or agencies/branches of foreign companies.
For limited companies (SARL), minimum capital of LBP5 million (USD 3300) must be wholly paid in before registration. At least half of the administrators must hold Lebanese nationality. Banking, insurance and air transport activities cannot be registered as SARL companies. A joint stock company (SAL) must have a minimum of three shareholders and capital of at least LBP30 million (USD 20,000), with one-fourth paid in by the time of registration. A majority of board members must be Lebanese citizens. These two kinds of company pay 15 percent tax on corporate profits. For commercial representation, SAL capital must consist of registered shares held mainly by Lebanese stockholders and 2/3 of capital in a limited liability company must be held by Lebanese nationals. In the case of a subsidiary company, capital must be held mainly by Lebanese nationals and authorisation from the Council of Ministers is required. In the areas of banking, insurance, capitalisation, savings, capital placement and air transport, limited liability company status is not an option. Branches and subsidiaries of foreign companies set up in the form of SAL or limited partnerships as well as foreign insurance companies must, in addition to the usual procedures, obtain authorisation from the Ministry of Economy and Trade. It should be noted that holding companies, which must have the legal status of a Lebanese limited company, is exempt from income tax as well as tax on distribution of profits.
An offshore company can have its headquarters either in Lebanon or abroad, but by definition it operates outside the country. Offshore companies are structured like joint stock companies. However, there is an additional documentation requirement for a bank guarantee in the amount of LBP 100,000 ($660), automatically renewable, as security against payment of annual taxes. Offshore companies, like holding companies, receive special tax treatment due to their limited status as well as abatement of 30 percent of taxes on foreign employees’ wages. Law N296 of 3 April 2001, which amended a 1969 law (N11614), governs foreign acquisition of property. The new law eased legal limits on foreign ownership of property (meant to encourage investment in industry and tourism), abolished discrimination between Arab and foreign nationals with regard to property ownership, and lowered real estate registration fees from six percent for Lebanese and 16 percent for foreigners to five percent for both Lebanese and foreign investors. The law permits foreigners to acquire up to 3,000 square meters of real estate without a permit and foreigners can acquire more than 3,000 square meters with Cabinet approval. Cumulative real estate acquisition by foreigners is not to exceed 3 percent of total land in each district. Cumulative real estate acquisition by foreigners in the Beirut region is not to exceed 10 percent of total land area. The law prohibits acquisition of property by individuals not holding an internationally recognized nationality. This is relevant primarily to Palestinian refugees residing in Lebanon.
A 2001 law on investment promotion was enacted to promote opportunities and encourage investment in the fields of industry, tourism, agriculture, and food processing industries, marine resources, media, and information technologies. It established a "one-stop shop" service at the Investment Development Authority of Lebanon (IDAL) to facilitate procedures and better assist investors. However, these measures have had limited impact so far on competitiveness and administrative procedures for doing business are still too lengthy and burdensome. There are no special financial provisions for or constraints on foreign investors except that certain restrictions exist on foreign ownership of banks and companies involved in media activity, land ownership, and the employment of foreign labour. Lebanon’s membership in the Multilateral Investment Guarantee Agency (MIGA) is a means of building confidence among potential foreign investors. In addition, the National Institute for the Guarantee of Investments makes insurance coverage available to investors, providing compensation for losses resulting from non-commercial risks. Commercial and civil companies must register at the Civil Companies Registry at the Court of First Instance. Foreign companies can operate in Lebanon either as a branch or as representational office, both of which must register and obtain a license in order to do business.
The national preference for recruitment of Lebanese staff applies to trade and the exercise of certain activities (public office, bank clerk, waiter, hairdresser, engineer, etc.) is reserved for citizens of Lebanon. This is also the case for retail and distribution, television and radio, armaments and all strategic activities related to national security, all off limits for foreigners. In the newspaper industry, licences are granted only to Lebanese residing in Lebanon. In banking, capital must be held mainly by Lebanese nationals. Moreover, the acquisition of shares requires the prior authorisation of the Central Council of the Bank of Lebanon. Companies are subject to 15 percent tax on profits. All interest, dividends, and arrears are subject to a 10 percent tax rate. Special provisions and exemptions apply to holding companies and offshore companies. The new 2001 Investment Development Law, which divides the country into three investment zones, also provides for tax exemptions. A system of excise duty is applied.
VAT was introduced on 1 February 2002, replacing several pre-existing taxes. It applies to both domestic and imported products, at a single flat rate of 10 percent. The law foresees exemptions for several categories of goods and refund schemes have been set up applying, for example, to tourists and foreign businesses. A VAT Directorate was created within the Directorate General of Finance. Tax exemptions are available to companies located in the nine free trade zones (of which Beirut and Tripoli are already operational) and tax exemptions are granted to educational establishments, farmers, and airline and maritime companies.
The Lebanese government recognises the importance of foreign investment and is actively working to provide a more conducive environment that enables investors to bring or establish their operations in Lebanon. Within this framework, Investment Development Law 360 empowers IDAL to offer a wide range of investment incentives, depending on the qualifications and criteria for each project. With respect to the Investment Development Law, IDAL categorises investment projects according to geographic location, sector, investment cost, and other criteria. Sectors include industry, agriculture, agro-industry, tourism, information technologies, telecommunications technologies, and media. The new Investment Development Law 360 of 2001 divides Lebanon into three investment zones: A, B and C. Incentives for investment projects are based on the investment zone in which the project is classified. Projects in zone A will benefit from exemption from income tax for two years (from the date on which shares are listed on the Beirut Stock Exchange), provided that the negotiable shares represent no less than 40 percent of overall company capital. Projects classified in zone B will be exempt from income tax for two years from the date shares are listed on the Beirut Stock Exchange, provided that the negotiable shares are no less than 40 percent of overall company capital. This exemption period is in addition to any other exemption period for which the company qualifies and an additional 50 percent reduction in income taxes and taxes on project dividends is provided for a period of five years. Projects classified in zone C (areas that the government intends to develop) will benefit from exemption from income tax for two years (from the date its shares are listed on the Beirut Stock Exchange), provided that the negotiable shares constitute no less than 40 percent of overall company capital. This exemption period will be in addition to any other exemption period enjoyed by the company. They also benefit from a full 10-year exemption from income tax and taxes on project dividends, the reduction applying from start-up of operations as governed by the terms of this law. If an investor qualifies for the above-mentioned exemptions (tied to listing on the Beirut Stock Exchange), any applicable reduction will kick in following the end of the period of exemption.
New provisions were included in the 2003 law, extending these advantages to investments with particular economic impact on social and environmental issues, technology transfer or provision of technical training, the establishment of research & development centres and/or development of software and hardware for ICT projects. The Package Deal Contract is a grouping of special incentives, exemptions and reductions available to investment projects, bound by a contract stipulating the specific terms, rights and obligations of both IDAL and the investor. Projects benefiting from the package deal will be granted full exemption of profits from income tax for a period of 10 years from start-up of project activities. Foreigners can obtain work permits provided that the interests of the local labour force are covered by employing at least two Lebanese nationals for each foreign employee. A 50 percent reduction in fees is applied on foreign labour work and residence permits. Joint-stock companies planning to implement and/or manage an investment project are exempt from the obligation of having Lebanese nationals or members of the legal profession on their board of directors. They also benefit from a reduction of up to 50 percent on construction permit fees for project facilities and full exemption from fees related to land registration, provided that project operations begin within five years.
Other laws and legislative decrees provide for tax incentives and exemptions, depending on the type of investment and its geographic location. Industrial investments in rural areas qualify for six or ten-year tax exemptions, depending on specific criteria (law no. 27 dated 19 July 1980, law no. 282 dated 30 December 1993 and decree no. 127 dated 16 September 1983). Exemptions are also available for investment in southern Lebanon, Nabatiyah and the Biqa (decree no. 3361 dated 7 July 2000). For example, new industrial establishments manufacturing new products are eligible for a 10-year exemption from income tax. Factories currently located on the coast that relocate to rural areas or southern Lebanon, Nabatiyah and the Biqa qualify for a six-year exemption from income tax.
The Government grants a tax reduction of 5 percent on dividends, applicable to: (a) companies listed on the Beirut Stock Exchange (BSE); (b) companies that open up 20 percent of their capital to Arab companies listed on their national stock exchange or foreign companies listed on a stock exchange in an OECD country; and (c) companies that issue GDRs (Global Depository Receipts), with a minimum 20 percent of shares listed on the BSE. Exemption from customs duty is available to industrial warehouses dedicated to export. Companies located in the Beirut Port or Tripoli Port free zones benefit from a 10-year corporate tax holiday and are not required to register their employees with the social security service as long as they provide equal or better benefits.
Foreign-owned firms have the same investment opportunities as Lebanese firms. Lebanon has two free zones in operation: Beirut Port and Tripoli Port. Reconstruction of a 120,000 square meter free zone at the Port of Beirut has been completed and a 6000 square meter bonded warehouse facility is now available. The new, WTO-compatible customs law issued by decree no. 4461 dated 15 December 2000 fosters the development of free zones.
Lebanon has adopted legislation on intellectual property and royalties in conformity with WTO requirements.
Friday 16 February 2007, by AFII - ANIMA