The Lebanese tax system is known for its moderate rates and incentives to encourage investment. A new tax law, reducing the tax rates on income and business profits, was promulgated on December 30, 1993. Entities are submitted to a tax system based on their legal form.

* Taxable Entities

Individual firms: The realized profit is treated as a personal income subjected to progressive tax rates, even if such profit is reinvested in the company.

Partnerships: Each partner is jointly and indefinitely liable for the partnership’s debts. Profits and losses are divided in proportion to each partner’s contribution. Profits are deemed to be distributed and are taxable progressively in the hands of each member in proportion to his interest in the partnership.

Corporations: Taxes are imposed on corporations’ profits before and upon distribution.

Incidence of the Company’s Size on its Tax System and Territoriality of Income Tax Companies’ profits are assessed in different ways, depending on their size and the importance of their activities. The law provides for three assessment methods - real profit basis, lump sum profit basis, and estimated profit basis.

Different rules are used for computing the tax liability on each category of revenue. The categories are industrial and commercial profits; non-commercial profits; income from movable assets; and income from developed property.

Income realized in Lebanon, or income deriving from an activity performed in Lebanon, is subject to tax. Foreign companies are liable to Lebanese income tax if one of the following conditions is met:

They have permanent establishment;
They realize profits in Lebanon through a dependent representative;
or They realize a complete commercial cycle in Lebanon.

* Tax exemptions

The Lebanese tax system has instituted tax exemptions on certain activities or income. There are two types of tax exemptions - permanent(granted for activities like educational establishments, farms and agricultural establishments, air and sea transport navigation, and holding and offshore companies) and temporary (for newly established industries, self-financed investments, and banks of long and medium term credits).