Worldwide VAT, GST and Sales Tax Guide
legal entity (subject to certain exceptions) and would be subject to the VAT laws and regulations outlined in this guide.
Non-established businesses. A “non-established business” is one that has no fixed establishment in Lebanon. A non-established business must register for VAT if it makes taxable supplies in Lebanon. This is the case even where the supplies are made to a VAT-registered customer in Lebanon.
Tax representatives. A non-established business must appoint a tax representative resident in Lebanon before it makes any supplies of goods or services in Lebanon, regardless of its expected level of turnover. The tax representative is jointly and severally liable for the payment of all VAT liabilities and penalties with the non-established business that it represents. The tax representative is solely responsible for complying with all the other provisions of the Lebanese VAT law.
Reverse charge. The reverse charge is a transfer of liability to account for and pay the VAT on imported services from the person providing the service (the supplier) to the person receiving the service (the recipient). If services are being supplied to Lebanon by a foreign non-established entity that has no agent in Lebanon to a Lebanese registered entity (i.e., a business-to-business [B2B] supply) and the supply of services is being consumed in Lebanon, it is the responsibility of the Lebanese taxable person to account for the VAT amount due on the service and declare it to the VAT department.
Domestic reverse charge. There are no domestic reverse charges in Lebanon.
Digital economy. There are no specific VAT rules regarding the digital economy in Lebanon. However, where a non-established business is selling digital services (e.g., electronically supplied services) to a Lebanon resident (i.e., business-to-consumer [B2C] supply), the non-established business is not considered to be performing services in Lebanon. As such, the non-established business is not required to appoint a tax representative in Lebanon and is not required to register for VAT in Lebanon. Subsequently, no VAT is accounted for on the supply of digital services. The customer cannot self-account for the VAT due because it is a consumer, not a business (i.e., B2C not B2B supply). Therefore, no VAT is accounted for digital services.
At the time of preparing this chapter, this is a scenario that the Lebanese tax authorities have not addressed, and as such, there is no mechanism to declare VAT on supplies of digital services.
For other e-commerce supplies, such as imported goods, VAT is cleared at customs and there is no requirement for the supplier to register with the directorate of VAT.
At the time of preparing this chapter, no special VAT rules have been introduced (or announced by the tax authorities) for e-commerce supplies.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Lebanon.
Registration procedures. A taxable person registering with the DVAT is required to manually complete hard copies of the necessary registration forms (K1-1, K11-1 and K12-1), along with other required documents (this includes a copy of the commercial register, the company’s article of association, a detailed statement of the turnover number during the quarters preceding the date of submission, a pledge on the first VAT taxable supply and a copy of the first invoice that includes the delivery of taxable goods or services, a copy of the identity of the concerned person or a legal proxy to the company’s agent) and submit them in person or by email to the DVAT within two months from the last day of the quarter in which the obligation to register arose (in the case of mandatory registration). The DVAT takes an average of one week to complete the registration.
Deregistration. A taxable person that ceases to carry on business in Lebanon must cancel its VAT registration within two months from the cessation of taxable supplies. A taxable person whose turnover falls below the compulsory registration limit may also deregister within two months
following the end of the calendar year in which the turnover fell below the VAT registration threshold.
A taxable person that is registered voluntarily may at any time request deregistration if its annual turnover does not exceed the compulsory VAT registration threshold.
Changes to VAT registration details. If there is a material change in a taxable person’s VAT registration details, this must be communicated to the tax administration within two months of the date of change in the commercial register by manually submitting Form M4. Material changes may include name, address, type of activity, etc.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 11%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods and services, unless a specific measure provides for a zero rate or an exemption.
Examples of goods and services taxable at 0%
• Exported goods
• Exported services
• International transport (from/to Lebanon)
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Postal services and stamps
• Education
• Insurance
• Financial services
• Transfer of real estate
• Medical services and equipment
• Precious metals and precious and semiprecious stones
• Betting and gaming
• Collective transport of persons
• Agricultural activities and products, including livestock, seeds, animal feed and pesticides
• Books, newspapers and magazines
• Basic foodstuffs and baby food
• Diesel oil
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Lebanon.
E. Time of supply
The time when VAT becomes due is called the “time of supply” or “tax point.” The tax point is the earliest of the following events:
• When the goods are delivered, or the services are performed.
• When the consideration is paid, if this occurs before the goods are delivered or services are performed.
• When the invoice is issued, if this occurs before the goods are delivered or services are performed.
The time of supply for imported goods is when the liability to pay customs duties arises, that is, either on the date of importation or when the goods leave a duty suspension regime.
A Lebanese resident who uses a service in Lebanon that is acquired from outside of Lebanon must account for VAT via the reverse charge on the service and pay VAT due to the tax authorities. The tax point is when the service is received, and the consideration is paid. The Lebanese VAT law does not differentiate between companies and individuals. However, in practice, individuals do not self-account for the VAT and no VAT is charged on the supply.
Deposits and prepayments. For supplies of deposits and prepayments, if, before the date of delivery of goods and services, the price has been partly or wholly paid by the customer, then the VAT is due at the date of payment based on the value of the amount paid.
Continuous supplies of services. For supplies of continuous supplies of services, the VAT is due on the earliest of either the invoice issuance or payment.
Goods sent on approval for sale or return. There are no special time of supply rules in Lebanon for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).
Reverse-charge services. There are no special time of supply rules in Lebanon for supplies of reverse-charge services. As such, the normal time of supply rules apply (as outlined above).
Leased assets. VAT on leased assets classified as operational leases is payable upon payment of each installment. If the asset is transferred to the lessee at the end of the lease term, the VAT is computed based on the purchase price.
The time of supply differs if the asset is classified as a financial lease, under any of the below criteria:
• Ownership transfers at the end of the lease (upon final payment or required buy out)
• Written option for bargain purchase
• The present value of the lease payments is equal to or more than 90% of the fair value of the leased property
• The lease term is equal or greater than 75% of the asset’s economic life
Where any of these criteria apply, VAT is due upon the earlier of effective receipt of the asset, issuance of an invoice or payment of an amount.
Imported goods. VAT is paid at customs at the time of importation and clearance of goods.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is the VAT charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from its output tax, which is the VAT charged on supplies made.
The time limit for a taxable person to reclaim input tax in Lebanon is four years.
Input tax includes VAT charged on goods and services supplied in Lebanon and VAT paid on imports.
A valid tax invoice or customs document must generally accompany a claim for input tax.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for some items of business expenditure.
The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is related to taxable business use.
Scope of electronic invoicing. There is no requirement in Lebanon for taxpayers to issue invoices to any recipients in electronic format. Taxpayers may issue e-invoices for commercial reasons if they wish, but the invoices must meet certain criteria (e.g., readability, reliability, a stamp) and the original hard copy should also be maintained and be available.
Simplified VAT invoices. Simplified invoices can only be issued when issuing a regular invoice is impractical, e.g., for most retailers, noting that prior approval from the Ministry of Finance should be obtained beforehand and a regular formal invoice should always be prepared based on the client’s request.
Self-billing. Self-billing is required in Lebanon according to the provisions of Article 8 of the VAT law, if the use of products or services of the company is for nonbusiness purposes or the sale of products is without any proceeds. Depending on the case, taxable persons are required to either impose output tax at the market value of the service/product or adjust the deduction of related input tax.
Proof of exports. Lebanese VAT is not chargeable on supplies of exported goods – such supplies are zero-rated. However, to qualify as zero rated, an export supply must be accompanied by official customs evidence and port clearance documents, stating that the goods have left Lebanon.
Foreign currency invoices. When the value of goods or services is set in a foreign currency, the taxable person should calculate the conversion value of the VAT in the domestic currency, which is the Lebanese pound (LBP), by exchanging the foreign amount to LBP according to the “Sayrafa” exchange rate at the date of transaction. Sayrafa is a platform controlled by the Central Bank of Lebanon.
Supplies to nontaxable persons. A taxable person must issue invoices compliant with Article 38 of the VAT law even if the supply of goods or services is provided to a nontaxable person (B2C). However, a taxable person that is not able to issue invoices in compliance with Article 38 of the VAT law (i.e., supermarkets) should obtain a special approval from the tax authorities to issue simplified invoices.
Records. In Lebanon, examples of what records must be held for VAT purposes include trial balance, general ledger, journal vouchers, contracts and any other supporting documents.
In Lebanon, VAT books and records must be held within the country. Records must be held at a taxable person’s place of work or place of residency. The records must be properly preserved to avoid any damages and they must remain readable.
Record retention period. Taxable persons must retain the records, invoices and other accounting documents for a minimum of 10 years.
Electronic archiving. Electronic archiving is allowed in Lebanon. Taxable persons can maintain records electronically, but if requested by the tax authorities in paper form at a later stage and in the case of a tax inspection, then they will have to provide them in the mentioned form.
I. Returns and payment
Periodic returns. Lebanese VAT returns are submitted for quarterly periods. VAT returns must be filed within 20 days after the end of each quarter.
Periodic payments. Payment of VAT due is required in full by the same deadline as the VAT return, i.e., within 20 days after the end of each quarter VAT liabilities must be paid in Lebanese pounds. Once the VAT return is submitted on the Ministry of Finance online portal, the online payment form should be extracted, and the payment should be processed through bank transfer to the DVAT bank account number.
Electronic filing. Electronic filing is mandatory in Lebanon for all taxable persons. To do so, the taxable person should register online and create an account with the DVAT through the Ministry of Finance’s website (www.finance.gov.lb).
Payments on account. Payments on account are not required in Lebanon.
Special schemes. No special schemes are available in Lebanon.
Annual returns. Annual returns are not required in Lebanon.
Supplementary filings. No supplementary filings are required in Lebanon.
Correcting errors in previous returns. An adjusted VAT return should be submitted on the Ministry of Finance online portal. There is no time limit for submitting amended returns. Penalties that may apply can be charged on a monthly basis, as outlined in Section J. Penalties below. However, if the amended tax return was submitted within 30 days from the original deadline, no false declaration penalty should apply if the additional tax does not exceed 10% of the tax that was initially due.
Digital tax administration. There are no transactional reporting requirements in Lebanon.
J. Penalties
Penalties for late registration. Late registration for VAT triggers the following penalties:
• LBP2 million for joint stock companies
• LBP1 million for limited liability companies
• LBP300,000 for sole proprietorships and other taxable persons
Penalties for late payment and filings. A penalty is charged for the late submission of a VAT return at a rate of 10% of the tax due for each month or part of a month that the return is late. The minimum penalty is LBP6,750,000 for joint stock companies, LBP4,500,000 for limited liability companies and LBP750,000 for other taxable persons, and the maximum penalty is 100% of the tax due. For these purposes, a fraction of a month is a whole month.
A penalty is charged for late payment of tax at a rate of 3% per month or part of a month that the tax is unpaid.
Penalties for errors. Penalties apply to a range of VAT errors and offenses, including the submission of incorrect tax returns (penalty is 20% of the difference between the tax due and tax paid), the issuance of incorrect VAT invoices (penalty is 25% of the tax due on the invoice), the issuance of VAT invoices by unregistered taxable persons (penalty is three times the VAT amount in the invoice).
The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details within the prescribed period may result in the following penalties (per return):
• LBP200,000 for joint stock companies
• LBP100,000 for limited liability and sole proprietorships companies
• LBP50,000 for individuals and other taxable persons
For further details, see the subsection Changes to VAT registration details above.
Penalties for fraud. Penalties for fraud vary between LBP1 million and LBP30 million or imprisonment that could vary from six months to three years, and if the tax fraud is repetitive, both sanctions would be applicable. In addition to these sanctions, a penalty varying between 20 to 30 times the amount of tax may be applied.
In addition to the above, the below governs the penalties imposed in the case of obstruction of tax control measures.
For each taxable person who refrains from presenting the accounting records and supporting documents for the submitted returns or refrains from booking certain accounting transactions, a penalty of 50% from the tax due is imposed. The minimum penalty is LBP750,000 for joint stock companies, LBP500,000 for limited liability companies and LBP100,000 for other taxable persons.
To collect taxes, the tax authorities have the privilege to access the taxable persons’ funds. The privilege also encompasses the funds of the persons held responsible at the company.
Under certain conditions, the tax authorities have the right to issue a decision to withhold the taxable persons’ funds in case the latter declines to settle their taxes.
Personal liability for company officers. The general manager of a limited liability company, the chairman and/or the general manager in a joint stock company can be held jointly liable with the company for the taxes resulting from failure to meet the company’s tax obligations and for undertaking or performing acts leading to tax evasion, if proved by a court ruling.
Statute of limitations. The statute of limitations in Lebanon is five years. This time limit is applicable to the tax authorities to carry out inspections and taxable persons to submit revised VAT returns (also within the years that are still open for any tax inspections being carried out). However, at the time of preparing this chapter, due to the current situation in Lebanon and the COVID-19 pandemic in 2020, the Parliament issued several laws to suspend certain obligations and deadlines. As such, financial years from 2018 and onward are still subject to inspection.