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A - Sole Proprietorships & Partnerships:
1- Sole Proprietorships:
- Sole Proprietorship is the case of a merchant practicing alone, with or without the help of elements invested for a specified project. Elements: Commercial name, patents, trademarks, clientele, location, products… - Registration at the Commercial Court of the district in which they intend to start with their business. - In case of foreigners, they must obtain a work and residence permit. - Declaration in front of the Ministry of Finance of the commencement of activities, within 2 months starting from date of registration. - No capital required, and investor is considered as merchant, meaning abiding to the Commercial Law. - No need to appoint a lawyer based on annual fees. 2- Partnerships: - No minimum capital, and could be entirely composed of expertise contributions. - No restrictions on foreign involvement. - Registration must take place during one month from formation date. - No need to appoint a lawyer based on annual fees. Two types of Partnerships: 2- a - General Partnerships (GP): - Formed by two or more persons. - Partners are personally and jointly responsible for companies' debts & obligations. - Parts are not negotiable. - Managed by one or more partners, or third party, designated in the articles of association or subsequent agreement. - Insolvency of the company directly leads to insolvency of partners. Partners are merchants, and foreclosure procedures on the company will attain their personal belongings. It is the traditional type of companies, and presenting an important guarantee for creditors. - In case the entity is not specified by type (either by law or agreement), it will be considered as a General Partnership, acting as the "implicit company". 2- b - Limited Partnerships (LP): We mean by Limited Partnerships, companies that are composed of General Partners & Limited Partners. 2- b-1 – General Partners: General Partners are in charge of the management of the company, and found under the same regulations of General Partnerships (Please refer to section: 2 a). 2- b-2 – Limited Partners: Limited partners are non- merchant silent partners, responsible for their obligations not exceeding their respective capital contribution. Hence, they are prohibited to undertake management positions, and are strictly restricted to control attributions. In case one of the Limited Partners acts like a General Partner, taking for example over management positions, he will be treated as the latter. The death of one of the partners in a General Partnership, will promptly changes the company into a Limited Partnership, and the heirs will take the place of Limited Partners, unless it was agreed differently. B – Limited Liability Companies (LLC): - Should be composed minimum of 3 partners till maximum 20 (case of inheritance, it cannot bypass 30 partners), or else it has to change to a Joint Stock Company. - Partners could be 100 % foreigners, except in for companies acting as commercial or exclusive representatives. (49%) - Minimum capital is 5,000,000 LP (3333.33 USD), fully paid upon formation. - It is the company that undertakes small and medium investments. It is also suitable for a family business. - Requirements: A legal reserve of 10% of profits, up to 50% of capital should be established. A statuary auditor should be designated by the partners, in case the minimum capital is exceeded. - All activities are possible, except for banking, insurance, media companies, air transportation, leasing and financial institutions. - The capital is divided into parts rather than shares. The company cannot issue negotiable or nominative certificates, stocks, bonds or shares. - Partners are responsible for their obligations not exceeding their respective capital contribution. They are not merchants, and; insolvency of the company does not lead to insolvency of the partners. - Transfer of parts requires, for passage, three quarters of the capital. - Corporate income tax: 15 %, tax on dividends: 10 %. - Declaration to the Ministry of Finance must be done within two months, starting from date of registration. - The company should appoint a lawyer, based on annual fees, determined by the B.A.R. C – Joint Stock Company (JSC): - Should be composed of at least 3 members - Minimum capital: 30,000,000 LP (20,000 USD), divided into negotiable shares. - It is the company that undertakes big investments. - Requirements: Legal reserve of 10 %, up to 1\3 of capital is to be established. - Board of directors: 3 to 12 members, Chairman could be a foreign national, but majority must be Lebanese. Directors are appointed by the general assembly of shareholders, for a maximum period of three years. Directors must be shareholders. - They can be engaged in any type of activity. - Shareholders are responsible for their contribution in the capital. They are not considered as merchants. - Except for media companies, real estate companies, banks, leasing, commercial representation and financial institutions, there are no limits on the amount of capital that can be held by foreign investors. - The JSC is subject for income tax 15% and tax on dividends 10%. - The company should appoint a lawyer, based on annual fees, determined by the B.A.R. D- HOLDING Company: - A HOLDING Company is a Joint Stock Company, abiding to same rules as the latter. - First introduced in 1983, by Decree n.45 of 24 June 1983. - It is the company that cannot work unless through other companies. - Activities are restricted by Law, and could be briefed as: 1) acquisition of shares in other companies, 2) management of companies in which shares are owned, 3) provision of credit to subsidiaries and associate companies, 4) acquisition and leasing of patents and trademarks and 5) acquisition of fixed and movable assets if required for operations. Minimum capital of 30,000,000 LP (20,000 USD), and could be issued in foreign currency. - HOLDINGS are exempted from Corporate Income Tax & from withholding tax on dividends. However, they are subject to a tax on their paid up capital and reserve, levied at the following rates: Up to 50,000,000 LP (6 %), up to 80,000,000 LP (4%), and 2 % for what exceeds. In any given tax year, total tax payments are capped at 5,000,000 LP. - Two Lebanese are only required to take part in the Board of Directors, and majority of Board may be foreign, as well the Chairman of the board. The Chairman does not require a work permit, provided that residence is outside Lebanon. - The company should appoint a lawyer, based on annual fees, determined by the B.A.R. E- Offshore Companies: - An Offshore Company is a Joint Stock Company, abiding to same rules as the latter. - First introduced in Decree n.46 of June 24 1983. - It is the company that cannot make profit inside Lebanon. - Minimum capital of 30,000,000 LP (20,000 USD), and could be issued in foreign currency. - With the exception of its more limited business objectives and different tax position, a Lebanese Offshore Company is governed by same rules as a HOLDING Company. Meaning, it may be majority foreign-owned and include foreign nationals on its board. - Activities are restricted by law, and prohibit any activity to be executed in or through the Lebanese territory. Agreements could only be signed in Lebanon, but execution should take place outside. - They can place goods in Free Zone Districts and Custom warehouses ready for export, but could never be imported. - They can acquire properties in Lebanon, but should be subject for limits stipulated for acquisition of non-Lebanese, and should be for company purposes, having no profits out coming from the property, meaning, for example, it could not be subject for rent. In case fixed assets are sold, the company is submitted to a 10% tax on profit. - Exempted from inheritance taxes, in case the company owned a property. - They can hire employees, and are submitted to tax on salaries. In case of foreign employees, they are exempted up to 30 % of the basic salary. - They can prepare studies and consultancy assignments for companies based outside Lebanon. - They can have accounts in local banks, as well benefit from interest rates. In this case, tax on interest income is submitted for 5%. - They are exempted from income tax and tax on dividends, but should pay a lump-sum annual tax of 1,000,000 LP. (666 USD). - Contracts related to their activities outside Lebanon are exempt from Lebanese stamp duty of 3 USD / 1000 USD. - In case the capital exceeded 50,000,000 LP (33,333 USD), the company should appoint a lawyer, based on annual fees, determined by the B.A.R. F- Branch & Representative Offices: Branches and representative offices are highly chosen in case of expansion. Not to forget exclusive agencies and distributors. 1- Branch Offices Foreign companies are allowed to open branch offices in Lebanon. For sure, the activity that the foreign company wishes to attend in Lebanon should be mentioned in its Article of Association. Meaning, it is prohibited to open a branch dealing with agricultural goods, when the mother company exclusively deals in promotions & marketing strategies No minimum capital is required, and should be registered at the Commercial Court and Ministry of Economy. The representative could be a foreign person, obtaining a work permit and residence for that purpose. Net income derived from a branch's operations in Lebanon is subject to Lebanese business income tax, levied at a rate of 15%. 2- Representative Office: Foreign companies may open a representative office in Lebanon. They cannot be engaged in any commercial, industrial or financial activities. They are allowed to promote their goods and services in the local market. Registration should take place at the Ministry of Economy; however it is not required at the Commercial Court. They are submitted to pay a 15% income tax. We clear that if the representative office, including remittances from the head office, is carefully planned; the office is unlikely to pay any tax than income tax on salaries. 3- Exclusive agencies and distributors: In that case, the agent acts in monopoly for selling a service or product, and no other agent can sell or compete with the same product or service. In order to benefit from such advantage, the exclusive agreement should be registered at the Commercial Court and Ministry of Economy. That way, it is declared to third parties. Registration costs are 500 USD, and a yearly fee should be paid to the Ministry of Economy (333 USD). Almost all important foreign brands in the Lebanese market are dealt with through Exclusive agents or distributors. It is reported that around 600 International Brands are introduced into Lebanon through Exclusive Contracts, recruiting around 30,000 employees. In case the agent was a LLC, majority should be of Locals, as well the manager. In case it was a JSC, two thirds of the Board of Directors and majority of the shareholders should be of the Locals. However, in other Middle East regions, foreign contributions are highly restricted. Check the below tables, in order to calculate governmental costs that will be faced. (Exchange rate: 1,500 LP = 1$) Business Tax Rates – Private Entities – Sole Proprietorships & Partnerships (GP& LP)
Business Tax Rates – Private Entities – LLC & JSC
Personal Income Tax (ex: salaries)
Social Security Contributions
Our Publication was achieved thanks to research and applied experience. We hope we cleared out what is needed to be known about Business Entities. This article is the intellectual property of H&H , and should under no circumstances be reproduced or copied without their prior consent. |
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Simplifying Business Entities – Types, Benefits & Costs.