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VAT general principles

1. Scope of tax

  • Taxable persons:

The law provides that every person who carries a business in Lebanon and makes or intends to make taxable supplies is a taxable person.

Exception:

-         the public bodies acting as state authorities

-         the supply of lands

-         farmers

  • Taxable supplies:

The law provides that VAT will be levied on the value of:

-         goods and services supplied in Lebanon by any taxable person in the course of a business including goods that the taxable person may take from his business for his private use;

-         goods imported into Lebanon by any person, taxable or not.

 

  • Threshold:

The law provides that a taxable person becomes liable to VAT and to its obligations only when at the end of any quarter its turnover covering this quarter and the 3 previous quarters exceeds the threshold to be determined by the law (1 billion LBP).

The taxable turnover is composed by:

-         the total amount of the taxable supplies

-         and the total amount of the zero-rated supplies

The threshold does not apply at import.

 

2. Tate and coverage

  • Rate:

The law provides a rate of 10 %.

  • Exempted sectors:

The law provides for a list of exempted sectors:

    1. Exemptions improve the evolution and the progressiveness of the VAT since the exemptions are mainly for social and economical reasons.
    2. Some goods and sevices are “meritorious” meaning that they are supplied in the public interest, and therefore deserve to be tax free:

-         hospitals and treatment centers, and closely linked services

-         Education

-         Supply of services and closely linked supply of goods made by non-profit organizations.

    1. Some supplies of goods or services are, for administrative reasons, difficult to tax:

-         Banks: the major difficulty in applying BAT to the financial sector is taxing interest charges. Interest includes elements which reflect the risk of the loan, the real cost of capital, the inflation rate, and a charge for the service rendered. In principle, only the last should be taxed, but in practice it is impossible to separate out this taxable component of interest from the rest.

    1. Some operations are submitted to a specific tax and thus are exempted form VAT:

-         The insurance services are liable to an insurance tax.

-         Gambling profits are liable to special taxes and charges, hence are exempted from BAT. However, where establishments such as casinos sell meals and drinks as well as organize the gambling, then their activities as restaurants and caterers are liable to VAT.

    1. Supply of gold to the Central Bank is exempted from VAT.
    2. Real estate operations rae exempted from VAT except for the first sale. (Need to be studied)

 

 

  • Zero-rated:

  Exports performed by taxable persons are zero-rated which means that the supplies are exempted but the taxable person is entitled to claim refund for the BAT paid on the input. The supply of some goods is also zero-rated. It covers essential goods and services, consumed by low-income groups.

 

The law provides for a list of essential goods zero-rated:

-         Agricultural raw products

-         Cattle, meat, fish, poultry and thir natural products; milk, and all dairies products

-         Salt, sugar, flour, rice, borghol, spaghetti and other kinds of pasta

-         Bread

 

3. Operational principles:

 

  • Tax period:

The law provides that the registered person has to file a tax return every quarter.

 

  • Taxable value:

According to the provisions of the law, the amount on which the tax is chargeable shall be:

-         The consideration that the person supplying goods and services is entitled to receive in respect of such supply, including all taxes, commissions and charges (except VAT).

-         If there is no consideration, the open market price.

-         In the case of used goods and travel agencies services, the profit margin.

-         At import, the value determined for customs purposes including customs duties.

 

  • Tax invoices:

  According to the law, every taxable person who makes taxable operations is obliged to issue an invoice in a special form determined by the law and the regulations, for auditing purposes and as a justification for the tax credit claim.

 

  • Deduction of input tax:

  Every registered person has the right to deduct from the VAT collected by him (input) in respect of a taxable period (one month or 3 months) the VAT charged to him (output) during the period by other taxable persons in respect of goods and services supplied to him.

If the input tax exceeds for a period the output tax, the taxpayer has the right to carry it forward to the next period. The law provides that the taxable person can claim a refund only at the end of the year and at the end of each period if he is an exporter.

 

  • Voluntary registration:

  The law provides that a person whose turnover is below the threshold or who doesn’t make taxable supplies may apply to be registered.

 

  • Non residents:

  The law provides that it is mandatory for a non-resident to designate a fiscal representative in Lebanon, subject to approval by the tax department. This representative is jointly liable for the non-resident obligations.

In case the non-resident has failed to designate such a representative, the contracting party is responsible for the payment of the tax and penalties due.

 

  • Tourist rebate:

  It has been discussed to allow refund of VAT on good supplied in Lebanon and exported by tourists, in view of the development of Lebanon as a tourist destination.

 

·        Travel agencies:

  The law provides that travel agencies are liable to VAT according to a special scheme:

-         The taxable value is the travel agent gross profit margin;

-         Tax charged to the travel agent by other taxable persons is not eligible for deduction or refund.

-         Having a combination of both “local and international services”, the travel industry would have a part of its operations -which is local or internal service- subject to VAT and another part, which is exempted, i.e. international operations.

 

4. Administration:

  The law provides that VAT will be placed under the management of a new department
(مصلحة) in the revenue Directorate. A study has been prepared in respect with the organizational aspects: functions of the department, costs, staffing, …

VAT at imports will be managed by the Customs as far as collection and appeal.

 

5. Transitional provisions:

 

  • Indirect taxes:

-         The law provides that the 5 % tax on hotels and restaurants will be abolished where VAT is applicable (threshold).

-         The stamp duties shall be abolished regarding the procedures and documents related to VAT.

                              -  The municipality tax on water, electricity and telecommunication consumption shall be    abolished as far as the utility goods are subject to VAT.

 


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