1

Guide to Doing Business in Lebanon

Submitted by: Moghaizel Law Offices http://www.mlof.com

2

I. THE COUNTRY AT A GLANCE A. What languages are spoken?

Arabic 99% French 45% English 30% Armenian 5%

B. What is the exchange rate for the U.S. dollar, the Euro?

1 US $ = 1,507 Lebanese Pounds 1 Euro = 1.900 Lebanese Pounds

C. Describe your country’s geography, proximity to other countries and climate.

Lebanon is a Mediterranean nation, which lies between 33 and 34.40 North latitude and 35 and 36.40 East longitude. Length along the Mediterranean: 210 kilometers. Highest peak: Qornet Al Saouda (3,083 meters). Width: varies from 34 to 100 kilometers. Climate average: 17.7º – 28.7º Celsius. Countries on the border: Syria and Israel. Other near countries: Jordan, UAE, Saudi Arabia, Iraq, Kuwait and Iran. N.B. Lebanon’s geographic location, topography and climate are

undoubtedly the principal natural resources. D. Are there cultural influences or prohibitions on the way business is conducted? E. Are there religious influences or prohibitions on the way business is conducted?

Lebanon has always followed a liberal economic policy. Governmental regulations and intervention have been minimal. The public economic policy involves merely the application of axioms derived from the economics of private or “free” enterprise. Therefore, there are no cultural nor religious influences or prohibitions on the way business is conducted.

F. Explain your country’s infrastructure. Be sure to explain which cities have

airports, railroad systems, ports, public transportation. Reorganization of the transport sector, considered to be a priority because of the effects of social, economic, urban and environmental dimensions has progressed considerably during the last few years. The operation is, still far from complete. A large number of projects is still in progress:

3

1. Road transport:

The road transportation sector still suffers from serious structural difficulties. The network in Lebanon includes about 6,360 kilometers of roads. It is organized around three main axes from the capital: a- Beirut-Tripoli, South-North. b- Beirut-Damascus, North-East. c- Beirut-Tyre, North-South.

An inventory of the road network established by the Ministry of Transport in 1996 revealed significant deterioration of the roads. Many projects to develop the network have been started and are being monitored by various competent organizations such as the Council for Development and Reconstruction (CDR).

• Public transportation: Public transportation is provided by the public sector as well as by private companies. The service-taxi network and private buses serve all localities within large towns as well as various towns within the country. The number of red-plated cars reached 14.011 in 1998.

• Railway transportation: A rudimentary railway network briefly

operated in Lebanon. It grounded to a half when the war started. Theoretically, railway lines in Lebanon covered a network of 428 kilometers spread on 3 axes:

i. A coastal railway, 224 kilometers from Nakoura in the

South to Akkar in the North. ii. A line of 102 kilometers passing through the North of

Bekaa meeting the coastal line at Homs, Syria. iii. An internal line of 102 kilometers linking Beirut to

Damascus. A project to rehabilitate the railway network with assistance from SOFRERAIL France has been considered.

2. Marine transport: The port infrastructure in Lebanon is concentrated primarily at the Beirut Port and secondarily at the ports of Tripoli, Chekka, Jounieh, Saida and Tyre as well as the petroleum ports of IPC at Tripoli and Tapline in Zahrani. Since activity resumed in January 1991, the Lebanese government has controlled the Beirut Port. It collects all operating profits which represent a large portion of Treasury revenues.

4

3. Air transport: Remarkable efforts have been made in the air transportation sector during recent years. The additional infrastructure, adoption of new techniques, and the signing of several agreements were aimed at increasing traffic at the Beirut International Airport (BIA). 1998 marked the end of the first phase of works at BIA. Opened on April 3, 1998, the new airport is of international standard and can stand up to international comparison.

G. Explain the communication system.

Lebanon’s telecommunications network improved considerably following the development and rehabilitation projects undertaken by the Ministry of Posts, Telephones and Telecommunications. Additionally, the phenomenal growth of cellular telephones during the last few years has brought telephone service to quite a large number of people. The fixed system is known by the acronym PSTN (Public Switched Telephone Network). The Government’s main objective is to rehabilitate and extend the exchanges and networks. The telephone system management began to install public phone booths throughout the country. The cellular mobile telephone system was established through private sector participation paralleled with the public investment program. The Government adopted the BOT (build, operate and transfer) approach to the project. This means that the operator provides the funds needed to carry out the work and operate the system. The private operators in Lebanon are Telecom Finland International, represented by Libancell and France Telecom Mobile Liban, represented by Cellis. From June 1st, 2004 the GSM network in Lebanon has been transferred to the Lebanese Government and it is being operated by: -Mobile Telecommunications Company sarl, (mtc touch is the brand name of the network owned by Mobile Interim Company No 2 SAL.) -Fal Dete Telecommunications, (Alfa is the brand name of the network owned by Mobile Interim Company No1 SAL.) Postal services are managed by a private company called Libanpost SAL.

H. Describe the public services – i.e. water, electricity, gas. Are they publicly or privately owned?

1- Electricity: With new power stations coming on line in 1998, the

installed capacity is in excess of 2 GW of which 264 MW are supplied from hydro power stations and 1852 MW from thermal power stations. EDL has set up a GIS program to computerize and mechanize all flux operations. The program will track over consumption and fraud, locate power failures and manage imbalances and rates in consumption in the various regions. The Government is carrying out an extensive program to rehabilitate and expand electrical power.

5

2- Water: Unlike neighboring countries, Lebanon does not suffer from a

shortage of natural water. However, water resources are starting to dry up because of decreasing quantities of rain or are increasingly exposed to pollution. Water resources currently constitute a major problem. Their scarcity will be a major source of conflict in the future. At the time being, there are 22 offices for water and 209 committees charged with the management of the water supply fall under the Ministry of Hydraulic and Electrical Resources. Performance of this Ministry is considerably hampered by insufficient budgetary funds and low staffing levels.

The CDR has undertaken projects for the recovery of water transmission and purification in three ways: Technical assistance to the Ministry of Hydraulic and Electric resources, rehabilitation of current infrastructure and the extension of current and provision for new infrastructures. As it is evident, both the electricity sector and the water services are publicly owned, but the Government has plans to privatize them.

3- Gas: Bottled gas distribution is in private hand (there is no gas pipes

network).

II. GENERAL CONSIDERATIONS A. Investment policies

1. Does the country generally welcome investment? Are there governmental or private agencies devoted to the promotion of investment? The Government is implementing a policy to encourage foreign investments. It has recently allowed full ownership of Lebanese banks by foreigners and a law has recently been passed to authorize all foreigners to own property in Lebanon up to 3,000 square meters and with authorization beyond such limit. Moreover, statutory law no. 3 of January 15, 1977 stipulated the creation of a National Investment Guarantee Corporation (INGI).

2. What is the rate of inflation?

The rate of inflation is 0% (for the year 2000).

3. Explain any sector exceptions, incentives or restrictions on foreign

investment?

There are no exceptions nor restrictions on foreign investment. At the contrary, there are a lot of incentives, especially fiscal incentives, concerning the investment in some sectors, such as the banking sector.

6

4. Describe de facto restrictions on investment, if any, such as bureaucratic discretion.

There are no de facto restrictions on investment.

5. What is the size of the different markets?

There is only the Lebanese market, but we should outline the importance of the industrial sector and the services’ sector (tourism, trade…).

6. What types of businesses are conducted in the country?

All types of businesses are conducted in Lebanon. B. Diplomatic Relations

1. Explain any established diplomatic relations your country may have.

Lebanon has diplomatic relations with a very large number of countries. There are no restrictions as to establishing diplomatic relations with any country except with Israel.

2. Give addresses, telephone numbers for the embassies or consulates in your country?

There are some of the embassies in Lebanon:

- Australian Embassy: Down Town, Tel: 961 1 974030 or 961 1 974109 - British Embassy: Down Town, Tel: 961 1 990400 - Canadian Embassy: Jal El Dib, Tel: 961 4 713900 - French Embassy: Damascus Road, Tel: 961 1 420000 - Greek Embassy: Naccache, Tel: 961 4 521700 - Italian Embassy: Place de l’Etoile Tel: 961 1 985200 or 961 1 985300 - US Embassy: Aoukar, Tel: 961 4 542600

3. Are there prohibitions or restrictions on certain business dealings with the

country? Business dealings of weapons and narcotics are prohibited.

4. Explain any travel restrictions to or within the country?

C. Government

1. Explain your country’s election system and schedule. Is there an anticipated change in the

7

present government?

There are 128 members of Parliament, half of which are Christians and half Muslims. Each candidate is elected by the Lebanese (males and females) of more than 21 years old of his mohafazat (region) for a four year mandate. The actual Government seems to be stable. There is not anticipated change in the present Government.

2. Is the present government stable? Briefly explain your country’s political

history in the last decade.

The Government seems to be stable even though there is a general atmosphere of threats because of the economic crisis and the political instability in the region (with the Palestinian Intifada). In fact, for ten years now, Lebanon is trying to recover from the civil war. In 1990 there has been a change in the Constitution in application of the Taef Agreement; it leads to changes in the prerogatives of the President of the Republic and the Government. Since then, there have been two presidential elections (because the mandate of President Hraoui has been extended) and many changes of Government most of them presided by Prime Minister Hariri. In September 2004 the mandate of President Emile Lahoud has been extended for three years (September 2007) and the government is currently presided by Prime Minister Najib Mikati subsequently to the assassination of the former Prime Minister Mr. Rafic Hariri on February 14, 2005. In May-June 2005 general elections will take place and a new government will be formed accordingly.

3. Explain your country’s judicial system. Be sure to answer the following

questions: • Is the judicial system generally perceived to be impartial? • Must disputes be resolved in the country? • Is there a political method of resolving disputes? • Are alternative methods of dispute resolution permitted? • How long does it take to resolve disputes? • Can foreign judicial decisions be enforced in the country? • Can decisions from the country be enforced outside the country? • Are there separate tribunals depending upon the subject matter of the case? • Are there different legal systems within the country or its political

subdivisions?

8

• Can the investor choose to be subject to the country's jurisdiction or not?

The Lebanese judiciary system is structured in a way that makes it similar to the existing systems in Western countries. The justice is secured at two levels by First Instance Courts and Courts of Appeal. A last resort is the Supreme Court (Cassation) sitting in Beirut, comprising several chambers and one plenary assembly.

The judicial system is generally perceived to be impartial, disputes do not have to be resolved in the country. The parties may choose to submit the litigation to a foreign court’s jurisdiction and there is no political method of resolving disputes in principle.

Alternative methods of dispute resolution are permitted: litigation resulting from the execution or interpretation of a civil or commercial contract can be submitted to arbitration if the parties agree to do so. The arbitration clause must be stipulated in the contract or in an addendum. The two parties must choose an umpire (arbitrator) or foresee the modalities of his designation. The period of time necessary to resolve disputes depends on each case (it is generally perceived as a long procedure).

As to the enforcement of foreign judgments, a judgment delivered by a foreign court cannot be enforced in Lebanon, unless by an enforcement order (exequatur) by Lebanese judicial authority. The enforcement application is submitted to the Court of Appeal of Beirut and is granted to foreign judgments on condition they have been delivered by a court having jurisdiction.

There are no different legal systems within the country or its political subdivisions.

Finally, the investor can choose to be subject to the country’s jurisdiction or not, except for certain specific areas. For instance, disputes involving a Lebanese commercial representative (Decree-Law no. 34 dated 5/8/1967); it should be submitted to the Lebanese courts.

4. Explain your country’s legislative system.

Laws are enacted by the Parliament, bills may be elaborated by the Government. They are then proposed to the Parliament to be ratified. The Parliament may enable the Government for a determined period of time to take Decree-Laws in particular matters.

D. Environmental Considerations

1. What is the public/government attitude toward environmental regulation? 2. Explain any environmental regulations.

9

Interest for the environment started a few years ago. The Ministry of Environment has been created in November 1st, 1992. Being in its early stages, the Ministry is of limited efficiency. Its budget is still very limited.

III. INVESTMENT INCENTIVES A. Explain any export incentives or guarantees. Be sure to answer the following

questions: • Are there tax incentives for exports? • If so, are they limited to certain types of products? • Is export financing available from government or private sources? • If so, what forms of financing or guarantees are available? • Is there any governmental insurance for exports? • Must a national be a participant in the enterprise in order for the investor to

benefit from these incentives?

Contrary to imports, Lebanese exports rose at sustained rates between 1993 and 1996. It had an average annual increase of about 17% over this same period. After a slowdown in 1997, the following year knew a slight recovery in exports.

The main Lebanese exports are agricultural and food products (18% of exports), textiles and clothing (12%), chemical products (11%), metallic products, some equipment and paper and jewelry products. Lebanon’s main clients are the United Arab Emirates, Saudi Arabia and the USA (and Syria). There is no financing available from Government or private sources and we cannot say that there are tax incentives for exports, but there is reimbursement of customs duties on re-exported merchandise. The merchandise imported through Lebanese customs and re-exported outside Lebanon can benefit from the reimbursement of the customs duties paid for its importation (under certain conditions).

B. Explain any grants, subsidies or funds your country offers foreign investors. Be

sure to answer the following questions:

• Are grants and subsidies restricted by the type of activity? • What is the process for obtaining approval for these grants or subsidies? • How long does it take to receive approval? • Can the investor receive loans from the government or governmental

agencies? • Must a national be a participant in the enterprise in order for the investor to

receive these grants or subsidies?

There are no grants, subsidies or funds that Lebanon offers foreign investors.

C. Explain any national tax incentives for foreign investors. Be sure to answer the

following questions:

10

• Are the incentives restricted by the type of activity? • Are the incentives restricted by the duration of the activity? • What is the process of application?

D. Explain any regional tax incentives open to foreign investors. Be sure to answer

the following questions: • Are there tax incentives for the investor that exist only in certain regions of

the country? • Does the investor need to receive approval to be eligible for these incentives? • Are the incentives restricted by the type of activity? • Are the incentives restricted by the duration of the activity? • What does the process of application involve?

Temporary fiscal exemptions are granted to:

- New industries, according to Law no. 27 dated July 19, 1970. - Self-financed investments. - Medium and long-term credit banks (Decree no. 50 dated July

15, 1983). - Companies whose objectives are to reconstruct disaster areas.

IV. FINANCIAL FACILITIES 1. Banking/Financial Facilities - What kind of financial institutions exist? - Must the investor maintain a bank account in the country? - What are the requirements for opening a bank account? - What are the restrictions, if any, on the investor's use of the account? - What is the type of financial system in the country? - How is the banking system structured? - Is there a stock market? - Can the investor receive bank loans?

The banking sector in Lebanon is considered as being the most vital for its economic activities. Its propensity is the result of an advanced legislation which gives the depositor and the client, whatever their nationality is, a protection similar to the one granted in the most advanced countries. Its main characteristic, the banking secrecy gave it an international and regional reputation allowing this sector to maintain an evident influence even during the most critical years of the Lebanese civil war. Banking institutions:

- The Central Bank of Lebanon. - The National Institute for the Guarantee of Deposits (NIGD). - Banking supervisory institutions:

i. The Banking Control Commission (BCC). ii. The Higher Council for Banking.

- Commercial Banks.

11

Financial institutions: there are approximately twenty of them. It is not mandatory for the investor to have a bank account in Lebanon. There are no particular restrictions on the investor’s use of the account.

V. EXCHANGE CONTROLS 1. Business Transactions with Nationals, Residents or Non-Residents - How are nationals, residents and non-residents defined? - Are there restrictions on conducting business with nationals, residents or non-residents? - Are there reporting requirements? - Can the investor receive loans from nationals, residents or non-residents?

- There are no restrictions on conducting business with nationals, residents, or non-residents.

- There are no reporting requirements.

- The investor can receive loans from nationals, residents, or non-

residents. 2. Investment Controls - Are there restrictions on direct investment in the country? - Are there restrictions on indirect investments in the country? Must the investor make

declarations regarding the nature of his investment?

The restrictions on investment in the country are as follows:

- An indirect restriction resulting from the mandatory condition prescribed for joint stock companies to have a majority of Lebanese in their Board.

- With respect to financial institutions other than banks, one third

at least of shares forming the capital of financial institutions must be held by Lebanese Nationals or Lebanese companies.

- Law no. 234 of 10 June 2000 requires that at least one third of

the Capital of Lebanese financial brokerage institutions be held by Lebanese Nationals or Lebanese Companies.

- Article 6 of the Central Banks decision no. 7540 of 4 March 2000

requires that at least one third of the shares forming the capital of leasing companies be held by Lebanese Nationals or Lebanese Companies.

- Pursuant to Decree-Law no. 34 of 5 August 1967 regarding

commercial representation, the following restriction apply to companies wishing to act as commercial representatives:

12

i. If the company is a partnership or a limited liability company, the majority of partners must be Lebanese nationals, and they must hold the majority of the company’s capital.

ii. If the company is a joint stock company, its shares must be in the form of registered shares and the majority of its capital must be held by Lebanese nationals. Also at least two thirds of its Board members must be of Lebanese nationality. In all cases, the management of the company must be entrusted to a Lebanese national.

- Half of the Capital of the joint stock company carrying out

shipping agency activities must be held by Lebanese, and 51% of the capital in case of a limited liability company.

- Acquisition of real estate by foreigners whether individuals or

legal entities is free from restrictions provided that the total acquired surface area does not exceed 3,000 sq meters within the whole territory.

- The Law of 14 September 1962 regarding printing matters

provides that companies wishing to publish political magazines are subject to the following restrictions:

i. For limited liability companies and partnerships, all

partners must be Lebanese nationals. ii. For partnerships by shares, partners who are personally

liable must be Lebanese. iii. For joint stock companies, all shares must be held by

Lebanese nationals or Lebanese companies.

- Joint stock companies running a public utility must have one third of their capital held by Lebanese nationals.

- A restriction resulting from the conditions laid down by

Ministerial decision of 9 January 2000 in relation to the issuance of an employer’s work permit: the employer’s contribution to the company’s capital should be at least in an amount of LL 100,000,000.

3. Money Transfer - Is there free determination of exchange rates? - Are there restrictions on the transfer of money into or out of the country? - Are there restrictions on the remittance of profits abroad? - Are there reporting requirements? - Can hard currency be taken out of the country?

- Yes, there is free determination of exchange rates. - There are no restrictions on the transfer of money into or out of

the country.

13

- There are no restrictions on the remittance of profits abroad.

- There are no reporting requirements.

- Yes, hard currency can be taken out of the country.

VI. IMPORT/EXPORT REGULATIONS 1. Customs Regulations - Is the country a member of GATT? - Is the country a member of the EEC? - Is the country a party to a regional free trade agreement? - Does the Customs Department value the goods? - How are goods cleared through customs? - Are there applicable tariffs?

Lebanon is a member of the General Agreement on Tariffs and Trade (GATT), since it is not a European country. Lebanon is not a member of the EEC. Lebanon is not a party to a regional free trade agreement but it is a member of an agreement to promote and develop trade between Arab countries signed in February 1981. In addition, there is the liberalization agreement of Lebanese-Syrian trade signed in February 1998: It concerns the progressive liberalization of trade between the two countries. The most important Customs Agreements are: i- The Customs Agreement concerning the temporary importation of

technical instruments. ii- The Customs Agreement about facilities given to imported merchandize

to be exposed or used in an exhibition, market, conference or any identical fair.

The Customs system is based on the customs classifications of Brussels. The average and valorem duties (19.9%) are currently applied to most items. These duties are applied in line with the principles of most favored nation except for certain imports from EU member countries and Arab nations that benefit from preferential rates. The Customs department values the goods in regard to the following tariff categories:

- The normal tariff when the country of origin of the goods is listed with the Lebanese Customs High Council.

- The maximum tariff for goods whose countries of origin do not

benefit from the normal tariff.

- The agreed tariff (countries with which special customs agreements have been concluded).

14

2. Exports - Are there restrictions on exports? - Are export licenses required? - Are there applicable export duties?

Export of some items (principally weapons, munitions, narcotics, or related products) is prohibited. All trading with Israel is also prohibited. Exports of wheat and its derivatives require an export permit. Yes, there are applicable export duties.

3. Foreign Trade Regulations

- Are there foreign trade regulations on the import or export of goods involved in the business?

No.

4. Imports - Are import licenses required? - Are there applicable import duties? - Are there applicable import quotas? - Are there applicable import barriers?

The importation of some commodities (mainly weapons, ammunition, narcotics or related products) is either prohibited or reserved for the State. All imports from Israel are also prohibited. It is forbidden to import citrus fruits, apples, olives (excluding olives in cans weighing less than 2 kilos), olive oil and groundnut oil all year round. These imports can, in principle, only be made by the State or through a permit granted by the State. Marrow, eggplant, green beans, watermelon, peas, peaches, and apricots are among the products that cannot be imported during a specific time of the year. A prior license is needed to import other agricultural products and all seeds. An import license is also mandatory for some finished products such as ceramic sanitary ware, insulated wire, telephone wire and copper cables. Some commercial agreements, which were concluded with neighboring countries such as Syria, and Egypt have exceptions to the clauses limiting imports. There are no other particular import barriers. There are applicable import duties.

15

5. Manufacturing Requirements

- Must the product contain ingredients or components, which are found or produced only in the country?

- Will the importation of certain component parts be permitted only if they are to be ultimately incorporated in a final product?

There is no need for the product to contain ingredients or components which are found or produced only in the country. There are no regulations that require that the importation of certain component parts be permitted only if they are to be ultimately incorporated in a final product.

6. Product Labeling - Are there applicable labeling or packaging requirements (e.g. multi-lingual notices,

safety warnings, listing of ingredients, etc.)?

The applicable labeling or packaging requirements are those of international standard: safety warnings, listing of ingredients, production and expiry dates…

VII. STRUCTURES FOR DOING BUSINESS 1. Governmental Participation - Will the government seek to participate in the ownership or operation of the entity

(e.g. depending on the type of activity involved)? - If so, to what extent? - What is the investor's potential liability to partners, investors or others? - Are there restrictions on capitalization? - What are the investor's tax consequences? (see also Sections XII and XIII)

Lebanon enjoys a widely liberal and open legal system for foreign investors, they may freely do business in Lebanon and may wholly own local companies. The Government would not seek to participate in the ownership or operation of the entity, and there are no restrictions on capitalization.

2. Joint Ventures - Are joint ventures permitted? - If so, what is the registration or incorporation procedure? - How long do these procedures take? - What costs and fees are involved?

- Must a national of the country or a related state, (e.g. the EEC) be a participant, manager or director?

- What is the investor's potential liability? - Are there restrictions on capitalization? - What are the investor's tax consequences?

16

Joint ventures being permitted, the constitution of which is carried out by a private agreement involving commercial rules and duties between partners. Deprived of legal entity, the joint venture is not submitted to the incorporation or publishing formalities. Consequently, each partner dealing with a third party is considered to be dealing in his name and on his account. Therefore, he is personally responsible for the company’s debts. There is no obligation for a national to be a participant, manager or director and there are no restrictions on capitalization.

3. Limited Liability Companies - Are limited liability companies permitted? - If so, how are they registered or incorporated? - How long do these procedures take? - What costs and fees are involved? - Must a national of the country or a related state be a participant, manager or director? - Are there restrictions on capitalization? - What are the investor's tax consequences?

The limited liability company was made possible by Decree no. 35 dated 5 August 1967. It is registered, as for any company whose main establishment is in Lebanon at the Commercial Register of its head office. Registration is requested within one month of the company’s formation. Petitioners have to produce in the Court office an abstract of the deed of partnership, in duplicate signed by them. The registration procedure takes approximately up to ten days. There is no obligation for a national to be participant, manager or director. There are no restrictions on capitalization but the limited liability company cannot be involved in operations of insurance, airlines, transport, banking and investment of funds. The limited liability company is subject to corporations’ income tax at the fixed rate of 15% of net profits. Expenses and charges as expressly defined by the law are tax deductible. This rate is cut down to half for the tax levied on revenues earned by companies when they are generated from the construction or development of buildings or housing units for sale to the public.

• The registration procedure:

- The Articles of Association signed by the partners before a notary public or before the Chief of the Commercial Register.

- A request addressed to the bank concerning the consignment of

the capital enclosed with a duplicate of the signed Status.

- A certificate of the deposit issued by the bank.

- An application for the registration.

17

- A certificate of registration.

- A circular.

- A request addressed to the bank concerning the release of the

capital.

- A request for appointing a supplementary auditor (if the capital exceeds LL 30,000,000).

- A request addressed to the Ministry of Finance to advise of the

commencement of business.

- A statement to the social security.

- A request for registration at the Chamber of Industry and Commerce.

• Costs and fees: For a capital of LL 5,000,000 (approximately US $ 3,318), the minimum capital:

- Notary’s fees: LL 450,000 (approximately US $ 300).

- Incorporation fees: (i) a fixed fee: LL 750,000 (approximately US $ 500), (ii) a proportional fee of 3‰ (three per thousand) of the capital (LL 5,000,000 x 3 · 1000 = LL 15,000 or US $ 10 for the minimum capital).

- The judges’ mutual fund: (i) a fixed fee: LL 375,000

(approximately US $ 250), (ii) a proportional fee of 1.5‰ (one and a half per thousand) of the capital (LL 7,500 or US $ 5 for the minimum capital).

- Stamps: LL 2,000 for each original document.

LL 1,000 for each duplicate. LL 20,000 for the original signed Articles of Association. LL 10,000 for the duplicate of the Articles of Association.

- The registration fee of a proxy at the Bar Association: LL 50,000.

- The attorney’s fees: range between US $ 1,000 and US $ 3,000

depending on the firm. 4. Liability Companies, Unlimited - What are the forms of liability companies? - How are these companies registered or incorporated? - How long do these procedures take?

18

- What costs and fees are involved? - Must a national of the country be a participant, manager or director?

- The limited liability company (SARL) in which the partners who are not liable for losses except to the extent of their contribution.

- There are two forms of unlimited liability companies. They will

be dealt with under general and limited partnerships.

- There is another form of limited liability company: the joint stock company (Société Anonyme).

Joint stock companies (Société Anonyme): Costs and fees: For the minimum capital of LL 30,000,000 (approximately US $ 20,000):

- Notary fees: LL 660,000 (approximately US $ 440) including the justice fee.

- Incorporation fees: LL 1,000,000 (approximately US $ 665).

- The judges’ mutual fund: LL 550,000 (approximately US $ 365).

The other fees are the same as for the SARL. The registration procedure does not take more than ten days. One third of joint stock companies’ capital whose object is the operation of a public utility shall be made up of nominal shares belonging to Lebanese shareholders.

In all cases, a majority of Board members must be Lebanese.

5. Partnerships, General or Limited - Are partnerships recognized or permitted? - Must a national of the country or related state be a partner? - If so, to what extent? - What costs and fees are involved? - What is the investor's potential liability? - What are the investor's tax consequences?

Partnerships are permitted and there is no obligation for a national to be a partner.

Costs and fees involved:

- Notary fees: 2‰ (two per thousand) of the capital plus a fixed fee

that must not exceed US $ 300.

19

- Incorporation fees: LL 1,000,000 (approximately US $ 665).

At the Commercial Register:

- A fixed fee of LL 750,000 (approximately US $ 500).

- Stamp duty fee: 3‰ (three per thousand) of the capital.

- The judges’ mutual fund: LL 375,000 (approximately US $ 250) +

1.5‰ (one and a half per thousand) of the capital.

The general partnership (société en nom collectif, SNC) consists of two or more partners who are jointly responsible for the company’s debts. Every partner is individually subject to unlimited liability for the whole of the partnership’s debts. Such liability is joint and several and consequently can be enforced against both the partnership assets and the assets of the individual partners. Limited partnership (société en commandité simple, SCS) consists of two or more people divided into two categories: the general partner is deemed to be a trader, he is entitled to take part in the management of the business and he is individually liable without limit for the whole of the debts and obligations of the SCS.

The limited partner is not deemed to be a trader, neither is he liable for the debts of the SCS beyond his contribution. Each partner is subject to individual income tax. The actual income is subject to taxation after applying a reduction of LL 3,000,000 for individuals, a supplementary tax allowance of LL 1,500,000 in the case of married taxpayers, and LL 300,000 per legitimate dependent child.

6. Partnerships, Undisclosed - Do undisclosed partnerships exist? - If so, how are they formed? - What costs and fees are involved? - Must a national of the country or a related state be a participant, manager or director? - What is the investor's potential liability? - What are the investor's tax consequences?

Undisclosed partnerships exist as “société en participation”. We dealt with this form of companies under joint ventures.

7. Sole Proprietorships - Can the investor be a sole proprietor? - How is the sole proprietorship registered or established? - How long does this process take?

20

- What costs and fees are involved? - What is the investor's potential liability? - Are there restrictions on capitalization? - What are the investor's tax consequences?

There is no sole proprietorship (société unipersonnelle) in the Lebanese law. The investor may establish commercial establishments (“fonds de commerce”) and register as a trader.

8. Subsidiaries/Branches/Representative Offices - Can the investor establish a branch, subsidiary or representative office? - If so, how long does registration or incorporation take? - What costs and fees are involved? - What is the investor's potential liability? - Must a national of the country be a participant, manager or director? - Are there restrictions on capitalization? - What are the investor's tax consequences? - Are these tax consequences different than those of a local company?

A foreign company may constitute or establish a branch or an office to carry out the activities of its parent company. According to Decree no. 16 dated 30 January 1926, and amended by Law no. 4180 which was issued on 7 March 1980, a declaration must be filed with the Ministry of Commerce and Economy before the company can open one or more branches in Lebanon. Registration takes two months at most and the costs involved are LL 1,800,000 (approximately US $ 1,200). The registration fees paid at the Registry of Commerce are approximately LL 1,000,000 (US $ 665), in addition to the LL 1,800,000 for companies subject to Decree no.96.

The Representative Offices cannot carry out business. They must restrict their activities to marketing researches and promotion. There is no obligation for a national to be a participant, manager or director and there are no restrictions on capitalization. The branches and Lebanese subsidiaries of foreign companies are subject to taxation under the same conditions as Lebanese companies.

9. Trusts and Other Fiduciary Entities - Are trusts or other fiduciary entities recognized? - If so, how are each defined? - What are the legal consequences of a transfer of assets to a trust or fiduciary? - Can the investor be the grantor, trustee or beneficiary?

Trusts are not recognized. Law no. 520 dated 6 June 1996 entitled “Development of the Financial Market and Fiduciary Contracts” recognized banks, financial establishments and other establishments authorized by the Central Bank as fiduciary entities. They are defined as establishments that can hold property for another’s benefit.

21

The transfer of assets to a fiduciary is a transfer of the assets’ property to the trustee who will hold the trust property distinctly form his personal assets. The investor can be the grantor or the beneficiary but he can only be the trustee if it is a bank, a financial establishment or any establishment authorized by the Central Bank.

VIII. REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS 1. Alien Business Law - Is the business subject to any alien business law?

No. - Are there registration or reporting requirements? 2. Antitrust Laws - Do the entity's operations comply with anti-trust laws? - Are there filing requirements?

There are no antitrust laws. 3. Environmental Regulations - Is the business of the investor subject to environmental regulation? If so, are there

added costs involved (e.g. audit requirements)? Yes, the business of the investor is subject to environmental regulations. There are no added costs.

4. Government Approvals - Are government approvals required for the anticipated business?

There are no governmental approvals required for the anticipated business, but some activities such as tourism, finance, etc. require an approval.

- If so, how long does this process take?

Normally, it should not take more than two months. - What fees are involved?

Fees involved depend on the nature of the activity. 5. Insurance - Must the enterprise carry insurance?

The enterprise must not carry out insurance.

- If so, what kind of risks must be insured?

22

- Is there a state monopoly on insurance?

There is no state monopoly on insurance.

6. Licenses/Permits - Are licenses or permits required for the anticipated activity?

Some activities like insurance, banking and financial activities require licenses.

- If so, how does the investor apply for and receive the necessary license or permit?

The investor has to apply to the concerned Ministry or authority and supply the documents and information required to obtain the permit.

- How long does it take to receive the license or permit?

It depends on the nature of the activity and the authority concerned. IX. OPERATION OF THE BUSINESS 1. Advertising - Are there restrictions on advertising?

There are no restrictions on advertising.

2. Attorneys - Is it necessary to have local counsel?

Limited liability companies and joint stock companies must have a legal counsel.

- How can local counsel be found?

The attorney can be found through the Bar or through the Embassies of the investor’s country.

- How much are attorneys fees?

The yearly fees of the attorney should not be less than six million Lebanese Pounds.

3. Bookkeeping Requirements - Must the investor keep local books of accounts?

Yes, the investor must keep local books of accounts

23

- In what form must the investor keep accounts (e.g. GAP, in what language, etc.)? The investor should keep local books of accounts in Arabic language.

4. Business Ethics/Codes - Are there certain business ethics or codes which the investor must follow (e.g. GAAP

for accountants, etc.)? No.

5. Consumer Protection Laws - Are there consumer protection laws which apply to the investor's operations?

A Consumer Protection Code has been issued on February 4, 2005 and became effective on May 10, 2005.

6. Construction - What are the costs of construction?

Costs are variable depending upon the size of the project. - Are permits required for construction?

Yes, permits are required for construction.

- How is authorization to construct obtained?

Authorization can be obtained from the Municipality or from the governor (Mohafez) or the district commissioner for constructions located outside the Municipality’s circumscription.

- How long does it take to receive authorization?

The permit should be delivered or refused within two months since the filing of the request to obtain the permit. This deadline is extended to six months if the property is located in certain areas.

- What fees are involved? • The fees paid to the Municipality are:

- 1.5% of the price of the square meter of land if it does not exceed LL 25,000.

- 2% of the price of the square meter of land if the price is

between LL 25,000 and LL 100,000.

- 1% of the price of the square meter of land if it exceeds LL 100,000.

24

- + 10% of the above fees in favor of the National Museum, parks, etc.

• Stamp duties:

- LL 250,000 (approximately US $ 165) for each floor.

- LL 100,000 (approximately US $ 65) for each part of the floor. • Fees paid to the Order of Architects and Engineers: 5% of the fees paid to the

Municipality. 7. Contracts - Can the investor freely enter into local contracts?

Yes, the investor can freely enter into local contracts, but to be able to enter into commercial representation, the majority of the company’s capital should be held by Lebanese nationals and the majority of the partners should be of Lebanese nationality, if the business is a limited liability. If the business is a joint stock company, the majority of its capital should be held by Lebanese nationals and 2/3 of the Board of Directors and the Chairman should be of Lebanese nationality.

- Can the contracts be governed by the law of another country? Yes, the contract can be governed by the law of another country, but the employment contracts should be mandatorily governed by the Lebanese law.

8. Price Controls - Are there applicable price controls?

Only in relation to anti-dumping laws and to anti-fraud regulations.

9. Product Registration - Must the entity register its product?

No.

- If so, how is registration obtained?

- How long does the process take?

- Are there fees involved?

10. Reduction or Return on Capital - Can capital be repatriated while the corporation is still ongoing?

Yes.

11. Sale of Goods

25

- Are there restrictions on the manner, time or place of sale of goods? There are no restrictions on the manner, time or place of sale of goods.

12. Trade Associations - Are there trade associations the investor can or must join?

There are no trade associations that the investor must join, but he can join the Chamber of Commerce and Industry.

- If so, are there fees involved?

The fees are approximately 1,000,000 LBP.

- Are there mandatory trade practices?

There are no mandatory trade practices.

X. CESSATION OR TERMINATION OF BUSINESS 1. Termination - What are the tax consequences of terminating the business? - What costs are involved in termination? - How long does it take to terminate the business? - How is the investor's particular form of business treated in termination? - Can the business be terminated without government approval or intervention? - What are the obligations toward creditors, employees and others upon termination? - What are the tax consequences of termination?

- All taxes that are due should be paid when or before terminating the business.

- Costs involved in termination depend on the form of the

company and the amount of the capital.

- The duration depends also on the amounts to be paid and the complexity of the procedure regarding the form and size of the company.

- The procedure of termination is the same in principle, but in

practice its length and complexity depend on the investor’s particular form of business.

- Yes, the business can be terminated without government

approval or intervention.

- Upon termination, creditors should be paid back and employees should receive an indemnity from the National Social Security Fund (sums paid to the National Social Security Fund by the employer during the employment period).

26

2. Insolvency/Bankruptcy - What is the extent of the investor's liability in the event of insolvency or bankruptcy? - What choices, if any, are available to the investor with regard to the restructuring of

the business?

The extent of the investor’s liability in the event of insolvency or bankruptcy depends on the form of the company: if it is a partnership, he will be responsible on his personal assets; if it is a joint stock company, he would not be responsible beyond his contribution to the capital. There are no restructuring options provided for by law.

XI. LABOR LEGISLATION, RELATION, AND SUPPLY 1. Employer/Employee Relations - What laws govern employer/employee relations?

- Are there obligations to train employees? Mainly, it is the Labor Code of 23/9/1946 that governs employer/employee relations as well as the Code of Social Security carried out by decree no.13955 of 26/9/1963. The employer has the obligation to train employees to the work they were hired for. At the end of the training, a certificate of ability is delivered to the employee.

2. Employment Regulations - Must the investor hire nationals of the country?

The investor does not have to hire nationals necessarily for the Labor Code does not provide for such, but instead the Ministerial Decision no. 205/1 dated 9/12/2000 as to the issuance of foreign employer work permit requires that such employer undertakes before Notary Public to hire at least three Lebanese for each foreign employee.

- Is there a minimum wage?

The minimum wage is fixed by Decree at LL 300,000 (approximately US $ 200) for 48 working hours per week.

- Is there a maximum number of hours an employee can work each week?

The maximum number of hours an adult can work is 48 hours per week. Working hours can be increased up to 12 hours a day upon decision of the Minister of Economy provided notice is given to Social Affairs Service within 24 hours (with 50% additional payment per each additional hour).

- Is there a minimum number of vacation and sick days to be given?

27

Every employee is entitled to a 15 days annual vacation (annual leave) provided it has been employed for at least one year by the same employer. Minors are entitled to a 21 days annual vacation. In both cases full salary shall be due. Birth entitles women to a 7 weeks maternity leave including pregnancy period according to a medical report defining the most probable date of birth.

Sick days are paid as follows:

Employment years

Full salary Half salary

3 months to 2 years ½ month ½ month 2 years to 4 years 1 month 1 month 4 years to 6 years 1 ½ month 1 ½ month 6 years to 10 years 2 month 2 month

Above 10 years 2 ½ month 2 ½ month

If sick days extend more than the above, the employer is entitled to reduce the annual vacation to 8 days.

3. Hiring and Firing Requirements - Must the investor employ a minimum number of people?

The Labor Code does not mention any restriction as to the minimum number of employees.

- Must the investor employ a minimum number of nationals?

Three nationals for every foreign employee.

- Must certain positions in the company be held by nationals?

Pursuant to the Ministerial Decision no.621/1 of the Minister of Labor dated 15/12/1995, some positions are restricted to Lebanese nationals, e.g. for employees: the management and banking work in general, especially such as, accountant, secretary and computer related positions; and for employers: general commercial work such as exchange, jewelry… These restrictions do not apply to foreign citizens who have a Lebanese mother or a mother of Lebanese origin or who have been married to a Lebanese for more than one year.

- Are there rules to follow in hiring/dismissing personnel (e.g. notice)?

Employment contracts can be entered into either for a determined period of time or for an unspecified period of time.

28

The termination of an employment contract entered into for an unspecified period of time must be carried out according to the provisions of the Labor Code, either party having the right to terminate such contract at any time provided notice is given to the other party as follows:

- 1 month prior notice for less then 3 years of employment; - 2 month of prior notice in case of an employment for more then

3 years and less then 6 years; - 3 month prior notice in case of an employment for more then 6

years and less then 12 years; - 4 month prior notice in case of an employment for more then 12

years. Notice shall be in writing. Either party failing to give notice is liable to the other for the payment of compensation equal to the amount of salaries due for the notice period.

- Does the investor have an continuing obligation towards dismissed employees?

No.

4. Labor Availability - Is adequate skilled or unskilled labor available for the anticipated business?

Adequate skilled labor is available almost for every kind of business in Lebanon.

5. Labor Permits - Are labor permits required?

Labor permits are required in order to enable foreigners to work in Lebanon.

- If so, how are they obtained?

A Prior Authorization is to be delivered by the Ministry of Labor. Pursuant to the Ministerial Decision no. 205/1 of the Minister of Labor dated 9/12/2000, if the foreigner is an employee, then the Lebanese employer must file to the Ministry of Labor the prior authorization application in two copies on his behalf with required documents attached mainly such as: copy of the employees’ passport valid for 18 months, copy of the Lebanese employer identity card, certificate of deposit at Banque De L’Habitat of 1,500,000 Lebanese Pounds and, copy of an official certified document proving the legal status of the concerned employer. And in case the applicant is an employer he must apply for same either directly or through a Lebanese attorney. Then, after a work visa is issued upon the prior authorization’s approval, the foreigner may enter the Lebanese territory. Then, an application for the work permit (labor permit) must be filed to the Ministry of Labor within 10 days from entering the Lebanese territory and one month before the lapse of the temporary residence permit. The following documents must be provided: the

29

original employment contract certified before the Notary Public, copy of the foreigner passport with the entry visa stamped thereunto, an insurance policy, the test for contagious diseases from a licensed laboratory, and 2 passport size photos. A foreign employer’s work permit is more difficult to obtain than an employee’s permit as several additional conditions are set for the former primarily, as to the issuance of Prior Authorization, such as the foreign participation to the capital be at least of LL 100,000,000.

- How long does the process take?

Generally, one to three months.

- What fees are involved?

The fees involved can be mainly summarized as follows: Deposit for the guarantee from Banque De L’Habitat: LL 1,500,000 (approximately US $ 1,000) Prior authorization: LL 500,000 (approximately US $334) Miscellaneous: LL 200,000 (approximately US $134) Employment Visa: LL 50,000 (approximately US $ 35) Work permit: LL 1,500,000 (approximately US $ 1,000)

6. Safety Standards - Are there safety codes which must be followed?

There are safety and hygiene standards which must be complied with by each business.

Therefore, Decree no. 6341 of 24/10/1951 shall apply to all enterprises subject to Labor Code as to hygienic standards, prevention and security as well to healthiness.

7. Unions - Are unions recognized?

Yes, they are formed pursuant to a license by the Ministry of Labor.

- What are the unions in the investor's business?

The unions aim at protecting, encouraging and defending the interests of the employees.

- What are these unions' political affiliations, if any?

It is forbidden for unions to interfere in politics or participate in political activities.

- Is there an obligation on the part of the employer to organize unions?

30

No.

- Are there mandatory collective bargaining agreements for the business involved?

There are collective bargaining agreements in several sectors (such as the banking sector). There is no obligation to have such agreements, but once a collective bargaining agreement is made, it can be extended to all the employees of the business by decision of Minister of Labor. Nevertheless, such extension shall be carried out pursuant to decision of Minister of Labor upon favorable proposal of the Higher Committee For Collective Bargaining Agreements provided for in the Labor Code.

XII. TAX ON CORPORATIONS 1. Allowances - What are the major allowances (e.g. capital cost depreciation)?

- What are the major deductible items?

Tax applies to net income; therefore, all expenses are deductible from the gross income.

- What are the major expenses that are excluded from deductibility? 2. Calculation of Taxes - How is the taxable base determined?

Companies including joint stock companies (SAL) and limited liability partnerships (SARL) are taxed on income derived from operations in Lebanon only. Tax rate on net income: 15%.

3. Capital Gains - What are the federal or national tax rates on capital gains?

National tax rates on capital gains: 10% (+ 6% on the fixed assets’ surplus).

- What are the regional or state taxes on capital gains?

None. - What are the municipal or local taxes on capital gains?

None. 4. Filing and Payment Requirements - When must the corporation file its tax return, if any?

31

The Corporation must file its tax return before the 1st of June of each year.

- When must the corporation pay its taxes?

The Corporation must pay its taxes upon filing the tax return.

- Are taxes paid in installments or annually?

Taxes are paid annually.

5. Miscellaneous Taxes Due - Is there a tax on capital?

N/A

- Is there a business license tax?

No. - Is there an apprenticeship tax?

No.

- Is there a training tax?

No.

- Are there other taxes?

Corporates are subject to a yearly lump sum tax: - Joint-stock companies: 2,000,000 LBP - Limited liability partnerships: 750,000 LBP - Other partnerships: 550,000 LBP This tax is due from the year 2001.

Other taxes are: Rental from Real Estate, net rental income after allowing for depreciation and direct expenses.

0 – 20,000,000 LBP 4% 20,000,000 LBP – 40,000,000 LBP 6% 40,000,000 LBP – 60,000,000 LBP 8% 60,000,000 LBP – 100,000,000 LBP 11% 100,000,000 LBP – 180,000,000 LBP 14% Over 180,000,000 LBP 17%

Stamp duty:

Contracts (on each copy) 0.30%

32

Commercial bills 0.15% - What are the filing and payment requirements?

The filing is performed by an official accredited accountant.

6. Registration Duties - Are there registration duties due upon the incorporation of a company?

Yes, there are registration duties due upon the incorporation of a company.

- Are there registration duties due upon an increase in capital?

No.

- Are there registration duties due upon the transfer of the company's shares?

Yes, there are registration duties due upon the transfer of the company’s shares. If it is a limited liability company because the transfer of shares is registered at the Commercial Register, which is not the case for a joint stock company.

- Are there registration duties due upon a transfer of corporate assets?

Yes, there are registration duties due, such as stamp duty.

- Are there any other registration duties due?

No. 7. Sales Tax or Other Turnover Tax - What is the system of sales tax (e.g. V.A.T., cumulative)?

Value Added Tax: Applied as of 1st of February 2002. The rate of the Value Added Tax is 10%.

- Is input tax creditable against output tax?

Not applicable.

- What are the tax rates? Sales tax: Restaurant tax: 5% Hotel and furnished apartments: 5%

- What are the filing and payment requirements?

33

8. Social Security and Welfare System Contributions - Are social security contributions due?

Yes, social security contributions are due.

- Are retirement or pension contributions due? End-of-service indemnity contributions are due.

- Are unemployment insurance contributions due?

There is no unemployment insurance.

- What are the filing and payment requirements for any such contribution? The social security contributions are as follows:

Allowances Employee’s

Contributions Employer’s Contributions

Sickness 2% 7% Family 0% 6%

End of Services 0% 8.5% 9. Special Tax Schemes - Are there particular tax consequences of doing business in the country?

There are no particular tax consequences of doing business in the country.

10. Tax on Profits - What are the federal or national income tax rates on profits?

Any corporation earning profits for carrying a business in Lebanon is liable to profit tax (Lebanese Corporate Income Tax is a tax on profit).

The national income tax rate on profits is 15%.

- What are the regional or state tax rates on profits?

There are no regional or state tax rates on profits.

- What are the municipal or local tax rates on profits? There are no municipal or local tax rates on profits.

11. Tax Treaties - Are there any applicable tax treaties?

34

Yes (France, various Arab countries, etc.).

- Are there any rules against treaty-shopping? No.

12. Territoriality Rules - Where is the corporation subject to tax?

The corporation is subject to tax on the Lebanese territory

- Is the corporation subject to tax on its worldwide income? The corporation is not taxed on its worldwide income (only on the income realized in Lebanon).

13. Treatment of Tax Losses - How are corporate tax losses treated?

N/A

14. Wealth Tax - Is there an applicable wealth tax?

No.

15. Withholding Taxes - What are the rates of withholding tax on dividends?

- Dividends and similar payments: 10% - Payment to non-residents for services rendered: 7.5% - Payment to non-residents for goods sold: 2.25% Non-residents include residents with no fiscal residence. Offshore companies are exempted from income taxes on profits and withholding on dividend distributions. Activities limited to operations started and completed entirely outside Lebanon, are subject to a fixed duty of 1,000,000 LBP. Holding companies are exempted from income taxes on profits and withholding on dividend distributions (with no presence in Lebanon).

- What are the rates of withholding tax on royalties? Royalties: 10%

- What are the rates of withholding tax on interest?

35

Interest: 10% - What are the rates of withholding tax on profits realized by a foreign corporation?

Activities limited to investment in other corporations: Management fees received from affiliates 5% Interest on short-term advances 10% Interest received on long-term advances to affiliates 0%

XIII. TAX ON INDIVIDUALS 1. Allowances - What are the major allowances?

The major allowances are made for married individuals, and made on each legal child under their care.

2. Calculation of Taxes - How is the taxable base determined?

Profit is presumed to be _% of income according to each profession. Tax rates are as follows:

Taxable Income

Rate

0 – 9,000,000 LBP 4% 9,000,000 LBP – 24,000,000 LBP 7% 24,000,000 LBP – 54,000,000 LBP 12% 54,000,000 LBP – 104,000,000 LBP 16%

Over 104,000,000 LBP 21%

Tax rates on salaries and wages are as follows:

Taxable Income

Rate

0 – 5,000,000 LBP 2% 5,000,000 LBP – 15,000,000 LBP 4% 15,000,000 LBP – 30,000,000 LBP 7% 30,000,000 LBP – 60,000,000 LBP 11% 60,000,000 LBP – 120,000,000 LBP 15%

Over 120,000,000 LBP 20% 3. Capital Gains Tax - Are capital gains taxable?

No.

4. Filing and Payment Requirements - When must the individual file a tax return, if any?

36

The tax return must be filed by 31 January of each year. For tax on wages and salaries, the tax return is filed by the employer before 1st June of each year.

- When must the individual pay his taxes?

Upon filing the tax return.

5. Inheritance and Gift Tax - Does the individuals' presence in the country subject him to inheritance or gift tax?

Yes, the individual’s presence in the country subjects him to this tax.

- What kind of assets are subject to tax?

All kinds of assets. - What are the tax rates?

Tax rates vary between 3% and 45% depending on the amount of the inheritance and the relation to the deceased, as indicated in the table below:

First

category Second category

Third category

Fourth category

Fifth category

Taxable amounts

Spouse and children

Parents Brothers and sisters

Uncles, aunts,

nephews, nieces

Others

Less than 30 million

3% 6% 9% 12% 16%

30-60 million

5% 9% 12% 16% 21%

60-100 million

7% 12% 16% 21% 27%

100-200 million

10% 16% 20% 26% 33%

200-350 million

12% 18% 24% 31% 39%

More than 350 million

12% 18% 24% 36% 45%

N.B. All amounts are in Lebanese Pounds. There is an additional fixed tax equals = 5‰ (five per thousand) if the amount exceeds LL 40,000,000.

- Are allowances available?

37

Yes, exemptions are available as follows:

- For spouses, children and parents, the amount that does not exceed LL 40,000,000.

- For sisters and brothers, ascendants and other than parents, the amount that does not exceed LL 16,000,000.

- For others, the amount that does not exceed LL 8,000,000. - What are the payment and filing requirements?

Filing requirements, involve submission of documents establishing the legal heirs or legatees and identifying the assets of the estate and their value. Such value is verified by the Ministry of Finance. The inheritance tax may be settled in one payment or by installments.

6. Miscellaneous Taxes Due - What are the miscellaneous taxes to which the individual may be subject?

The individual is subject to the built property tax.

- What are the filing and payment requirements? 7. Real Estate/Habitation Tax - Is the individual subject to real estate or habitation tax?

Yes, the individual is subject to real estate tax (but not property tax).

8. Sales Tax - Does the individual pay sales tax?

Sales taxes are: Restaurant tax: 5% Hotel and furnished apartments: 5%

9. Social Security and Welfare System Contributions - Are contributions to social security due?

Various social security schemes provide for medical, industrial accidents and maternity, participation is mandatory for all employers. Contributions are as follows:

Allowances Employee’s

Contributions Employer’s Contributions

Sickness 2% 6% Family 0% 7%

End of Services 0% 8.5% - Are contributions to the welfare system due?

There are no contributions to the welfare system due.

38

- If so, what are the payment and filing requirements? 10. Stock Option, Profit Sharing and Savings Plans - Is there taxation of stock option plans?

Stock option plans taxation is very minimal, depending on the type of the operation (treasury bond).

- Is there taxation of profit sharing plans?

Yes, there is taxation on profit sharing plans.

- Is there taxation of savings plans?

N/A

11. Taxation of Benefits In Kind

- What is the rate of taxation on benefits in kind (e.g. automobile, housing and utilities, education, etc.)? N/A

12. Taxes on Dividends - Are dividends taxable regardless of their form?

Yes, dividends are taxable regardless of their form.

13. Tax on Income - What are the federal or national tax rates on income for residents?

The national tax rates for residents and non-residents are the following:

Taxable Income

Rate

0 – 9,000,000 LBP 4% 9,000,000 LBP – 24,000,000 LBP 7% 24,000,000 LBP – 54,000,000 LBP 12% 54,000,000 LBP – 104,000,000 LBP 16%

Over 104,000,000 LBP 21% - What are the regional or state tax rates on income for residents?

None - What are the municipal or local tax rates on income for residents?

None

39

14. Tax Treaties - Are there any applicable tax treaties?

There are tax treaties with several countries such as France, various Arab countries, etc.

- Are there any rules against treaty-shopping?

No.

15. Territoriality Rules - Where is the individual subject to tax?

The individual is subject to tax on his income earned in Lebanon.

- Is the individual subject to tax on his worldwide income?

The individual is not subject to tax on his worldwide income.

16. Wealth Tax

N/A

- Is the individual subject to tax based upon his wealth? - If so, what are the rates? - Are there any allowances available? - What are the payment and filing requirements? 17. Withholding Tax - Is salary subject to a withholding tax at the source?

Yes, the salary is subject to a withholding tax at the source.

- What is the treatment of residents as compared to non- residents?

Payment to non-residents for services rendered: 7.5% Payment to non-residents for goods sold: 2.25%

XIV. TAX ON OTHER LEGAL BODIES

N/A

1. Allowances - What are the major allowances (e.g. capital cost depreciation)? - What are the major deductible items? - What are the major expenses that are excluded from deductibility?

40

2. Calculation of Taxes - How is the taxable base determined? 3. Capital Gains - What are the federal or national tax rates on capital gains? - What are the regional or state taxes on capital gains? - What are the municipal or local taxes on capital gains? 4. Filing and Payment Requirements - When must the entity file a tax return, if any? - When must the entity pay its taxes? - Are taxes paid in installments or annually? 5. Miscellaneous Taxes - Due Are other taxes due? - What are the filing and payment requirements? 6. Registration Duties - Are there registration duties or fees due upon the setting up of the legal body? - Are there registration duties or fees due upon a change in the capital of the legal

body? - Are there registration duties due upon the transfer of capital? - Are there registration duties due upon a transfer of assets? - Are there any other registration duties due? 7. Sales Tax or Other Turnover Tax - Is the legal body subject to sales tax or any other turnover tax (e.g. VAT.,

cumulative)? - Is input tax creditable against output tax? - What are the tax rates? - What are the filing and payment requirements? 8. Social Security and Welfare System Contributions - Are social security contributions due? - Are retirement or pension contributions due? - Are unemployment insurance contributions due? - What are the filing and payment requirements for any such contribution? 9. Special Tax Themes - Are there particular tax consequences of doing business in the country under the

form of the particular legal body? 10. Tax on Profits - What are the federal or national income tax rates on profits? - What are the regional or state tax rates on profits? - What are the municipal or local tax rates on profits?

41

11. Tax Treaties - Are there any applicable tax treaties? - Are there any rules against treaty-shopping? 12. Territoriality Rules - Where is the legal body subject to tax? - Is the legal body subject to tax on its worldwide income? 13. Treatment of Tax Losses - How are tax losses treated? 14. Wealth Tax - Is there an applicable wealth tax? 15. Withholding Taxes - What are the rates of withholding tax on the legal body's activities? XV. GENERAL TAX CONSIDERATIONS 1. Taxes Generally - Is there a generally accepted way of structuring the company or other entity so as to

insure the desired tax consequences?

N/A - Is there an advance tax ruling that can be used to validate or invalidate the chosen

form of doing business?

N/A - Is there a general anti tax avoidance system?

No.

- Can the chosen form of business be treated as different form for tax purposes?

No, it cannot be treated as different form for tax purposes.

XVI. IMMIGRATION REQUIREMENTS 1. Immigration Controls - Are there immigration quotas?

No.

- Are vaccinations required? There are no vaccinations required.

- Are medical certificates required?

42

No. - Are entry permits required?

Entry visas are required before entering the country.

- If so, must you apply for an entry permit before entering the country?

Yes.

- Are exit permits required?

Exit permits are not required.

- Are re-entry permits required?

No.

2. Immigration Requirements/Formalities - Is a residence permit required?

Yes, a residence permit is required.

- If so, does the investor have to apply for one before entering the country?

The investor can enter the country with an entry visa. He will then need a residency permit if he is to stay or work in Lebanon.

- What information must be supplied to the immigration authorities?

N/A

- How long does it take to receive authorization?

N/A

3. Visas - Is a visa required for travel or stay in the country?

Yes, a visa is required to travel or stay in the country.

- If so, for how long is the visa valid? The visa is valid for a maximum of three months (renewable) and a minimum of 15 days (renewable).

- How does the investor apply for a visa?

43

The investor applies for a visa at the Lebanese Embassy or Consulate in his country of origin, some nationalities such as US citizens, Canadians, EU nationals, Chinese, Japanese, citizens of the Arab countries except for Jordanians, Russians (citizens of ex-USSR), citizens of Latin America… can obtain a visa at the Beirut International Airport.

- What documents are required?

The person has to file an application form, he/she may be asked to present a document attesting that he/she is coming to work in Lebanon.

- How long does it take to receive a visa?

It depends on the purpose of the travel (generally, not more than 10 to 15 days).

- What fees are involved?

The fees are LL 50,000 for a three months visa, and LL 25,000 for a 15 day visa.

- One entry: LL 50,000 - Two entries: LL 75,000 - More than two entries: LL 100,000

XVII. EXPATRIATE EMPLOYEES 1. Cost of Living and Immigration - How does the cost of living compare to that in the investor's home country?

N/A

- What is the rate of inflation?

0% 2. Drivers' Licenses - Must the investor obtain a driver's license for that country?

The investor must obtain a drivers’ license for the country.

- How does the investor obtain a driver's license? By passing a practical and oral exam, and applying to the department of car registration at the Ministry of Interior.

- What fees are involved?

The fees are approximately assessed at: - Fees for the exam: 25,000 LBP - Fees for the license: 50,000 LBP

44

- Stamp duty: 25,000 LBP - Stamp duty for applying for the exam: 5,000 LBP

- Is an examination, either practical or written, required?

The investor can change his International Drivers’ License into a Lebanese one according to the Geneva Convention of 19th of September 1949.

3. Education - What type of schools are available for the investor's family?

Private (French, American, German, missionary schools) and Public schools are available for the investors’ family, the fees depend on the classes they want to attend. Identification papers are required for enrollment.

- What fees are involved?

Fees vary between US $ 3,000 to US $ 6,000 per year. - What is required for enrollment?

N/A - Can the investor or company receive a tax benefit?

No, the investor or company cannot receive a tax benefit.

4. Housing - What type of housing is available for the investor?

Various types of housing are available, depending on the investor’s budget.

- Can the investor own property? The investor can own property with a surface area not exceeding three thousand square meters.

- Must the investor have housing before he enters the country?

No.

- Can the investor subsidize housing and receive a tax benefit?

No.

5. Importing Personal Possessions - How can the investor import his personal belongings?

45

The investor can import his personal belongings through any means of transport.

- Are import duties payable?

If the investor has a work permit or a residency permit, there are no import duties. If the investor does not have a work permit or a residency permit, he has to submit a bank guarantee upon the appraising of his goods (by the Customs Agents) until he gets the permits. He can take back the amount paid them.

- Are there requirements for clearing the belongings through customs?

The investor has to make a statement of his belongings.

6. Medical Care - What level of medical care is available?

Medical care up to international recognized standards (e.g. American University Hospital).

- Is there national health care?

No.

7. Moving Costs - What costs are involved in moving?

N/A

- Can the investor receive any tax allowances? 8. Tax Liability - What is the expatriate's tax liability? (see also Section XIII) - What are the allowances? - Are there any applicable tax treaties? 9. Work Contracts - Does the investor need a work contract to work in the country?

Yes.

- If so, does the contract have to be for a certain duration, for the performance of a

specific job or for a specific position? It can be either for a limited or unlimited duration.

46

- Does the contract have to be with a national or resident of the country or related state? See responses under XI.2 and XI.3.

10. Work Permits - Does the investor need a work permit to work in the country?

Yes, see response under XI.5.

- How and where does the investor apply for the permit?

- What documents are required?

- What fees are involved?

- How long does it take to receive the permit?

- For how long is the permit valid?