On October 9, 2017, the Lebanese Parliament passed for the second time a controversial tax bill which may increase several Lebanese taxes. The passage of this increase in Lebanese taxes comes after a turbulent legislative history and it is not yet certain that it will actually become the law and survive a Constitutional challenge.
History of the 2017/2018 Increase in Lebanese Taxes
The simultaneous increase in Lebanese taxes and Lebanese public sector wages was on the table for the consideration of the Lebanese Parliament already in the Spring of 2017. After a prolonged deliberation in Lebanon, Bill No. 45/2017 finally mustered sufficient support in the Parliament and passed for the first time in July of 2017. President Aoun ratified it on August 21, 2017 and the workers began to receive increased salary immediately.
The Lebanese business groups, however, strongly objected to some aspects of the new law. The Lebanese Constitutional Council agreed with these objections and annulled the new law in September of 2017, referring it back to the Parliament for amendments.
Yet, the raising of the wages proved to be such a powerful move that the Lebanese parliament again passed virtually the same bill again on October 9, 2017. Of course, this means that the law could be challenged at the Constitutional Council again. In fact, a leader of one of the parties that opposed the tax increases already stated that he would do exactly this as soon as his lawyers explore this possibility.
Description of Increase of the Lebanese Taxes
The current law as amended would increase the corporate income tax rate to 17 percent from the current 15 percent. The VAT (Value Added Tax) will increase by 1 percent to the total of 11 percent effective October 1, 2017. Starting August 22, 2017, the transfers of real estate will be subject to a duty of 2 percent of the sales value of the property.
There will also be a brand-new 20-percent tax on lottery prizes.
The biggest losers under the new increase in Lebanese taxes, however, will be all banks that operate in Lebanon. First of all, the withholding tax rate on interest and other similar income derived from bank deposits will increase to 7 percent from the current 5 percent. Second, the new law raises the effective tax rate of the banks themselves. Right now, the effective tax rate stands at 15 percent, but the banking lobbying groups say that it may be as high as 50% after the increase in Lebanese taxes is fully implemented (though, there are strong reasons to doubt this claim).
Conclusion: Increase of the Lebanese Taxes Is Not Certain Yet, But It May Still Impact US Taxpayers with Lebanese Bank Accounts
It is not clear yet whether the recently-passed increase in Lebanese taxes will actually be realized, but all US taxpayers with bank accounts in Lebanon should carefully follow these new developments and re-assess their investment strategies accordingly.