I. ENTERING THE LEBANESE MARKET

Lebanon has a liberal and open economy, particularly by Middle East standards. It is a free market economy, with liberal laws designed to encourage foreign investment and stimulate commercial activity. There are various types of companies and offices available to foreigners seeking to conduct business in Lebanon.

Generally, all companies are governed by the Lebanese Commercial Code and its regulations and are required to retain the services of a lawyer. The government encourages cooperation between foreign and Lebanese companies. Unlike many countries in the region, Lebanese law does not require joint ventures to have a specific percentage of Lebanese ownership.

II. FORMS OF DOING BUSINESS

The following forms of entry into the Lebanese market are available to foreign nationals and foreign entities:

A. Joint Stock Company (Société Anonyme Libanaise (S.A.L.)

To form a Joint Stock Company a minimum capital investment of LL 30,000,000 (Approximately US $20,000) is required, along with at least three (3) founding members. The Board of Directors may have between 3-12 members, as long as the majority of the members are Lebanese. The company’s head office must be in Lebanon and a foreign-national chairman may only hold office if he has a work permit (this rule does not apply to the chairmen of banks, and offshore or holding companies, which are usually formed as joint stock companies).

Generally, the law does not place minimum requirements on the percentage of Lebanese ownership of joint stock companies. However, if the company’s objectives include trading real estate in Lebanon, fifty percent (50%) of the company’s capital must be owned by Lebanese nationals. Furthermore, there are specific ownership requirements relating to the purchase of real estate in Lebanon (See discussion under the heading “Real Estate Company”).

In terms of tax liability, a joint stock company is subject to a ten percent (10%) tax on its net profit and a five percent (5%) tax on the distribution of dividends (See Tax discussion under Section II for more details).

B. Limited Liability Partnership Company (Société à Responsabilité Limitée (S.A.R.L))

The formation of a Limited Liability Partnership requires a minimum capital of LL 5,000,000 (Approx. US $3,333). The partnership must have at least 3 partners of any nationality; a manager who can be a non-partner; and an auditor if its capital exceeds LL 30,000,000 (Approx. US $20,000). If the number of partners exceeds thirty (30), the company must change its registration to a Joint Stock Company within two (2) years or be forced to dissolve. A Limited Liability Partnership may not engage in any activities involving the business of insurance, savings, banking, capital investments, and air transport.

The Limited Liability Partnership must register with the Commercial Register in the district where it is located, as well as with the Patent Office of the Ministry of National Economy and Commerce. The Limited Liability Partnership is taxed at a flat rate of 10% on generated net profits.

C. Holding Company

Law No. 45/83 governs the establishment of holding companies. Under this Law, the activities of a holding company are limited to the following:

• the acquisition of shares/equity;
   
• management and granting of loans to companies operating within Lebanon in which the holding company owns at least twenty percent (20%) of the shares;
   
• holding and leasing of patents, inventions, concession rights, and registered trademarks; and
   
• the purchase of goods and real estate needed for its operations.

A holding company must be established in the form of a joint stock holding company and it must have its head office in Lebanon. A minimum capital investment of LL 30,000,000 (Approximately US $20,000) is required. Its board must consist of at least two (2) members who are of Lebanese nationality. A non-Lebanese chairperson, provided he is resident abroad, may operate without a work permit. Board and shareholders’ meetings may be held abroad. The company must be registered in the Commercial Register and in a special register for holding companies.

Holding companies are exempt from income taxes on their profits and on profit distribution. They are subject to capital gains tax (currently taxed at 6%) if the shares sold were owned by the holding company for less than two years. Annual fixed taxes on capital and reserves are calculated on a sliding scale and range from 2-6%.

D. Offshore Company

Law No. 46/83 governs the establishment of offshore companies. Pursuant to this law, the activities of an offshore company are limited to the following:

• negotiating and concluding of contracts and agreements to be executed outside of Lebanon or in the free trade zone areas;
   
• storage of goods and products in customs free zone;
   
• preparation of studies or undertaking consulting for use abroad; and
   
• banking, financial and brokerage activities to be executed outside Lebanon.

An offshore company is specifically prohibited from engaging in industry, banking operations, insurance or any other commercial activity in Lebanon. It is also prohibited from earning any profits or revenues through movable or immovable assets in Lebanon, or through providing services to companies located in Lebanon, except for the interests on its bank accounts.

The offshore company must be formed as a joint stock company and a bank guarantee of LL 100,000 (Approx. US $66.50) is required upon formation. At least two Lebanese nationals must occupy positions on the company’s Executive Board. The chairman may be a non-Lebanese resident abroad and may operate without a permit. The company must be registered both in the Commercial Register and in a special register for offshore companies.

Profits are tax exempt but the company is subject to an annual flat tax of LL 1,000,000 (Approx. US $666). The capital gains resulting from the sale of the offshore company's fixed assets in Lebanon are taxed at a rate of 6 percent. The salaries and wages of the employees working at the offshore company are subject to taxes on wages and salaries at rates varying from 2 to 10 percent. (See Tax discussion under Section II for more details).

E. Branch or Representative Office

A foreign company doing business in Lebanon may set up either a branch office or a representative office. These offices must be registered at the Commercial Register of the district in which they are located.

A representative office is a liaison office that offers technical assistance in the market and handles public relations. The office may not engage in any commercial activity or generate any business/profit. As such, all expenses and costs of the office must be covered by foreign transfer from the outside head office. Because of its nature, the representative office is only subject to personal income tax.

A branch office, on the other hand, may undertake any commercial activity, except that which by law requires a certain legal form and/or that which is exclusively reserved for Lebanese nationals and/or companies. A branch office is subject to both corporate and personal income tax.

F. Real Estate Company

This type of company is subject to government regulations relating to the acquisition of real estate. Companies established and existing under the laws of Lebanon may purchase real estate in Lebanon if the following conditions are met:

• For limited liability partnerships, the capital must be totally owned by Lebanese persons and/or wholly-owned Lebanese companies.
• For joint stock companies, the shares should be nominative and totally owned by Lebanese persons or wholly-owned Lebanese companies whose articles of association prohibit the assignment of shares to non-Lebanese nationals or companies.

Notwithstanding, a foreign person or entity may acquire real property in Lebanon upon prior government authorization in the form of a decree issued by the Council of Ministers.

G. Insurance Company

Special authorization from the Ministry of Economy is required to establish an insurance company. They must take the form of joint stock companies. Minimum capital of LL 300,000,000 (Approx. US $200,000), is required, with basic reserves of LL 90,000,000 (Approx. US $60,000) and cautionary reserves of LL 750,000,000 (Approx. US $500,000).

In order to conduct business in Lebanon, a foreign insurance company must demonstrate that its country of origin provides reciprocal treatment for Lebanese companies doing business there. Once it has done so, it will be licensed to do business in Lebanon in the same types of insurance it is licensed to pursue in its home country. The foreign company may appoint a representative who must be Lebanese.

H. Banks

Banks must be formed as joint stock companies and require prior authorization from the Central Bank. The Central Bank sets the specific capital requirements. One-third of all bank shares must be held by Lebanese nationals or Lebanese companies with foreign participation. The transfer of all bank shares is subject to Central Bank approval.

Lebanon also has very strict banking secrecy laws that, with few exceptions, prohibit disclosure of client information by bank employees and others with access to the client’s banking details. The Code of Banking Secrecy governs this area and sets out the additional advantages, as well as exceptions, to this system.

I. Commercial Representation

If a foreign company elects not to incorporate in Lebanon or establish a branch office, it must engage the services of a Lebanese representative in order to pursue commercial activities in Lebanon. Representatives and their agreements are regulated by specific legislation.

Where the representative is a natural person, he must be of Lebanese nationality and duly established as a merchant in Lebanon. With respect to representative companies, the law provides that these companies are for the exclusive use of Lebanese nationals or companies controlled by Lebanese nationals. As such, these entities must meet certain conditions. In limited liability partnerships, the majority of the partners must be of Lebanese nationality, the majority of the capital must be Lebanese-owned and the authorized signatory of the partnership should be Lebanese. For joint stock companies, the shares should be nominative with the majority owned by Lebanese nationals and two-thirds of the Board members, as well as the general manager, should be Lebanese.

The Law also provides for the following:

• The commercial representative agreement must be in writing, may be for either a limited or an unlimited term, and can be exclusive or non-exclusive.
   
• The commercial representative is entitled to indemnity/compensation for wrongful termination of the agreement, even where the termination is a result of the natural expiry of the agreement.
   
• The Lebanese courts have exclusive jurisdiction over all commercial representative agreements and all choice of law clauses are invalid unless they designate Law No. 34/67 as the applicable law.

III. TAX

The primary tax law in Lebanon is Law No. 144/59, as amended by Law No. 282/94. All legal entities, both Lebanese and foreign, are subject to the tax law, whether or not they are based in Lebanon.

Generally, the maximum income tax rate for corporations is 10% of net profits and 5% on the distribution of dividends. Companies deriving income in Lebanon, but not having a place of business there, are subject to a 10% tax on their net taxable income.

The Lebanese laws provide for numerous tax exemptions. The most relevant are:

• Educational institutions; hospitals, orphanages and shelters that admit patients for free; and mental institutions receive an indefinite exemption.
   
• Agricultural ventures and agricultural consumer cooperatives also receive an indefinite exemption under the Tax Law.
   
• Profits generated by an industrial entity in Lebanon receive a ten (10) year tax exemption if the entity: (1) is established in Lebanon after 1980; (2) is established in an area the government is seeking to develop; (3) produces products not produced in Lebanon before January 1, 1980 and (4) owns more than LL 500,000,000 (Approx. US $333,333) in production assets. This exemption requires a government decree based on a recommendation by the Ministers of Finance and Industry and Oil.
   
• Holding companies are exempt from the tax on profits and distributions described above, however, they do pay tax on their capital at the following rates:
  
  -6% of capital up to LL 50,000,000 (Approx. US $33,333)
  -4% of capital between LL 50,000,000 and LL 80,000,000
  -2% on any amount over LL 80,000,000 (Approx. US $53,333)
  
  Additionally, holding companies are assessed various other specific taxes on revenues and fees generated from their activities.
   
• Offshore companies are exempt from tax on their actual profits, but the law does mandate that they pay an annual flat rate of LL 1,000,000 (Approx. US $666). Furthermore, foreign employees of offshore companies benefit from a thirty percent (30%) exemption on earned income tax. It is important to note that if an offshore company engages in unauthorized activity, it will be taxed as a joint stock company and subject to a penalty equal to fifty percent (50%) of that tax.

Penalties: Penalties for violations of the tax requirements can be found in the Tax Law itself (Law No. 144/49, as amended by Law No. 282/59), as well as Law No. 156/83. The penalty for violations of the tax law provided for in Law No. 144 consists of fines ranging from LL 200,000 (Approx. US $133) and LL 500,000 (Approx. US $333). Under Law No. 156, penalties include imprisonment ranging from 3 months to 3 years and/or fines ranging from LL 1,000,000 (Approx. US $666) to LL 30,000,000, (Approx. US $20,000) depending on the offense committed.

IV. BEIRUT STOCK EXCHANGE

The BSE has three markets: the official market, the junior market, and the unlisted market (which covers securities not quoted on the stock exchange).

In order for a registered joint stock company to be listed on the BSE, it must comply with specific conditions, including the submission of full financial statements for the previous three years and a minimum capital requirement, which varies depending on the market (official, junior or unlisted) the company is listed on.

V. INTELLECTUAL PROPERTY RIGHTS

Lebanon’s Intellectual Property Rights law dates back to 1924 and the French occupation of Lebanon. The law covers all aspects of intellectual property, including trademarks, author’s rights (copyright), patents, and industrial designs and models. In early 1999, Parliament enacted a long-awaited Copyright law, which repeals and replaces those provisions of the 1924 law that relate to copyright issues. The new law gives broad copyright protections and provides for civil and criminal remedies for violations of the same. Parliament is discussing a bill on the protection of trademarks to replace the 1924 law. Patent legislation to replace that aspect of the 1924 law is also expected soon in an effect to conform to World Trade Organization requirements and facilitate accession.

Registration of a trademark is open to all natural persons or corporate bodies, both Lebanese and foreign. Foreigners, however, are required to appoint a local agent to arrange all registration formalities and to receive the registration certificate and service of process. An application for registration, as well as other specifics, must be filed at the Office of Protection of Commercial and Industrial Property at the Ministry of Economy and Trade. The registration, which is open to opposition for five years, is valid for 15 years and renewable for additional periods of 15 years.

Lebanon is a signatory to several international agreements relating to intellectual property rights and has begun the process for accession to the World Trade Organization which, once completed, will subject Lebanon to the standards and obligations of the Agreement on Trade-Related Aspects of Intellectual Property.

VI. PUBLIC BIDS

Generally, foreigners do not need to have a local agent or partner in order to participate in public bids. However, if the object of a joint stock company (established by foreigners) is to operate a public service in Lebanon, at least one-third (1/3) of that company’s capital must be controlled by Lebanese-owned nominal shares which are not transferable to foreign third parties.

Tenders are governed by Decree No. 2866 dated December 16, 1959 (as amended by Decree No. 8703 dated February 10, 1962 and Decree No. 13221 dated June 28, 1963). This decree applies to all State tenders over LL 25,000, except for those to the Ministry of Defense, Security Force and Public Security.

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