THE CLIMATE FOR BUSINESS

Lebanon 2015 | EXECUTIVE GUIDE | REVIEW: DOING BUSINESS

Lebanon has been an independent republic since 1943. In the intervening years it has undergone seismic events—the most detrimental being its civil war—the legacy of which to this day is lingering political uncertainty.

The state has largely remained out of the free market and an unrestricted exchange and trade system has prevailed. Capital and goods enjoy wholesale freedom of movement by residents and non-residents of the Republic. And as this includes entry or exit of firms, or on access to forex, Lebanon boasts a system conducive to private sector development. Foreign investors may import and export capital freely in any form. The private sector accounts for over 80% of aggregate demand and encompasses sectors including agriculture, manufacturing, construction, trade and tourism.

SERVICE SECTOR

The Lebanese economy primarily rests on the service sector, which accounts for roughly 80% of GDP. Services prominently include commerce, tourism and financial services. The dynamo of the economy, the banking sector accounts for over 2.5 times the total economic sector and from the 1950s to the start of the civil war in 1975, Beirut was a regional financial services center. Medical care in Lebanon is among the most sophisticated in the region with nationwide hospital availability. Social provision, too, is adequate with a strong emphasis on education, which accounts for around 10% of the state budget.

FREE ZONES (FZs)

Lebanon has been keen to reassert itself as a regional trading and transport hub, where the key project has been "Beirut Free Trade Zone", set up in 1995. It offers investors a raft of familiar incentives including of 100% foreign ownership, customs exemptions for goods entering and leaving the FZ, long-term, low-cost land and building leases and low-cost utilities rates for industries.

FOREIGN INVESTMENT

Foreign investment is welcomed by the Lebanese government, and high among factors to invest are the country's strategic location rendering it a transshipment node between Arab nations and further afield. In 2002 the erstwhile banking secrecy law in Lebanon was amended to better comply with international standards of anti money laundering law, whereby the Special Investigation Committee (SIC) was mandated to investigate questionable transactions.

There is also protection of private property and equality among Lebanese and Non-Lebanese individuals. Meanwhile, a multi-lingual and skilled workforce is in place.

TAX BREAKS

There is a ten-year tax exemption on profits generated by industrial entities established since 1980 in strategic areas of the economy meriting development and that manufacture new products not produced in Lebanon before January 1st, 1980.

INVESTMENT DEVELOPMENT AUTHORITY IN LEBANON

The Investment Development Authority in Lebanon (IDAL) operates as a facilitator rendering investment smoother and faster, be it of a long or short and term nature. Through Lebanon's Investment Development Law IDAL facilitates the establishment and operation of business enterprises on Lebanese soil. The process features a set of investment privileges including tax benefits, and incentives in the areas of tourism, agriculture, agro-processing, industry, technology, communications, and information technology among others. A one-stop-shop, it conveniently arranges licenses and permits, provides sectoral studies, and bridges entrepreneur and investor.

Projects deemed worthy beneficiaries of the IDAL package deal receive at maximum level a number of incentives. These include:

Full exemption from income taxes and taxes on project dividends for 10 years as of the date the project becomes operational.

Those enterprises are also assisted in obtaining a range of work permits on condition that the project is of material benefit to local labor by employing at least two Lebanese nationals for each foreign national, and that these are registered in the National Social Security Fund.

Reduction of work and residence permit fees up to a maximum of 50%, regardless of the category thereof and depending on the number of permits acquired.

There is a 50% discount on the value of the certificate of deposit to be paid at the Housing Bank. Exempting various Lebanese joint-stock companies aiming to acquire and/or manage an investment project benefiting from the provisions of the package deal contract, from the obligation of having Lebanese nationals or legal entities on the Board of Directors.

A reduction of up to a maximum of 50% of permit fees for construction required during the lifetime of the project is available.

There is also full exemption from fees related to land registration at the Land Registry, and from annexation, sub-division, mortgage, and registration of lease contract fees at the Registry for Estates. This applies to projects that are the subject of a package deal contract. Any such construction must be realized within five years from the date on which said land is registered at the Land Registry. An investor in default of this implementation liable to a penalty equivalent to three times the fees originally due.

KAFALAT

Lebanon's program of subsidized loans was launched in 1997 featuring a 5-7% subsidy on interest on loans to productive sectors extended in foreign currencies. Kafalat is a Lebanese financial company devised to facilitate the extending of lower interest rate commercial loans by Lebanese banks to small and medium sized enterprises (SMEs). SMEs receive loan guarantees on condition of providing feasible business plans. Kafalat processes guarantee applications for such loans. Kafalat targets SMEs and innovative start-ups in the select economic sectors of Industry, High Technology, Agriculture, Tourism and Traditional Crafts. The facility enables SMEs (over 50% contribution to GDP) to actively pursue commercialgrowth, thus contributing to the wider economy, inviting investment and creating employment.