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LEBANON: An Introduction to Corporate & Finance

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Lebanon: 2023 – The Year of Resilience 

The year 2023 marked the lives of the Lebanese with numerous complex events. Despite it all, Lebanese people have shown resilience, determination, and adaptability as they confront this multifaceted crisis.

The 2024 Budget proposal awaits legislative approval

After the rejection of the 2023 draft budget by the Lebanese parliament’s Finance and Budget Committee, the Lebanese government has issued the 2024 Budget draft that is being scrutinised by the Finance and Budget Committee in a manner as to incorporate necessary amendments to align with the escalating cost of living. The Budget draft is expected to be submitted to parliament for approval before the end of January 2024.

In its draft form, the 2024 Budget suggests amendments to a number of existing corporate taxes, including registration tax on companies, stamp duty on companies’ licences, and taxes on the establishment of branches and representation offices.

On the employment level, the Budget draft imposes on employers the adoption of one and the same currency for the payment of salaries and wages and subsequent payment of the taxes applicable thereon.

Such taxes are to be paid at the latest of the 15th of the month following the end of the respective three-month period. Such taxes will be a source of substantial income to the Lebanese Treasury allowing it to meet its expenses.

News of the banking sector 

After the severe economic and financial crisis that started in 2019 leading to strict limits on cash withdrawals and banking transactions, Lebanese banks have actively engaged during the course of 2023 in comprehensive strategies to navigate and adapt within this challenging environment, proactively addressing the need for trust rebuilding.

In this direction, Lebanese banks are tailoring and releasing a range of new products, coupled with innovative tailor-made solutions, and expanded banking services. The objective is clear – to regain the confidence of the depositors by providing fresh, customer-centric financial offerings. We are witnessing the issuing of “fresh” payment cards allowing individuals and companies to make unrestricted daily foreign currency transactions using their “fresh” funds deposited in cash or received from abroad. Lebanese banks are also back at accepting the opening of accounts to individuals and companies in “fresh” funds, subject to the payment of a one-time fee and a flow of funds, both in “fresh” foreign currency, and have reactivated their services for e-commerce purposes.

In addition, the Central Bank of Lebanon has issued many decisions and circulars, under the provisions of which it has adopted a number of measures in relation with the withdrawal of deposits or cross-border transfer of funds in foreign currency.

Role of the judiciary 

In 2023, several changes occurred at the level of the judiciary.

It was decided on many occasions that all outstanding and unsettled debts between individuals should be recovered exclusively in cash, either in the same currency or in its equivalent in Lebanese pounds, at Sayrafa rate (which is the exchange rate set and adopted by the Central Bank of Lebanon). Through a series of court decisions, Lebanese courts established that the settlement of debts by cheque or any other manner that does not meet the real value of the due amount is not acceptable anymore.

Moreover, since the beginning of 2023, all judicial fees applicable to disputes in foreign currency are calculated based on Sayrafa rate, allowing the state to realise significant income to the Lebanese Treasury.

Remedial attempts 

As part of a legislative proposal aimed at restoring financial stability, the government submitted a draft law to parliament aimed at imposing taxes on undisclosed and unpaid profits earned as a result of the settlement of loans at an exchange rate and value that are different from the actual value of the debt. However, an exception is made for housing and individual consumer loans with a value not exceeding USD100,000 or its equivalent in the national currency at the time of issuance.

This fund is intended to support the financial recovery process, as the tax proceeds are earmarked for funding the proposed Deposit Recovery Fund (DRF).

Real estate sector: positive news in the horizon

During the course of 2023, the real estate sector witnessed a sharp fall: according to the Lebanese Cadastral Registry, the number of transactions has fallen to 3,425 compared to 39,921 transactions in the same period of 2022. This goes in parallel with a drop of the sale price of residential units that were reduced by 30% to 60% since 2019, depending on various factors. This was primarily caused by the complete absence of the lending activity of Lebanese banks.

In a recent attempt to enable Lebanese households with limited to moderate income to acquire houses, but also to boost the Lebanese real estate sector and to relaunch the housing activity, the Arab Fund for Economic & Social Development has approved a loan to the Lebanese Banque de l’Habitat for KWD50 million (approximately USD162.7 million).

In a nutshell 

Considerable economic challenges in Lebanon marked the year 2023, in the absence of a robust banking sector to support commercial activities on a large scale. Nevertheless, the touristic and F&B sectors are witnessing steady growth, as portrayed by the number of hotels, resorts and restaurants opening their doors again to the public, as well as the constant support of the Lebanese diaspora, demonstrating remarkable resilience during this challenging period.