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THE HOLDING COMPANY

January 1998


1. Object

a. Acquiring Shares
1. Limitation
2. Penalties
b. Managing Companies
c. Lending
1 Sources of Financing

2. Restrictions
d. Possessing and Renting Reserved Rights
2. Possessing assets

2. Prohibitions and Penalties

a. Prohibitions
b. Penalties

3. Legal Aspects

a. Structure
b. Capital
c. Denomination
d. Head Office

4. Administration

a. Board of Directors
b. Chairman
c. General Assembly
d. Auditor

5. Financial Records

6. Registration

a. General Register
b. Special Register

7. Publication

8. Taxation of the Holding Company

a. Declaration
b. Fine for Delayed Declaration
c. Exemptions
d. Tax Base and Rates

  1. Interest
  2. Capital Gain
  3. Management Proceeds
  4. Renting Patent
  5. Capital and Reserves

e. Settlement of taxes


1. Object

The object of the holding company must be restricted to the following:

a. Acquiring Shares

The holding company can acquire shares in Lebanese or foreign joint-stock companies or limited liability companies, or participate in their establishment .

1. Restrictions

The holding company cannot, however, directly possess shares exceeding forty percent in more than two companies operating in the same industrial, commercial or non commercial field in Lebanon, if such a participation is likely to constitute a violation of the anti-monopoly provisions.

2. Penalties

If the holding company violates the above mentioned restriction, it will be subject to the penalties stipulated in the anti-monopoly decree law.

b. Managing Companies

The holding company can manage companies in which it owns shares.

c. Lending

The holding company can lend money to companies in which it owns shares, and guarantee them towards third parties.

1. Sources of Financing

For the purpose of lending money to companies in which it owns shares, the holding company may :

  • borrow money from banks;
  • issue debentures on condition that the amount of debentures issued does not exceed at any time five times the amount of the capital plus reserves of the holding company, according to the last balance sheet approved by the general assembly.

2. Limitation

The holding company is not allowed to lend money to a company operating in Lebanon if its share in the company's capital is less than twenty percent.

d. Possessing and Renting Reserved Rights

The holding company can possess and rent to enterprises located in Lebanon and abroad, the following rights:

  • patents,
  • discoveries,
  • concessions,
  • registered trademarks,
  • other reserved rights.

e. Possessing assets

The holding company can possess movable and immovable assets in Lebanon on condition that they will be assigned only for the needs of its operations, in accordance with the provisions of the law on the acquisition of real estate by foreigners in Lebanon.

 


2. Prohibitions and Penalties

a. Prohibitions

The holding company is prohibited from engaging directly in activities beyond its restricted object as specified above.

b. Penalties

If the holding company engages in activities beyond its object, it becomes subject, for the year during which these activities were performed, to one of the following penalties, whichever is higher:

  • The income tax imposed on associations of capital operating in Lebanon, in addition to a penalty of 20 percent of the original tax.
  • A penalty set at 3 per mil of the initial capital and reserves.

3. Legal Aspects

a. Structure

The holding company must be founded as a joint-stock company.

It is subject to the rules governing Lebanese joint-stock companies in all what is not incompatible with the provisions of decree law no: 45 regulating holding companies.

b. Capital

The minimum required capital for a holding company is LL.30,000,000 which is the same for a joint-stock company.

It must be fully subscribed to, and can be denominated in a foreign currency.

c. Denomination

The following expression: "Holding Company" must be mentioned next to the name of the company, in papers, announcements, pamphlets, and all other documents of the company.

d. Head Office

The head office of the holding company must be in Lebanon where the legal records and documents are kept.

The holding company must provide either one of the following:

  • a lease contract for the premises, where it is going to operate,
  • a document proving the ownership of the premises,
  • a written approval on behalf of the natural person or legal entity owning the place selected as a residence in Lebanon.

 


4. Administration

a. Board of Directors

The board of directors of the holding company must include, at least, two Lebanese natural persons.

It is possible to convene the board outside Lebanon if the company's articles of incorporation allow it.

b. Chairman

If the chairman is a foreigner not residing in Lebanon,a work permit is not required.

c. General Assembly

It is possible to convene the general assemblies outside Lebanon if the company's articles of incorporation allow it.

The annual ordinary general assembly must be held in Lebanon, within a maximum period of five months from the end of the financial year, as specified in the company's articles of incorporation.

d. Auditor

The company must appoint, at least, one auditor, who should be of Lebanese citizenship residing in Lebanon. His appointment cannot exceed three years.

The holding company is exempted from having an additional auditor appointed by the president of the Court of Commerce, upon the request of the chairman, as is the case for the joint-stock company.

 


5. Financial Records

The holding company is required to hold accounting records, and to prepare annual financial statements.

The holding company can hold its accounts and prepare its balance sheets in the same currency of its capital.

 


6. Registration

a. General Register

The holding company should be registered in the General Commercial Register according to the provisions of the Code of Commerce.

b. Special Register

The holding company should also be registered in a Special Register for Holding Companies held at the Court of First Instance in Beirut.


7. Publication

The holding company must publish annually in the Special Register for Holding Companies, the following:

  • the balance sheet of the financial year;
  • the names of the members of the board; and
  • the names of the auditors .

It does not have to publish these statements in the Official Gazette, in an economic newspaper and in a daily local newspaper as is the case for Lebanese joint-stock company (S.A.L).

 


8. Taxation of the Holding Company

a. Declaration

The holding company is required to submit tax declarations, and settle the due taxes to the Finance Department of Income Tax, in accordance with the rules governing joint-stock companies, in all what is not incompatible with the provisions of decree law no: 45 regulating holding companies.

b. Fine for Delayed Declaration

A fine of LL. 50,000 per month is imposed on the holding company if there is a delay in submitting the tax declarations.

c. Exemptions

The holding company is exempted from the following taxes:

i- income taxes on their profits,
ii- income taxes on profit distribution.

d. Tax Base and Rates

The holding company remains subject to the following taxes:

1. Interest

The interest collected against loans given by the holding companies to companies operating in Lebanon is subject to income taxes at the rate of 5 percent, if the maturity of the extended loans is less than three years.

2. Capital Gain

The capital gains resulting from the sale of the holding company's participations and shares in Lebanese companies are taxed at a rate of 6 percent, if these participations and shares were owned by the company for less than two years.

3. Management Proceeds

The amounts collected by a holding company from subsidiaries in Lebanon as management, and miscellaneous services and other fees are taxed at a rate of 5 percent, on condition that these fees do not exceed the limits set by a decree issued upon proposal of the Minister of Finance .

4. Renting Patents

The revenues collected by a holding company as a result of renting patents and all the reserved rights it possesses, to enterprises located in Lebanon are taxed at a rate of 10 percent, with no additional surtax.

5. Capital and Reserves

The holding company is subject to an annual fixed tax according to the rates shown in table 1 below.

The amount of the annual tax should not exceed LL. 5,000,000.

 

Table 1 : Tax rates applied on capital and reserves

Capital and reserves in LL. Tax rate
Less than 50 000 000 6%
50 000 000-80 000 000 4%
Exceeding 80 000 000 2%

This tax is imposed on the holding company starting the first financial year, regardless of its duration.

e. Settlement of taxes

The taxes due on the holding company should be settled in one payment upon submitting the declaration of its operations, and within the specified period.

A penalty of 0.5 per mil is added for every day of delay.

 
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