Foreign investment is
welcomed and encouraged by the Lebanese government into the economy.
attractions of Lebanon to foreign investors are as follows:
- A strategic geographical
location as a transshipment point between a variety of Arab countries and
- Free market economy with
liberal investment policies.
- Free foreign exchange
market with no restrictions on the transfer of capital and earnings. The
traditional banking secrecy law in Lebanon has, in 2002, been amended to
empower the Special Investigation Committee (SIC) to lift bank secrecy and
investigate suspicious transactions to ensure compliance with anti money
- Protection of private
property and right and equality between the Lebanese and Non-Lebanese.
- Variety of investment
opportunities in all sectors of the economy.
- Fairly low tax rates with
room for tax structuring and planning.
- Highly skilled, educated
and multilingual (Arabic, English and French) workforce.
There is a ten years tax
exemption on profits generated by industrial entities that are established
after 1980 in areas that the government wants to develop and in which produce
new products not produced in Lebanon before January 1, 1980 and own more than
$300,000 in production assets.
AUTHORITY IN LEBANON
The Investment Development
Authority in Lebanon (IDAL) acts as a facilitator. It makes investment easier,
faster, and more productive on both a short and long-term basis. The new
Investment Development Law enables IDAL to assist in the setting up and
operating business enterprises on Lebanese soil backed by new investment
privileges, tax benefits, and incentives in the areas of tourism, agriculture,
agro-processing, industry, technology, communications, and information
technology among others. The key to IDAL efficiency lies in its "One-Stop-Shop"
service: issuing licenses and permits, providing studies, offering the ideal
match between the right entrepreneurs and the right investors.
A package deal
contract is a contract whereby the Lebanese government, represented by IDAL,
shall grant the investor willing to establish a project the incentives,
exemptions, and reductions decided on by IDAL Board of Directors for this
project, within the ceiling listed hereof (incentives), provided that the
investor is committed under this contract to execute his project in accordance
with the terms and duration contained therein.
The rights and obligations of
both IDAL and the investor shall be specified in detail in the contract,
including commitment by the investor to implement the project within a certain
period of time. The contract is subject to the approval of the Council of Ministers
based on a proposal of the Prime Minister, after being signed by IDAL and the
Projects benefit from the package deal system shall be offered at
maximum, the following incentives:
- Full exemption from income
taxes and taxes on project dividends for 10 years starting from the
commencement date of the project exploitation.
- Obtaining work permits of
various categories, provided that the project benefiting of the package deal
maintains local labor interests through employing at least two Lebanese
nationals against one foreigner, and registration of same 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. Also, the value of the
certificate of deposit with the Housing Bank shall be reduced by half.
- 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
- Reduction up to a maximum
of 50% of permit fees for constructions needed for the execution of the
- Full exemption from fees
related to land registration at the Land Registry, and from fees for
annexation, sub-division, mortgage, and registration of lease contracts at the
Registry for estates where projects which are the subject of a package deal
contract are to be built on, provided that the execution of same shall be
within five years from the date of registration of the land at the Land
Registry. An investor in default of implementation of the project thereof shall
be liable to pay a penalty equivalent to three times the fees that were
The cumulative amount of
subsidized interest loans to productive sectors in Lebanon reached $3.22
billion at the end of June 2010.
The industrial sector accounted for $1.9
billion, or (59%) of the total, followed by tourism with $946.6 million,
agriculture with $302 million, specialized technology with $74.5 million and
handicrafts with $1.2 million.
Subsidized interest loans extended in 2009
totaled $542.6 million relative to $465.5 million in 2008 and $245.4 million in
2007. The figures are compiled by the Central Bank of Lebanon.
medium and long-term loans reached $2.18 billion, equivalent to 67.6 percent of
the total at end-June 2010. Industry accounted for 59.5% of the total, followed
by tourism with 34.6%, agriculture with 4.3% and specialized technologies with
The program was established in the first quarter of 1997 and
consists of a 5-7% subsidy on the interest for loans extended in foreign
currencies to productive sectors. Also, subsidized interest loans guaranteed by
Kafalat Corporation totaled $730.7 million, or 22.7% of the total. Industry
accounted for 53.1% of Kafalat-backed subsidies, followed by agriculture with 27.5
percent, tourism with 16.3%, special technologies with 3 percent and
handicrafts with 0.2%. back to top
Kafalat is a Lebanese
financial company with a public concern that assists small and medium sized
enterprises (SMEs) to access commercial bank funding. Kafalat helps SMEs by
providing loan guarantees based on business plans / feasibility studies that
show the viability of the proposed business activity source. It processes
guarantee applications for loans that are to be provided by Lebanese banks to SMEs
operating throughout Lebanon.
Kafalat targets SMEs and innovative start ups
that belong to one of the following economic sectors:
- Traditional Crafts
- High Technology
guaranteed loans benefit from interest rate subsidies. These subsidies have
been set up to mitigate the crowding out effect of the high interest rates in
Lebanon that are induced by public sector borrowing. The interest rate
subsidies are financed by the Lebanese treasury and administered by the Central
Bank of Lebanon. back to top
The Kafalat loan guarantee
is issued based on the viability of the business project to be financed. The
guarantee that is made in favor of the lending bank, allows the borrower to
provide the bank with collateral, which makes the loan safer for the bank. With
the Kafalat loan guarantee, the bank may require less other collateral for the
loan. In fact, Kafalat offers two types of guarantees that explicitly require
the lending bank not to impose any additional collateral request on the
borrower. The final decision (and the conditions) for granting the loan rests
however in the hands of the lender. Kafalat constantly urges banks not to ask
for other guarantees and to be content with the credit decision made based on
the business plan and the feasibility of the project. back to top
In addition to the
guarantee, the borrower benefits from a subsidy on the interest that is being
charged by the bank. This allows SMEs to access bank funding at a reasonable
Kafalat loan guarantee reduces the risk of the loan for the bank.
Also Kafalat guaranteed loans in Lebanese Pounds benefit from exemption from
the statutory reserve requirement by the Central Bank of Lebanon. This
significantly reduces the cost of capital of the lending bank, allowing it to
lend customers with lower interest rates. back to top
SERVING THE LEBANESE ECONOMY
The Lebanese private sector
is dominated by small and medium sized enterprises that face difficulties in
accessing funds from commercial banks. Kafalat's loan guarantees help SMEs in
Lebanon to access commercial bank debt financing. This allows SMEs to increase
the financing of their business activities, which leads to increased domestic
investment, output, and employment. back to top
In 2006, Kafalat has signed
a partnership with the European Union and the Ministry of Economy and Trade of
Lebanon (MOET) to increase the amount and the size of the loan guarantees
beyond the level offered by Kafalat until 2005. This partnership comes as part
of the Lebanese government's efforts in the formulation of an SME financial strategy and the promotion of
economic development. The new guarantee types will consolidate Kafalat's
initiative to encourage the financing of investment proposals based on business
plans and credit appraisal, placing emphasis on the project's feasibility and
viability instead of the borrower's net worth. Banks that will lend to SMEs
based on the Kafalat loan guarantees developed under this partnership will be
required not to impose any collateral requirements on top of the guarantee from
For SMEs and start ups, this partnership specifically aims to:
- Ensure access to credit to
finance sound investment projects, without having to provide any collateral
- Increase and strengthen the
equity of SMEs and start ups.
- Promote the integration of
SMEs and start ups into the formal sector by requesting from these companis to
register as a condition for a loan application.
For commercial banks, this
partnership specifically aims to:
- Increase the maximum amount
of loan that can be guaranteed under the scheme (beyond the level offered by
Kafalat until 2005).
- Provide incentives to
commercial banks to be less risk averse basing their lending decisions on the
project investment merits, cash flow and market opportunities.
- Increase the amount of commercial bank lending available.