AfriTax News. In this issue. Africa quarterly update. Volume 2, Issue 2. Benin 2. Cameroon 3. Central African Republic 4. Congo-Brazzaville 5.

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1 AfriTax News Africa quarterly update Volume 2, Issue 2 In this issue Benin 2 Cameroon 3 Central African Republic 4 Congo-Brazzaville 5 Ghana 6 Malawi 7 Mali 9

2 Benin Finance Law for 2010 The Finance Law for 2010 was enacted on 1 January The Law came into effect on 1 January The changes are as follows: The withholding tax rates on payments to non-resident individuals who provide services in Benin has been reduced from 35% to 25% and from 38% to 30% for legal persons who do not have a permanent establishment in Benin. These rates apply on 40% of the gross payments to these persons; A GSM communications fee has been introduced. The new GSM fee is F.CFA15 per minute on international calls answered and F.CFA2 per minute on other calls. Short Message Service, dialled phone numbers with less than 8 digits, roaming service and internet calls are exempt from the GSM fee; A single tax identification number (IFU) is required for direct and indirect tax purposes. This tax identification number must be stated on all invoices and similar documents issued by taxpayers in respect of their taxable transactions; The rate of the special tax on reexportation (TSR) reintroduced by article 8 of Financial Act of 2000 is now 4% ad valorem; According to the tax code, a company is considered a new company if it is created during the fiscal year and is then subject to tax in its first year of operation from the date of its incorporation up to 31 December of the same year of its incorporation; and The ecology tax on the transit of sulphur to Niger has been suspended. Dominique Taty d.taty@ci.pwc.com PricewaterhouseCoopers 2

3 Cameroon Input VAT Following the 2010 finance law, oil service providers and companies providing services to embassies (amongst others) can now recover upstream VAT. Before 2010, companies that provided goods and/or services to other companies with VAT exempt products could not charge output VAT. Thus, such suppliers could not recover the input VAT paid on their goods and/or services. Registration duties Prior to 2010, a company deed issued in relation to its incorporation, continuation of business and increases in capital were all subject to registration duties at a graduated fee. Effective 2010, with the changes brought by the 2010 Tax Law, these deeds shall be registered free of charge. Revaluation of depreciable and non-depreciable tangible assets A legal depreciable and non-depreciable tangible asset revaluation regime has been instituted effective 1 January Any natural person or corporate body, subject to the actual assessment regime, shall be eligible for the revaluation. The revaluation shall be carried out not later than 31 December However, any natural person or corporate body that voluntarily carried out the revaluation of its fixed assets during the last four financial years shall be exempt from the obligation to carry out the revaluation. The revaluation shall not be partial or spread out. It shall be subject to a return appended to the tax return for the financial year in which it was conducted. The revaluation surplus shall be subject to a 10% levy in discharge from any other tax, duty, fee and royalty. The regulations laying down conditions for the implementation of the revaluation are still awaited. Nadine Tinen nadine.tinen@cm.pwc.com PricewaterhouseCoopers 3

4 Central African Republic Finance Bill 2010 Details of the 2010 Finance Law have become available and the most important direct taxation provisions of this law apply from 1 January 2010 unless otherwise indicated. Details of the law are summarised below: Business licence duty for cooperatives of artisanal or traditional miners of gold and diamonds with up to 50 members has been increased while that of cooperatives with membership of over 50 has been reduced; In addition to the above, each member of a cooperative of artisanal miners of gold and diamonds is subject to a fixed rate of F.CFA1 000; Business licence duty has also been imposed and is applicable for service providers depending on the number of employees; and A new deadline for the payment of business licence duty is fixed at 31 March of each year. Minimum lump-sum tax The withholding in respect of the minimum lump-sum tax has been reduced from 5% to 3% on payments for rented accommodation and increased from 2% to 3% on trading activities and local services. The minimum lump-sum tax, for activities other than agriculture, is fixed at the rate of 1.85% of the turnover. Such activities were previously subject to various rates depending on the amount of turnover. Extension of the scope of the special fiscal regime of structuring projects The 2010 Finance Law has extended the special fiscal regime of structuring projects by major enterprises, previously confined to projects within the agriculture, industry, energy, tourism and social housing sectors. This special regime now includes projects executed within the education, culture, sports, and health sectors. Henceforth, investment projects within these sectors shall be eligible for the special regime and benefit from various tax incentives including exemption of the business licence during the first two years, preferential rates for registration duties on some operations such as share capital increases, special VAT exemptions, extension of the duration for carrying losses forward and preferential depreciation rates. Nadine Tinen nadine.tinen@cm.pwc.com PricewaterhouseCoopers 4

5 Congo-Brazzaville Short-term business licence update Most foreign oil companies with no legal presence in Congo-Brazzaville and whose activities are usually limited to the provision of services to other legal entities in Congo- Brazzaville on a contractual basis, usually carry out their activities under a short-term business licence. In a joint circular note reference number 00247/MCCA/MPMEA/CAB of 26 August 2009, the Minister of Commerce, Consumption and Supplies and the Minister of Small and Medium Size Enterprises, in charge of Craft Industry, reconfirmed the temporary registration regime with its validity of six months and the possibility to renew shortterm business licences up to three times. After 24 months, from the date of installation, the foreign companies would apply for an extension under the same conditions as for the initial request. However, the Ministry of Justice and Human Rights has recently challenged the legality of short-term business licences on the basis that they contradict the OHADA Uniform Act. The ministry has requested that foreign oil companies should incorporate companies and stated that a maximum fine of XAF shall be applied to companies carrying out activities under the short-term business licence. Foreign oil companies have filed a joint petition against the fines and the acts of the ministry. Prosper Bizitou prosper.bizitou@cg.pwc.com Moïse Kokolo moise.kokolo@cg.pwc.com PricewaterhouseCoopers 5

6 Ghana Changes in 2010 Changes that have been implemented during the period under review are as follows: The capital gains tax rate on the disposal of chargeable assets has been increased from 5% to 15% effective May 2010; New regulations regarding the operations of Free Zone enterprises came into force on 17 March Among others, the regulations set a 4% income tax rate for a Free Zone garment and textile manufacturing company in operation after the first 10 years (tax is exempt for the first 10 years). The new regulations also list the categories of companies entitled to the grant of tax concession, which includes wood processing, service and commercial companies as well as enclave developers; The personal income tax bands have been widened as promised in the government s budget and this came into effect on 22 June This has increased the tax-free threshold by about 320% from GHS240 to GHS1 008 per annum (i.e. from approximately USD170 to 714); Increase in the income tax bands for resident individuals. The maximum marginal tax rate remains unchanged at 25%; and Under the previous basis of calculating mining royalties on mineral resources (except water and petroleum), the applicable rate varied (based on profitability) in a range of between 3% and 6% of the total value of minerals earned from the mining operations. The rate now changes to a fixed rate of 5% on the value of the minerals. Darcy White darcy.white@gh.pwc.com George Kwatia george.kwatia@gh.pwc.com PricewaterhouseCoopers 6

7 Malawi 2010/2011 Budget details The Budget for 2010/2011 was presented to the National Assembly by the Minister of Finance on 28 May Details of the budget, which will apply from 1 July 2010 unless otherwise indicated, are summarised below. Proposed changes to corporate taxation include: The introduction of a 10% income tax rate on investment income of pension funds (previously, exempt); An increase in the export allowance rate from 12% to 15% of net export sales; and The introduction of a special taxation package for the biofuels industry (details yet to be announced). Proposed changes to personal taxation include: A change to the test for non-residence from 183 days within a fiscal year to 183 days within any 12-month period ; and The abolition of the MWK tax relief granted on gratuity payments. Withholding taxes changes include: The abolition of the issuance of withholding tax exemption certificates to suppliers of foodstuffs and other goods; The reduction of the withholding tax rate on payments to suppliers of foodstuffs and other goods (from 7% and 10% respectively) to 3%; The abolition of the tax exemption on income received by tobacco clubs and associations; and The reduction of the withholding tax rate on tobacco sales from 7% to 3%. PricewaterhouseCoopers 7

8 Indirect taxation Proposals for changes to VAT include: The introduction of a penalty of 30% of the value of a cheque on all persons who issue cheques payable to the Malawi Revenue Authority which are dishonoured by their bankers (i.e. refer to drawer cheques). This penalty is consistent with the Taxation Act of Malawi regarding issuance of such cheques.; and Penalties is now payable prior to hearing of VAT cases. Excise duties Changes to excise duties which come into force with immediate effect include: An increase in the excise duty on 45 and above seater buses from 0% to 20%; An increase in the excise duty on second-hand motor vehicles; The introduction of a tax stamp scheme on imported cigarettes; and An increase in the excise duty on soft-cap cigarettes from USD12 to USD15 per sticks and on hinge-cap cigarettes from USD18 to USD30 per sticks. Misheck Msiska misheck.msiska@mw.pwc.com PricewaterhouseCoopers 8

9 Mali 2010 comprehensive tax amendments Major tax law change was enacted on 27 May 2010 by the National Assembly of Mali. The Law N of 31 May 2010 amended several provisions of the General Tax Code contained in Law of 29 December Details of the most important provisions of the Law which comes into force on 1 July 2010 include: Corporate taxation Exemption from tax has been granted to investment companies with fixed or variable capital (SICAFS or SICAVs), not-for-profits organisations, low-cost housing agencies, mutual aid companies, agricultural cooperatives, mutual agricultural associations, mutual agricultural insurance and reinsurance companies. In addition to the above, the participation exemption regime has been amended in conformity with the UEMOA Parent-Subsidiary Directive adopted by the Council of Ministers on 26 March Accordingly, the regime is applicable, provided the following conditions are all met: The parent company and its subsidiary are joint-stock companies (sociétés par actions) or limited liability companies (sociétés à responsabilité limitée); The parent company and its subsidiaries have their head office in a UEMOA member state and are both liable to profits tax; The parent company holds a minimum stake of 10% in the share capital of the subsidiary; and The shares held by the parent company have been subscribed for at the incorporation of the distributing company and these shares are registered in the name of the parent company, or the parent company undertakes to register the minimum holding in its name and maintain it for at least two consecutive years. A letter containing this commitment must be annexed to the parent company s tax return. PricewaterhouseCoopers 9

10 Where a dividend is paid by a subsidiary which is not eligible for participation in the exemption regime, then the parent company is subject to profits tax on a minimum of 40% of such dividends after deduction of expenses and costs incurred for the purpose of the participation. Capital gains The conditions for the application of rollover relief have been modified to include taxpayers who undertake to reinvest the capital gains in any UEMOA member state. The maximum period for a taxpayer to roll-over capital gains re-invested has been increased from two to three years. Deductibility of expenses New conditions for the deductibility of costs and expenses have been introduced. Net profit going forward is determined by deducting all costs and charges that: Are incurred for the direct benefit of the company or in the course of the company s normal business operations; Have actually been incurred and have sufficient supporting documentation; Result in a reduction of the net assets of the company; Are included as a charge in the year in which they are incurred; and Contribute to the realisation of income that is subject to the tax on business profits. Tax depreciation and amortisation New rules have been introduced regarding accelerated depreciation, reducing balance depreciation, and the tax depreciation of leased assets. (a) Accelerated depreciation New machinery and equipment may be depreciated using the accelerated depreciation method, provided that the following necessary conditions are fulfilled: The new machinery and equipment is used exclusively for industrial activities related to manufacturing, maintenance, hotel trade, transportation or agriculture; and It has a normal useful life of at least five years. Where the two conditions above are met, the depreciation allowance in the first year, calculated according to the useful life of the machinery or equipment, is doubled. The useful life of the machinery or equipment in question is then reduced by one year. (b) Reducing balance depreciation Companies subject to tax in accordance with the actual profits regime may elect to calculate the tax depreciation of new assets using the reducing balance method. The reducing balance method may not be applied to assets other than new machinery and equipment. It may not also be applied to assets with an expected lifetime of less than three years. (c) Depreciation of leased assets PricewaterhouseCoopers 10

11 Leased goods are either depreciable in the hands of the lessor for the period of the lease agreement or in the hands of the lessee for the period of utilisation. If the lessee fails to exercise the option to buy the leased asset during or after the lease period, the repossession of the leased asset by the lessor is treated as a transfer. Deductibility of provisions New rules have been introduced for the deductibility of provisions. Accordingly, reserves and provisions are deductible, provided that: They are created for predictable losses or expenses; They are recorded in the company s books; and The provision statements annexed to the company s income tax return are included. However, the following may not be deducted: Provisions set aside for selfinsurance; Provisions set aside for the retirement allowances of a company s employees; and Provisions for paid leave indemnity. Banks and financial institutions are allowed to deduct provisions set aside for bad debts in accordance with security standards prescribed by the Central Bank of the West African States (BCEAO). Transfer taxes Details of the most important changes to indirect taxation which become effective from 1 July 2010 is that the registration duty on the transfer of immovable property situated in Mali is reduced from 15% to 7% for the following: unregistered residential buildings, buildings acquired by a company for business use via a lease contract, and buildings acquired by companies for business use, and which are registered as company assets. Stamp duty Deeds relating to the formation of a company are exempt from the graduated stamp duty. Previously, such deeds were subject to stamp duty at fixed rates. Dominique Taty d.taty@ci.pwc.com PricewaterhouseCoopers 11

12 Contacts Benin Dominique Taty Tel: Cameroon Nadine Tinen Tel: Central African Republic Nadine Tinen Tel: Congo-Brazzaville Prosper Bizitou and Moïse Kokolo and moise. Tel: Ghana Darcy White Tel: George Kwatia Tel: Malawi Misheck Msiska Tel: Mali Dominique Taty d.taty@ci.pwc.com Tel: Africa Tax Desk (Johannesburg) Silke Mattern silke.x.mattern@za.pwc.com Tel: Modestino Saladino modestino.saladino@za.pwc.com Tel: Kenneth Erikume Kenneth.x.erikume@za.pwc.com Tel: Charlotte Arigye charlotte.x.arigye@za.pwc.com Tel: Kingsley Owusu-Ewli kingsley.owusu.ewli@za.pwc.com Tel: Agnes Njaaga agnes.njaaga@za.pwc.com Tel: Tax Leaders Africa Central David Tarimo david.tarimo@tz.pwc.com Tel: Francophone Africa Dominique Taty d.taty@ci.pwc.com Tel: Southern Africa Paul De Chalain paul.de.chalain@za.pwc.com Tel: PricewaterhouseCoopers 12

13 Please refer any questions or queries regarding the above to: Dominique Taty: or tel: Moïse Kokolo: or tel: / This newsletter is provided by PricewaterhouseCoopers Inc. for information only, and does not constitute the provision of professional advice of any kind. The information provided herein should not be used as a substitute for consultation with professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher. PricewaterhouseCoopers 13