www.pwc.com TSNewsalert Republic of Congo: main changes included in the 2014 Finance Act Tax Services (TS) Newsalert, Republic of Congo January 2014 Law No. 34-213 dated December 30, 2013, relating to fiscal year 2014 has just been promulgated by the President and should be published at the Official Gazette in the upcoming days. Details of some of its provisions have been provided by the Implementation Instructions No.0041/MEFPPPI/DGID/DRC, No. 0042/MEFPPPI/DGDI/DRC and No. 0043/MEFPPPI/DGDI/DRC published on January 20, 2014, by the Director General of Taxes and Domains. In addition, Circular No. 816-MEFPPI-CAB from the Minister of Finance of 31 December 2013, clarifies the enforcement, monitoring and closing of the budget and treasury operations for the year 2014. This TSNewsalert summarizes the main changes deriving from the Finance Act and its Implementation Instructions that may modify the Congolese tax environment for 2014. Personal income tax (IRPP)-Change to the taxable income brackets The Finance Act has redefined the first four tax brackets of annual income taxable to IRPP as follows: Taxable income brackets Rate From 1 to 464 000 CFA Francs 1% From 464 001 to 1 000 000 CFA Francs 10% From 1 000 001 to 3 000 000 CFA Francs 25% From 3 000 001 to 8 000 000 CFA Francs 40% Above 8 000 001 CFA Francs 45% It should be noted that IRPP rates, however, remain unchanged.
Moreover, it is provided that the withholdings relating to payments made during a month must be paid within twenty (20) days of the following month, and not within fifteen (15) days of the following month. IRPP and the single tax on salaries are hence paid on the same date. Corporate income tax Development of corporate sponsoring and consideration of solidarity The Finance Act provides for the deductibility of taxable income of donations and gifts, made to beneficiaries located in Congo in a limit of 0.5 of turnover excluding taxes. That limit is 0.5% as regards donations and subsidies made for the support and development of sport. It is provided for the deduction of 50% of their amount, of donations and payments upon the occurrence of natural disasters or accidental disasters. Raising the unit value of small tools fully depreciable The unit value of goods that can be fully amortized upon the year of acquisition, irrespective of their duration of use, is relieved from 100,000 to 500,000 CFA Francs. Taxation of net capital gains arising from indirect social assets and / or social rights transfers Net capital gains realized as part of a direct or indirect transfer of social assets and / or rights resulting control of Congolese company become subject to corporate tax. Reduction of Corporate income tax rate The standard rate of corporate income tax is reduced by three points from 33% to 30%. This rate applies to taxable income for the year ended December 31, 2014. Derogatory rates of corporate income tax remain unchanged. Tax obligations of a company out of business The Finance Act 2014 introduces the obligation for companies experiencing permanent or temporary cessation of activity, to make a declaration to the tax authorities within fifteen (15) days of the effective cessation, and produce a certificate of tax morality for the same year. With particular regard to companies subject to the deemed profit tax of 7.7%, they are now required to file, at the end of each contract, a statement of cessation of activities, together with a report of termination detailing the purpose of the contract co-signed by both parties to the contract activities. Revision of the conditions of application of the withholding of the deemed profit tax The withholding tax is now set for foreign companies (companies operating under short term business licenses-ate) of which: - the duration of the work does not exceed six (6) months; - the work duration exceeds six (6) months and do not justify a professional installation in Congo. For such companies, the 7.7% tax is payable on the basis of the maturity date stated on the invoice or contract. January 2014 2
Fixing of a ceiling on default interest for late payment of deemed profit tax Default interests (1% per working day) are capped to 50% of the principal of deemed profit tax due. Introduction of a requirement to indicate the estimated or administrative value in oil subcontractor contracts It is now required from oil subcontractors to mention explicitly in their contract, in addition to the usual entries, the estimated or administrative value of such contracts. Withholding tax of 5% on revenues of liberal professionals Revenues of legal entities subject to corporate income tax are excluded from the application of the withholding tax of 5%. Withholding tax of 20% on income Congolese sources received by persons with residence or registered office in Congo Temporary limitation of the exemption of premiums granted in reinsurance Are excluded from the withholding tax of 20%, premiums transferred in reinsurance perceived by foreign reinsurance companies not domiciled in a State member of CIMA, until 31 December 2016. Reform of the business tax and licenses Tax liability The legislator reformed business tax and now provides that is subject to business tax any individual or legal entity that carries out in Congo a commercial, industrial activity or any other activity, not included in the statutory exemptions. Base The Finance Act removes the existing fixed and variable rates and provides that: for taxpayers under the standard regime, the tax base is the annual turnover excluding taxes of the previous fiscal year declared or assessed by the administration, that is to say, excluding VAT and additional taxes, for fiscal year ended on December 31 of the year N-1 and declared to the tax administration between 10 and 20 May of the year N, for individuals subject to the deemed profit regime, the tax base consists of the turnover serving as the basis for calculating the global deemed tax, that is to say the one evaluated by the administration based on the results obtained by the taxpayer during the tax year, for taxpayers who do not realize turnover, that is to say companies in nonproduction stage (exploration, research, exploration, development, installation, etc.) and some branches, the tax base consists of all operating expenses in Congo. It should be noted that the Finance Act provides a tax advantage to new registered businesses that are exempt from the business tax during the first calendar year. January 2014 3
However, foreign companies operating in Congo and subject to deemed profit tax regime are excluded from this benefit and must be taxed for the entire year, under the first year of operations in Congo. For these taxpayers, the basis of the business tax is the predictive value contained in the contract or, failing this value, the business value of the contract. Rate The business tax is now payable on the basis of graduated rates as follows: Annual turnover Below 1 000 000 CFA Francs Rates 10 000 CFA francs From 1 000 000 to 20 000 000 CFA Francs 1% From 20 000 001 to 40 000 000 CFA Francs 0,75% From 40 000 001 to 100 000 000 CFA Francs 0,5% From 100 000 001 to 300 000 CFA Francs 0,25% From 300 000 001 to 500 000 000 CFA Francs 0,2% From 500 000 001 to 1 000 000 000 Francs CFA 0,18% From 1 000 000 001 to 3 000 000 000 CFA Francs From 3 000 000 001 to 5 000 000 000 CFA Francs From 5 000 000 001 to 20 000 000 000 CFA Francs 0,175% 0,150% 0,125% Above 20 000 000 CFA Francs 0,055% The accessory taxes levied by the Chambers of Commerce and the Economic and Social Council are reduced by four points, from 7% to 3%. It is calculated on the amount of business tax payable. The National Investment Fund tax previously calculated at 20% on the amount of business tax plus various taxes payable is suppressed. Payment Business tax is due for a period of twelve (12) month period from January 1 to December 31 of the taxation year, and must be paid in full by the taxpayer, not later than 31 March of each year. Beyond that date, the taxpayer is liable to a penalty of 100 % of the amount in excess of the principal amount. It is provided that, when the amount of the tax exceeds 100,000 CFA francs, the taxpayer may pay in two equal instalments, one in the first quarter, and the other in the second quarter of the year for which the contribution is due without penalty. This possibility, however, is reserved for individuals subject to the deemed profit regime which turnover stands between 10 million and 40 million CFA francs. Business tax due by foreign companies subject to the deemed profit tax is payable within fifteen (15) days after the beginning of activities. Otherwise, a penalty of 100 % applies. January 2014 4
Business tax paid to the public accountant is acquired by the Treasury and is not refundable. Suppression of the contribution of licenses The contribution of licenses previously applicable to the sale of alcoholic beverages is deleted Suppression of the tax on the rental value of business premises and establishment of the occupancy tax The Finance Act 2014 repeals all provisions of the Tax Code relating to tax on the rental value of business premises. However, it creates the occupancy tax. Is subject to occupancy tax, any construction of durable materials or facilities occupied by individuals or legal persons as home, office, commercial, industrial or other premises occupied and its dependencies. The occupancy tax is borne by the occupant, owner or tenant. The amount is determined annually, depending on the situation and the use which is made as follows: City-Centre Suburbs Premises of residential use 60 000 CFA Francs 12 000 CFA Francs Amount Premises of Professional use Small size companies, non-profit organisations, other professions and noncommercial organisations Medium size companies Amount 60 000 CFA Francs 120 000 CFA Francs Large size companies 1 200 000 CFA Francs The occupancy tax is collected by local declaration and self-payment by the taxpayer no later than April 20 of each year. For the occupants during the year, the tax is payable no later than three (3) months after the date of entry or occupation of the premises. Registration duties Registration of direct or indirect transfers of assets and social rights The direct or indirect transfer of assets and social rights of Congolese companies is now subject to a registration duty of 5% calculated on the value of the assets transferred and social rights of these companies. This registration duty is also due in the event of change of control of the company by a change of at least 60% shareholding. Registration deadline of private contracts and contracts signed abroad The private contracts as well as contracts signed abroad or in jurisdictions where registration is not required, no longer have to be registered within (3) months after their signature. They can be registered at any time. January 2014 5
Establishment of registration duties on the transfer of State receivables The registration of the assignment of State receivables is now mandatory. A registration duty of 15% is applicable. Securities bearing State receivables are registered for free. Overhaul of the special tax on insurance contracts The Finance Act sets the rate of special tax on insurance contracts at 10%. The person legally liable for the tax is the insurance company. Liability to the dividend tax of Congolese companies under the derogatory regime The liability of the dividend tax is extended to Congolese companies Congolese subject to the regime of the deemed profit tax. Value added tax (VAT) Deductibility of self-assessed VAT for foreign suppliers in the month of completion of the transaction The VAT charged on the price elements of a taxable transaction during a given month is now deductible in the same month. Prepayment of miscellaneous taxes The Finance Act clarifies the basis of the levy which is calculated: - In the case of imports, on the value used by customs services for the collection of duties and taxes; - In case of local purchases, on the amount of the invoice excluding taxes; - For goods prices and margin regulated, on the amount of gross margin. Tax on the transfer of funds: precision of the scope of exemptions Are now exempt from the tax, among others, the repayment of loans by companies for the realization of the investment program that has been subject to an investment agreement signed with the State. The persons concerned are required to submit to the tax authorities their loan agreement duly registered as well as their amortization schedule. Establishment of a specific tax on beverages and tobacco Regarding beverages, the rate of this tax is based on the nature of the drink and size of container. It amounts 40 CFA Francs per pack of cigarettes. The amount of the tax applies all taxes inclusive and does not include the taxable amount for VAT. Changes to the tax audit modalities Reduction of the period for punctual tax audits The period during which a punctual tax audit is possible, is reduced from twelve (12) months to six (6) months. The duration for the remaining control is now limited to fifteen (15) days. January 2014 6
Limitation of the duration of the comprehensive audit of accounts Under penalty of nullity, a general audit cannot exceed one year. Conditions for exercising control of computerized accounting Taxpayers that hold their accounts through computer systems are required to provide and transmit electronic media to the tax authorities. Precisions on the deadline for fulfilment of reporting obligations to pay taxes The Finance Act now sets the deadline between the 10th and 20th of each month, and between 10 and 25 for August. It puts an end to the administrative practice according to which the tax is payable on the next business day when the due date falls on a Saturday or Sunday. Henceforth, when the payment is made the next working day, it is subject to penalties. Institution of a tax regime of special economic zones and industrial zones The Finance Act provides for a preferential tax rate for corporate income tax and the special tax on companies, IRPP, single tax on salaries, dividend tax, business tax, registration fees of companies articles of association and transfer agreements. Institution of a tax regime of health free zones The Finance Act provides for privileged tax rates or exemptions for corporate income tax and the special tax on companies, IRPP (for partnerships), single tax on salaries, dividend tax, the IRPP of doctors and staff, developed and undeveloped properties tax, occupancy tax, VAT tax, registration fees, fixed duty on all instruments subject to the formality of registration. January 2014 7
Contacts For any questions relating to the implications for your company, we invite you to contact your usual PwC advisor or: PwC Republic of Congo Prosper Bizitou +242 05 534 09 07 prosper.bizitou@cg.pwc.com Emmanuel Le Bras +242 05 534 09 07 emmanuel.lebras@cg.pwc.com Moïse Kokolo +242 05 534 09 07 moise.kokolo@cg.pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2014 PwC. All rights reserved. Not for further distribution without the permission of PwC. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm s professional judgment or bind another member firm or PwCIL in any way. January 2014 8