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FIRST QUARTER 2013

AFRICAN TAXATION

Extracti ve in du s t ri e s Environmental Taxation In t ern at i on al Tax Tre a ti e s Focus on Corporate Income Tax Libya Latest Tax Amendments In African Countries


Latest Tax Amendments In African Countries

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Focus on Corporate Income Tax Libya

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Ext r act i ve i n d u s t r i es

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Environmental Taxation

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International Tax Treaties

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Latest Tax Amendments In African Countries Budget Laws 2013

Guinea The Guinean budget law implemented the following measures:

15% withholding tax applies on remunerations paid to non-residents with no Mauritanian permanent establishment as a consideration of services rendered or used within Mauritania. Such withholding tax is a final taxation. -Individuals’ income tax rates in respect of employment income will be subject to the following progressive rates:

The portion of minimum lump-sum tax exceeding GNF 4.5 million may be deducted from the corporate income tax. Previously, the above threshold was of GNF 3 million.

Mauritania The Mauritanian budget law 2013 introduced the following amendments:

Monthly wage (MRO) % Less than 90 000 Between 90 0001 and 210 000 Over 210 000

2013 new

Tax Rate 15 25 40

10% income tax rate applies on capital gains derived from the disposal of immovable property and mining concessions. VAT will no longer apply on flight tickets sold by travel agencies.

When computing corporate income tax, no ceiling applies on donations granted to local authorities where the donation is allocated to fund economic and social development. Restrictions were introduced on input VAT deduction relating to specific expenses including the invoicing rules. Reimbursement of expenses, for tax purposes, are those re-invoiced to the client at their same amount and: 1


(i) the client should explicitly mandate the supplier to make such expenses (ii) expenses are enough evidenced

No Minimum lump sum Tax applies on new companies during their first couple years of activity.

The following registrations duties applies on the acquisition of immovable properties for operating purposes:

A 10% cap will apply on the tax deduction of overhead expenses invoiced by non resident entities when computing the corporate income tax. The ceiling is calculated on the taxable profit. Remuneration paid to non residents as consideration for studies, technical, financial and accounting assistance, commissions and fees, interests and guarantee fees are subject to the same limitation. Note that in case of loss, the limit is calculated on the profit of the last profitable and non-statute-barred financial year. However, no limitation applies to fees paid for technical assistance and studies linked to the assembly of factories.

(i) 2% when the purchaser is an industrial company (ii) 5% when the purchaser is a company performing other activities. Swaziland The Budget 2013-14 of Swaziland include the following tax changes: The corporate income tax rate will be cut from 30% currently to 27.5%. Tax thresholds for personal income tax (PAYE) will be reviewed. Gabon Several tax changes were included in the Gabonese budget law 2013: The standard corporate income tax rate was discounted to 30%. The previous rate was of 35%. However, Oil and mining companies are not covered by the new rate. A discounted corporate income tax rate of 25% will apply to: (i) companies holding intellectual property deeds (ii) Gabonese development bank (iii) Real estate companies in respect of profits derived from social housing projects (iv) Public institutions (v) Companies operating in tourism

Tourism hotel companies investing more than 300 000 000 F CFA will benefit from corporate income tax exemption during a 3 years period. Tourism investments not exceeding 300 000 000 F CFA will allow for a tax credit of 5% on the investment value during a 5 years period. Equipments imported by hotels investing more than 800 000 000 F CFA are exempt from import duties during the 5 years following the date of first import operation.

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Individuals will no longer be subject to income tax with regards interests accrued on “housing saving accounts”. Interests arising from saving accounts whereinvested amounts do not exceed 10 000 000 F CFA are tax exempt as well. VAT registration threshold was decreased from 80 000 000 FCFA as turnover to 60 000 000 FCFA. No additional tax on salaries applies on incomes below 150 000 FCFA (monthly income).

However, interests are deductible only when the share capital of the company was wholly paid up. A special provision may be booked by financial institutions to cover debts depreciation where these provisions are calculated according to the standards of the Central bank of western African countries.

Income tax returns filed after the legal deadlines, but before the notification of the formal notice will trigger a delay penalty at the rate of 5% calculated on the due taxes. Such fine increases to 10% when the tax return is filed within 7 days after the formal notice date. Niger The budget law 2013 includes new tax measures:

The overall lump sum tax rates are reduced as follows: (i) 2% on the annual turnover of entities performing commercial activities instead of 5% (ii) 3% on the annual turnover of entities supplying services other than transport. The rate was of 10%. F CFA 500 000 will apply as penalty in case of fraudulent use of a Tax ID

Corporate income tax scope was widened to cover private schools. -Interests incurred on loans granted by shareholders are allowable expenses where the interest rate is the one published by the central bank increased by 3 percentage points.

Apprenticeship tax rates were hiked to: (i) 3% (instead of 2%) on wages paid to citizens of Niger (ii) 5% (instead of 4%) on wages paid to expatriates. At the production phase, Oil products tax will apply at the rate of 12% on the sales price of refined products. 3


Ivory Coast

For personal income tax purposes, the employer share of Medical insurance premiums will no longer be taxable. Interest derived from government bonds with maturity duration of 3, 6 or 12 months are subject to income tax at a specific rate of 10%. However, the income tax rate is of 5% if the government bonds maturity duration is between 3 and 5 years.

Through the budget law 2013, Ivory Coast introduced the following amendments: The lump sum minimum tax rates are subject to the following minimum and maximum rates: Lump-sum Minimum tax rates (million F.CFA) Previous rate Minimum 2 Maximum 30

New rate 3 35

Note that the lump sum minimum tax is calculated at the rate of 0,5% levied on the gross turnover. -Payments made as a consideration of a literary, scientific or artistic work are subject to a withholding tax at the rate of 7,5%.

Registration duties levied on companies setting up deeds are amended as follows: Share capital Value New rate Less than F.CFA 5 billion 0,3% Over F.CFA 5 billion 0,1%

Previous rate 0,6% 0,2%

Banking operations tax will not apply on micro finance institutions established as joint stock companies with regards their saving and loan transactions. Congo Brazzaville The following amendments were introduced by the budget law 2013 of Congo Republic:

Failing to submit financial statements within deadlines, a fine of 100 000 FCFA will apply increased by 10 000 FCFA per month or portion of month of delay. If these financial statements still not submitted within 3 month after the deadlines, an additional fine of 200 000 FCFA applies increased by 20 000 FCFA per month or portion of month of delay. 4


The corporate income tax standard rate was decreased to 33% instead of 34% previously. A specific tax framework was implemented for Holding companies which should have as sole activity the management of shares’ portfolio, management services rendered to affiliate companies, R&D activities performed for the sole benefit of the group of companies as well as the treasury management of the group of companies. Capital gains derived from the disposal of shares acquired at least two years prior to their sales’ date by holding companies are taxable at a rate determined according to 25% of the standard corporate income tax rate. However, such capital gains are tax exempt when at least 60% of shares’ portfolio held by the holding company includes shares issued by companies based in a country which is member of the Economic and Monetary Community of Central Africa.

On another hand, the current 20% rate that applies on dividends will be discounted by 50% with regards dividends paid to shareholders of holding companies. Companies are entitled to file a consolidated corporate income tax return when: They own more than 95% of the share capital of other entities, and their share capitals are not held by more than 95% by another legal entity which is under the scope of the corporate income tax. Affiliate companies are jointly responsible with the parent company to pay their share in the consolidated corporate income tax. Losses incurred under consolidated corporate income tax regime may be carried forward up to 3 years. Capital gains derived from the disposal of shares owned by non residents in companies located in Congo will be subject to a special tax at the rate of 20% calculated on the capital gain’s amount.

Capital gains derived from the disposal of shares held for a period not exceeding 2 years are taxable according to the standard corporate income tax rate unless these shares were acquired following to a merger or a contribution in kind to the share capital. Besides, no withholding tax applies on interests arising from loans granted by non resident financial institutions or by their shareholders. Such exemption applies in case where the loan is used to fund shares’ acquisition.

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Cameroon The budget law 2013 of Cameroon implemented the following amendments: Overhead expenses will be considered as allowable expenses for corporate income tax purposes including those relating to services rendered by entities residents in Cameroon. Overhead expenses are deductible up to 5% of the taxable profit. Previously, the ceiling was calculated at the rate of 10%.

VAT scope was enlarged to cover: (i) Leasing operations (ii) Commercial subsidies (iii) The write off of Commercial debt (iv)Commissions carried out by travel agencies. VAT levied on leasing operations are calculated on: (i)rents invoiced by leasing institutions and (ii) on the sales price at the term of the leasing agreement. No input VAT deduction applies on taxable expenses with a value exceeding 1 000 000 francs CFA when such expenses were settled through cash payment rather than bank checks or bank transfers.

Other amendments

Nigeria :Telecom Operating Levy The Nigerian Communication Commission (NCC) announced, on 25 February 2013, that telecom operators have to pay 2.5 % levied on their annual income as operating levy which aims to improve the performance of the telecom sector performance in Nigeria.

Algeria :Transfer Pricing regulation Published in the Official Gazette No. 4 of 20 January 2013, a decision issued by the Ministry of Finance detailed the transfer pricing documentation requirements on transactions between related parties. The following entities are under the obligation of preparing transfer pricing documentation: legal entities operating in Oil & Gas as well as their affiliated companies. Joint stock companies and partnerships which have opted for the tax regime of entities subject to corporate income tax where their annual turnover exceeds One hundred million dinars. Group of companies when the annual turnover of one of its members exceeds One hundred million dinars 6


Companies incorporated in Algeria and which are members of foreign groups of companies Transfer pricing documentation encompasses:

A basic documentation relating to general information about the group including a general description of the activity and the main changes occurred during the financial year as well as a description of organizational structure (organization chart, participations scheme, voting rights, shareholding agreements,..) and the pricing policies of the group of companies.

pricing methods would allow the compliance with the arm’s length principle. This includes comparability analysis.The transfer pricing documentation should be submitted jointly with the annual corporate income tax return. The Algerian tax authorities may request complementary documentation and taxpayers failing to prepare the required documentation or who prepare incomplete documentation within 30 days from the notification will be subject to an increase of their taxable profit with respect to the transferred profits. Fines will be applied at the rate of 25%. Transfer pricing documentation applies retroactively to transactions performed as of 1 January 2010.

A specific documentation including the description of the entity, activities and transactions performed and the main changes during the financial year, as well as details about transactions with related entities (value and nature), legal auditors reports joined to the annual financial statements, the main intangible assets (patent, trade mark, know how) held by the company and copies of whole agreements concluded by the covered entities. Also, the specific documentation includes a description of how the selected transfer 7


Focus on Corporate Income Tax Libya Scope The Corporate Income Tax shall be imposed on the incomes resulting in Libya and abroad for the national companies and branches of foreign companies in Libya, whatever the type of their activity or purpose may be. The term "companies" include all companies under the scope of the commercial code. Branches of foreign companies include the aspects of activity and capitals, as performed by the foreign companies in Libya, whatever their organization or legal status may be. Corporate Income Tax rate The corporate income tax rate is of 20%. Note that Jihad tax is an additional tax levied on net proďŹ ts at the rate of 4%. Withholding taxes As a general rule no withholding taxes are provided for by the Libyan Legislation. However, banks paying interests to individuals and partnerships and resulting from deposits are subject to a withholding tax at the rate of 5%. Moreover, salaries paid by companies are subject to withholding taxes in respect of the income tax due on these amounts.

subjected to tax as a result of deducting them from the total income.

These amounts shall be considered as income accrued during the year in which they were distributed or put at disposal of the beneďŹ ciaries in any way. The following items are considered as non allowable expenses: Any amount expended for increasing or enlarging the assets or improving them permanently, without prejudice to the right of the taxpayer to add them to the value of assets and depreciation thereof.

The amounts added to the proďŹ ts or allocated for increasing the capital shall be subjected to tax, if not previously 8


Taxable profit computation The corporate income tax is levied on the basis of the result of operations of the various kinds as performed during the year, after deduction of all costs proved to be expended for obtaining such income. The general expenses or fees for services or interests or commissions changed by the foreign company to its Libyan branch shall be onlyconsidered in the amount deemed necessary for achieving the purposes of the branch, at maximum of 5% of the administrative expenses approved by the Department. The department may estimate the income of any branch of foreign companies on the basis of a percentage of total revenue of the foreign company, as compatible with the outcome of works of the branch.

Dividends No tax applies on dividends distributed by resident companies. Capital gains Capital gains on disposal of fixed assets are computed in the taxable profit of the company. Corporate income tax return The corporate income tax return should be submitted annually within one month from the date of approval of the balance sheet, not later than four months from the end of the fiscal year. There are no provisions allowing the submission of consolidated returns.

The incomes of branches of foreign companies, resulting from telecommunications and transport activities of the various kinds from Libya to abroad shall be considered as achieved in Libya. In case of merger, the difference between the book value of the assets of the merged company and the value represented by these assets in the capital of the new company shall be subjected to tax. Carry forward of losses If the account of any year is closed with loss, such loss shall be included in the expenses of the next year and deducted from its profits. If the profit is insufficient for covering the whole loss, the balance shall be transferred to the profits of the next years until the fifth year. 9


Extractive industries Algeria Hydrocarbon code The Algerian parliament started, on 8 January 2012, discussions on the proposed draft measures amending the Law 05-07 dated of 28 April 2005 (Hydrocarbon law). The new measures will be voted on 21 January 2013. In fact, with regards the Additional profits tax “APT” (l’Impôt complémentaire sur le résultat) that applies on foreign companies, the new drafted article 88 bis of the law provides for that the Additional profits tax rate of 19% would be increased to 80% in case where the profit reaches specific thresholds. Note that the new APT rate would not apply to contracts concluded before the entry into force of the new rules. However, this risk would be mitigated through another proposed measure (new article 97 bis)

to extend the tax audit scope to foreign petroleum companies which are not, under the current rules, subject to any tax audit. Finally, the draft law would implement some tax incentives aiming to boost investments in unconventional hydrocarbon activities and the exploration activities of complex geological fields, small deposits and fields insufficiently explored notably the offshore ones. The above measure aims to compensate the repeal of the windfall tax (taxe sur les profits exceptionnels) that applies to contracts governed by the Law 05-07. Note that the windfall tax has previously caused several disputes between the National Petroleum company “Sonatrach” and its international partners. However, the windfall tax will remain applicable to partnership contracts concluded under the law 86/14. Besides, calculation basis of the Petroleum income tax (taxe sur le revenue pétrolier) would be changed from the current production value (ie turnover) to the profitability of the petroleum project. This measure was very controversial because of the risk of under-valuation of the tax basis by the taxpayers. 10


Environmental Taxation Liberia : Australian support for the Natural Resource Tax Unit $700,000 is the amount unveiled, on 18 March 2013, by Australia to support the implementation of a Natural Resource Tax Unit (NRTU) in Liberia. Australian government stated that the support will include technical assistance and know how transfer with regards natural resource management. The Natural Resource Tax Unit will focus on monitoring entities operating in natural resource as well as a taxpayer assistance program related to natural resources. Such unit will allow Liberia to maximize beneďŹ ts derived from its mineral wealth. "These measures will substantially improve the Liberian Government's capacity to administer natural resource tax and increase tax revenues from the sector and help reduce poverty" said Jamie Isbister, head of the Australian Agency for International Development (AusAID) in Africa.

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Internatioal Tax Treaties Mauritius - Germany

Signed on 7 October 2011 and entered into force on 7 December 2012, the tax treaty between Germany and Mauritius is effective from 1 January 2013. The main provisions of the treaty are summarized as follows: Permanent establishment The term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on including: -A building site or construction or installation project or supervisory activity in connection therewith only if it lasts more than twelve months. -An installation or structure used for the exploration of natural resources, only if such use lasts more than twelve months. Dividends Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. However such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

-5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends -15 per cent of the gross amount of the dividends in all other cases. Interest Interest arising in a Contracting State and paid to a resident of the other Contracting State shall, if the recipient is the beneficial owner of the interest, be taxable only in that other State. Royalties The term "royalties" means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films and films, tapes or discs for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

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However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws 3f that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

Egypt - Georgia

Through the Decision 315, Egypt ratified, on 6 November 2012, the tax treaty signed with Georgia. Not yet effective the main provisions of the tax treaty are summarized as follows: Permanent establishment The term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on including: -A building site, a construction, installation or assembly project or a supervisory activities in connection therewith, but only if such site, project or activities is continued for more than six months. -Any facilities and activities provide in connection with, prospecting for , or extraction, exploration or exploitation of natural resources. -The furnishing of services, including consultancy services, by a resident of a Contracting State through employees or other personnel for a period or periods aggregating more than 183 days in any twelve month period. Dividends Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. Interest Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest. Royalties The term "royalties" means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, films, video and tapes for radio or television broad-casting, any patent, trade mark, design or model, computer software, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. It also includes payments for technical assistance performed in a Contracting State by a resident of the other Contracting State where it is related to the application of any such rights, property or information

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Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.

Zambia - Seychelles

The tax treaty between Zambia and Seychelles entered into force on 4 June 2012. The agreement provisions are effective from 1 April 2013 for the Zambian side and from 1 January 2013 for the Seychelles’ one. The treaty’s provisions provide for the following: Permanent establishment The term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on including: -A building site, a construction, assembly or installation project or supervisory activity in connection with such site or activity, but only where such site, project or activity continues for a period of more than 183 days. -The furnishing of services, including consultancy services, by an enterprise through employees or other 'personnel engaged by the enterprise for such purpose, but only where activities of that nature continue for the same or a connected project within the Contracting State for a period or periods aggregating more than 183 days within any twelve month period.

Dividends Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed: -Five (5) percent of the gross amount of the dividends if the beneficial owner is a company which holds at least twenty-five (25) percent of the capital of the company paying the dividends -Ten (10) percent of the gross amount of the dividends in all other cases. Interest Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such interest may also be taxed in the Contracting State in which it arises and according to the Laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed five (5) per cent of the gross amount of the interest. Royalties The term "royalties" means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including computer software, cinematograph films, 13


or films or tapes or discs used for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed ten (10) per cent of the gross amount of the royalties.

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FIRST QUARTER 2013

Communication www.spam-communicatio n.com


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