DRC VAT, GST, and Sales Tax Guide

Democratic Republic of the Congo

Kinshasa GMT +1

EY RDC SARL

110 boulevard du 30 juin, Immeuble 1113, 2ème étage, Gombe

Kinshasa Democratic Republic of the Congo

Indirect tax contacts

Pierre-Alix Tchiongho +243 97 77 76963 pierre-alix.tchiongho1@cd.ey.com

Ompap Katshing +243 97 26 15 310 ompap.katshing@cd.ey.com

Lubumbashi GMT +1

EY RDC SARL

Avenue Mobutu coin Lomami Complexe la PIAZZA Local 9 Lubumbashi

Democratic Republic of the Congo

Indirect tax contact

Mutoba Mpinga +243972003916 mutoba.mpinga@cd.ey.com

A. At a glance

Name of the tax Value-added tax (VAT)

Local name Taxe sur la Valeur Ajoutée (TVA)

Date introduced 20 August 2010

Trading bloc membership Economic Community of Central African States (ECCAS) and Southern African Development Community (SADC)

Administered by Tax Administration (Direction Générale des Impôts)

VAT rates

Standard 16%

Reduced 8%

Other Zero-rated (0%) and exempt

VAT number format A1234567R

VAT return periods Monthly Thresholds

Registration CDF80 million

Recovery of VAT by non-established businesses Yes, subject to certain conditions

B. Scope of the tax

VAT applies to the following transactions in the Democratic Republic of the Congo (DRC):

• Supply of goods and tangible assets to third parties

• Services provided to third parties

• Self-supply of goods

• Self-provision of services

• Imports of goods and services

• Export of goods and services

All operations carried out in the DRC are subject to VAT, even though the residence of the taxable person may be located outside of the DRC.

C. Who is liable

Exemption from registration. The VAT law in DRC does not contain any provision for exemption from registration.

Voluntary registration and small businesses. Taxable persons operating in the DRC are required to register with the tax authorities. Moreover, taxable persons with a minimum annual turnover of Congolese franc (CDF) 80 million (approx. USD48,485) are required to obtain a VAT number. A taxable person with an annual turnover of less than CDF80 million (approx. USD48,485) can register for VAT in the DRC voluntarily. To register for VAT, the taxable person must send a request to the tax authorities accordingly.

Group registration. Group VAT registration is not allowed in the DRC.

Non-established businesses. A “non-established business” is a taxable person that has no perma nent establishment in the territory of DRC. Non-established businesses must designate a resident representative based on a legalized or notarized letter. This resident representative is liable to declare and pay the VAT on behalf of the non-established business. If no tax representative is nominated, the VAT due should be assessed and paid by the customer (if the customer is a taxable person for VAT purposes).

Tax representatives. As mentioned above, non-established businesses are required to appoint a representative resident in DRC. The non-established business may appoint only one representative for all its operations in the DRC. In the absence of a representative, the tax and the penalties relating to them are payable by the resident beneficiary of services on behalf of the non-estab lished business.

Reverse charge. The reverse-charge mechanism is applicable whenever a non-established busi ness fails to nominate a VAT representative. In such a case, the local taxable person (the customer) will be liable for VAT on the supply made by the non-established business. As part of the VAT reverse-charge mechanism, the VAT shall be declared as output and input tax in the same tax return. Therefore, there will be no cash impact for the customer, to the extent there is a full right of deduction.

Domestic reverse charge. There are no domestic reverse charges in the DRC.

Digital economy. Nonresidents providing electronically supplied services for business-to-consumer (B2C) supplies are only required to register and account for VAT if its supplies are greater than the registration threshold. If a nonresident’s supplies exceed the registration thresh old, it must appoint a representative in DRC for accounting for and paying the VAT due and filing the subsequent VAT returns on their behalf.

Nonresidents providing electronically supplied services for business-to-business (B2B) supplies are only required to register if its supplies are greater than the registration threshold. The rules

C R ATI C R EPUBLI C OF THE C ONGO

as outlined above on appointing a representative apply. However, if the nonresident does not appoint a representative in DRC, the beneficiary of the services in the DRC (i.e., the customer) is required to self-account for the VAT due on the supply via the reverse-charge mechanism (see the Reverse-charge subsection above). This reverse-charge VAT should appear on the monthly VAT return of the beneficiary.

There are no other specific e-commerce rules for imported goods in the DRC.

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in the DRC.

Registration procedures. A taxable person with an annual turnover of CDF80 million (approx. USD48,485) must within 15 days file a VAT registration form with the tax authorities. Each tax able person should be identified by a VAT number. In practice, the specific VAT number is not yet allocated to the taxable person, and the general tax ID is used currently instead.

The tax authorities consider the same general tax ID as the VAT number. However, the taxable person must send a letter to the tax authorities for the VAT registration and the TA will then pro vide the taxable person with the acknowledgment receipt. The taxable person must apply for VAT registration by paper.

Deregistration. Deregistration from VAT in the DRC is mandatory for any taxable person ceasing to trade in the DRC. For the deregistration of a taxable person, it should provide the trade court with the decision made by the taxable person to cease the activity or declare the taxable person as dormant. With the acknowledgment receipt from the trade court while waiting for the deregistration, the taxable person will notify the tax authorities by providing them with a copy of the acknowledgment receipt from the trade court. Until the final decision from the trade court is issued, the taxable person will be required to continue to submit a nil VAT return. Once the final decision of the deregistration is made by the trade court, the taxable person will provide the tax authorities with it to obtain the tax clearance. However, before issuing the tax clearance, the tax authorities need to ensure that the taxable person is debt free from the tax authorities. Thus, the taxable person’s tax current account balance should be zero, i.e., nothing to pay to the tax authorities.

Changes to VAT registration details. The taxable person has the obligation to notify the tax authorities within 15 days when a change occurs to its VAT registration details.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.

The VAT rates are:

• Standard rate: 16%

• Reduced rate: 8%

• Zero rate: 0%

The standard rate of VAT applies to all supplies of goods or services, unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Exportation of goods and services (i.e., services rendered by a resident company to a foreign entity abroad)

Examples of goods and services taxable at 8%

• Airline tickets (from 24 July 2021 to 24 July 2023)

The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Supply of secondhand movable property, supplied by persons who used the goods for the purposes of their business when those goods do not have the right to deduct the VAT upon their acquisition

• Sales and imports made by not-for-profit associations legally constituted when these operations are of a social nature, sporting, cultural, religious, educational or philanthropic purpose

• Sales and imports of official stamps or stamped papers

• Importing bank notes, associated costs in the production process of the bank notes equipment serving in the manufacture of monetary signs and their spare parts made exclusively by the Currency Issuing Institute

• Sales and imports of boats

• Imports made by airline companies (from 24 July 2021 to 24 July 2023, and a list of exempted imported goods is due to be specified in a ministerial order)

Option to tax for exempt supplies. The option to tax exempt supplies is not available in the DRC.

E. Time of supply

VAT is due when the payment has been received for the services provided (i.e., on a cash basis) and when goods have been supplied (i.e., on an invoice basis). The payment of the VAT to the tax authorities is due by the 15th day of the month following the transaction.

Deposits and prepayments. For deposits and prepayments, the VAT becomes due when the depos its and prepayments have been paid for the services provided (cash basis); and for the goods, VAT is due when goods have been supplied (invoice basis).

Continuous supplies of services. For installment payments or continuous payments with respect to continuous supplies of services, the chargeable event occurs when such installments or pay ments are made.

Goods sent on approval for sale or return. The time of supply for goods sent on approval for sale or return is when the goods are delivered to the customer.

Reverse-charge services. The time of supply for a reverse-charge service received by a DRC tax able person is the date of payment for the service.

Leased assets. The time of supply for leased assets is when payment is made.

Imported goods. The time of supply for imported goods is the submission of the declaration of goods with the customs authorities.

F. Recovery of VAT by taxable persons

The time limit for a taxable person to reclaim input tax in the DRC is by 31 December of the following year.

Nondeductible input tax. VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered for certain business expenses.

The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if the expenditure is for pur poses of making a taxable supply.

Examples of items for which input tax is nondeductible

• Expense on accommodation, catering, reception, shows, rental of passenger vehicles and trans port of persons, excluding expenditure incurred, under their taxable activity, by tourism profes sionals, catering and entertainment

• Goods and services acquired by the enterprise but used by third parties, the directors or the personnel of the company, excluding work or protective clothing, equipment assigned to the collective satisfaction of staff needs, as well as free accommodation in the workplace of salaried staff, especially of the surveillance or the guard of these places

• Services of any kind, including rental, maintenance, repair, relating to products or goods exclud ed from right to deduction

Examples of items for which input tax is deductible (if related to a taxable business use)

• Raw materials, intermediate goods and consumables included in the composition of taxable products, or those not entering in the finished product are destroyed or lose their specific qualities in a single operation of manufacturing the same products

• Goods for resale in the context of a taxable operation

• Services entering into the cost price of the operations giving right to deduction

Partial exemption. If a taxable supply to, or an import of goods by, a taxable person is partly for a taxable use and partly for another use, the amount of the input tax allowed as a credit is the part of the input tax that relates to the taxable use. This scenario is known as “partial exemption,” and as such an apportionment percentage will be applied to the taxable person’s input tax.

The apportionment percentage is equal to the sum of revenues (revenue from the items for which the deduction of the VAT is allowed, which includes exports and related transactions) then divided by the total of revenues realized (all revenues included) during the current tax year.

A partially exempt business should calculate their apportionment to find the correct percentage of apportionment to be applied and regularize the VAT due by 31 March of the following year. In case of all items are VAT deductible and full VAT has been applied, no regularization should be made.

Approval from the tax authorities is not required to use the partial exemption standard method in the DRC. Special methods are not allowed in the DRC.

Capital goods. The input tax incurred on the acquisition of capital goods for a taxable purpose is deductible. There are no special time limits or rules for the recovery of input tax incurred on capital goods.

Refunds. If for the same month, the amount of input tax exceeds the amount of output tax of the same period, the taxable person has a right to the VAT refund, which is a tax credit to be carried forward to the next taxable period(s). The tax credit cannot be refunded to the taxable person.

Except for exporters, companies making heavy investments, mining and oil companies in phase of research or development and construction of the mining or petroleum project, those who cease activities and public enterprises in which the state owns all of the share capital and whose VAT has been invoiced and has been subject to withholding tax, may get the refund of their tax credit on VAT resulting from the acquisition of movable property and services.

Heavy investment means acquisition of new property, plant and equipment in which the value of the project is not less than CDF1 billion.

Pre-registration costs. Input tax incurred on pre-registration costs in the DRC is not recoverable.

Bad debts. The input tax accounted for on supplies that are subsequently canceled or remain unpaid may be recovered by imputation on the tax due for subsequent transactions.

For unpaid transactions, when the claim is actually and definitively unpaid, the rectification of the invoice consists in sending a duplicate of the invoice with regulatory indications with the mention that the amount of the invoice remained unpaid at the price excluding VAT and of the amount of the corresponding VAT that cannot be deducted.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in the DRC.

G. Recovery of VAT by non-established businesses

Input tax incurred by non-established businesses in DRC is not recoverable.

H. Invoicing

VAT invoices. A VAT invoice must be issued for each transaction made and include all the manda tory information including the amount excluding VAT, the amount of VAT and the total including VAT.

Credit notes. For canceled transactions, the related invoice and VAT should be canceled. Therefore, a credit note should be raised to cancel the original invoice. The recovery of the VAT to be paid to the supplier is subordinated by the tax authorities and the sending to the customer of a new invoice or credit note canceling or replacing the original invoice. Thus, the original invoice must be crossed out and kept in the chronological order.

Electronic invoicing. Electronic invoicing is allowed in the DRC, but not mandatory. It must contain the same information as required for a paper invoice. Electronic invoices must contain all the same required information as a full VAT invoice. If this is not complied with, the tax author ities will challenge the deductibility of the input tax on such an invoice for the customer.

Simplified VAT invoices. Simplified VAT invoicing is not allowed in the DRC. As such, full VAT invoices are required.

Self-billing. Self-billing is allowed for the self-supply of goods or self-provision of services. In these cases, the VAT is due: at first use, for the self-supply of goods and at the date of the execu tion of services for the self-provision of services.

Proof of exports. VAT for exported goods is zero-rated. To obtain the zero rating, the following evidence must be provided:

• A copy of the bank document establishing proof of payment by the exporter’s customer and a copy of the transport document

• Copies of the export declarations certified by the customs authorities

Foreign currency supplies. Invoices cannot be issued in a foreign currency in the DRC. All invoic es must be issued in the domestic currency, which is the Congolese franc (CDF).

Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons in the DRC. As such, full VAT invoices are required. Please note that when the suppliers issue invoices to customers even if the customers are not registered for VAT, the VAT should be charged on these invoices, unless the customers show an exemption certificate. This means that invoices issued to customers that are exempt from VAT should not be charged VAT (and should not be included on the invoice). Otherwise, all the invoices issued by the suppliers to customers, including the ones who are not registered for VAT, are subject to VAT.

Records. Records that must be held for VAT purposes in the DRC include tax invoices, nominal/ general ledger, trial balance, etc. In the DRC, VAT books and records must be held within the country.

Record retention period. All invoices or equivalent documents must be kept, according to the legislation in place, for at least 10 years.

There is a prescription period for the recovery of taxes and other duties due after 15 years from the filing of the declaration or the issuance of the notice of recovery.

Electronic archiving. Records can be kept manually or electronically.

I. Returns and payment

Periodic returns. The VAT return is filed with the tax authorities on a monthly basis, by the 15th of the following month. The VAT return must be submitted with the proof of payment of the VAT. Without proof of payment, the tax authorities will not receive the VAT return (unless it is a nil VAT return). In the case of a VAT refund, the refund will be reported as a VAT credit in the return for the next month. No refund is paid back directly to taxable person (apart from mining compa nies). In practice, even the mining companies don’t receive the refund easily or readily.

Periodic payments. The VAT is paid no later than the 15th of the month following the delivery of the goods (invoice) for the goods and payment received for the services.

Electronic filing. Electronic filing is allowed in the DRC, but not mandatory. However, it has not yet been implemented in practice. This means that the monthly VAT return must be filed manu ally with the tax authorities. At the time of preparing this chapter, the tax authorities were still planning to implement the online filing. However, no exact timing had yet been announced.

Payments on account. Payments on account are not required in the DRC.

Special schemes. Cash accounting. Cash accounting is allowed in the DRC. For service providers, the VAT is due when they receive the cash. By the 15th of the following month, they should proceed with the payment of the VAT and join the proof of payment to the VAT return and file the return with the tax authorities.

Purchase invoice scheme. For purchasers of goods, the VAT is due when receiving the invoice for the goods.

Annual returns. Annual returns are not required in the DRC.

Supplementary filings. In the DRC a detailed statement of deductions is required to be filed along side the monthly VAT return. Also, in March, taxable persons are required to file a confirmation of the annual pro rata. This is for taxable persons that are partially exempt. These need to calcu late the apportionment to find the correct percentage to be applied and to regularize the VAT by 31 March of the following year. In case of all items are VAT deductible and full VAT has been applied, no regularization should be made.

Correcting errors in previous returns. To correct any errors or omissions from prior periodic fil ings, the taxable person must send a letter to the tax authorities to communicate the errors or omissions. These will then be corrected in the next VAT return, which should be filed by the 15th of the following month as normal.

Digital tax administration. There are no transactional reporting requirements in the DRC.

J. Penalties

Penalties for late registration. Failure to register for VAT with the DRC tax authorities within the required period is subject to a fine of CDF500,000.

Penalties for late payment and filings. The absence or late filling of VAT returns is subject to a penalty of 25%. In the case of discretionary taxation for lack of declaration, the penalty is equal

to 50% of the amount of the tax due. In case of recidivism, the penalty will increase to 100% of the same amount.

In the case of a tax audit, the penalty equals 20% of the amount of tax due. In case of recidivism, the penalty will increase to 40% of the same amount.

Penalties for errors. When supplying goods or providing service without invoice, the taxable person will be liable for the penalties amounting to twice the VAT due. In case of recidivism, the taxable person will be liable for the penalties amounted to triple of the VAT due.

For the failure to notify or late notification to the tax authorities of changes to a taxable person’s VAT registration details, no penalties apply. For further details, please see the above subsection Changes to VAT registration details.

Penalties for fraud. Any abuse of VAT on an invoice or similar document is subject to a penalty equal to three times of the amount of the tax illegally invoiced.

The taxable person who issues a false invoice including VAT or falsifying an invoice presented as justification for a deduction is subject to the payment of a fine equal to three times of the tax due.

Any refund of credits from the VAT obtained on the basis of false invoices gives rise to an imme diate reimbursement of the sums unduly received, with a fine equal to the same amount.

Any deduction made and not corresponding, in part or in whole, to an acquisition of goods or the provision of services is subject to a fine equal to the amount of duties unduly deducted.

The taxable person who fraudulently abuses the electronic filing system will be liable for the payment of the penalties amounted to CDF5 million (USD3,030) for the first time and triple in case of recidivism. However, because electronic filing has not yet been implemented in practice, the associated penalties have also not yet been implemented.

Personal liability for company officers. Company directors can be held personally liable for errors and omissions in VAT declarations and reporting. Penalties can be imposed as 25% of the VAT due and/or (2% x number of months of delay) x VAT due.

Statute of limitations. There is no set time limit for the statute of limitations in the DRC. The tax authorities can go back to review returns and identify errors and impose penalties at any time.