Africa tax in brief
AFRICA: Africa Tax Administration Forum signs renewal of MoU with OECD
The Organization for Economic Co-operation and Development (“OECD”) and the African Tax Administration Forum, on 20 June 2018, signed the renewal of their Memorandum of Understanding (“MoU”) until June 2023, consolidating the agreement between the two organisations to work together in order to improve tax systems in Africa. Cooperation efforts include work in the areas of tax incentives for investment, transfer pricing, exchange of information, taxpayer education, collection of African revenue statistics and support by the OECD for the Tax Inspectors Without Borders initiative.
AFRICA: African Continental Free Trade Area Agreement developments
On 1 July 2018, Burundi, Lesotho, Namibia, Sierra Leone and South Africa signed the African Continental Free Trade Area Agreement (“ACFTA”) at the 31st summit of the African Union, held in Nouakchott, Mauritania. The ACFTA will enter into force 30 days after the 22nd country has deposited its instrument of ratification.
On the same day, Chad and Swaziland deposited their instruments of ratification for ACFTA, signed on 21 March 2018. Niger deposited its instrument of ratification on 8 June 2018.
The Council of Ministers of Mauritania approved the ACFTA on 28 June 2018 and the Parliament of Guinea on 19 June 2018.
ANGOLA: New legal and tax regime applicable to natural gas sector published
Presidential Legislative Decree No. 7/18 was published on 18 May 2018, establishing a legal and tax regime applicable to petroleum investing companies engaged in the prospecting, research, evaluation, development, production and sale of natural gas in Angola and the territorial or international areas over which international law or agreements recognise the sovereignty of Angola.
Petroleum investing companies carrying out activities in accordance with the Decree are not subject to the petroleum transaction tax under Law No. 13/04 of 24 December 2004, regardless of the contractual regime, but the tax rate applicable to oil income is 25% and 15% in respect of non-associated gas projects as defined. Specific tax concessions may also be granted to petroleum investing companies if the economic conditions of their operation so justify.
ANGOLA: New tax incentives regime for qualified marginal areas published
Presidential Legislative Decree No. 6/18, published on 18 May 2018, provides for, inter alia, incentives available exclusively to discoveries (carried out under oil concessions) in qualified marginal areas.
The Decree revoked Presidential Legislative Decree No. 2/16, of 13 June 2016 and provides for a 10% petroleum production tax rate for service contracts with risk. The applicable rate for petroleum transaction tax is 70% in accordance with article 48 of Law No. 13/04 of 24 December 2004. A once-off rate of 25% petroleum income tax rate applies to production sharing contracts.
All research and development expenses related to production sharing contracts and service contracts must be amortised over a period of three years and the percentage of oil for cost recovery is set at 80% of the production from a "qualified marginal area", for four years, after which the percentage is reduced to 65%.
The Decree also provides for a production premium, the value of which is fixed based on the rate of return, and investment premium, which is set at a flat rate of 20% for all production sharing contracts, association contracts and service contracts.
BURKINA FASO: New Tax Code published
The new General Tax Code (“GTC”), adopted on 20 December 2017 and applicable from 1 January 2018, include the following salient provisions:
- a definition of permanent establishment, based on the United Nations Model Convention definition, is included in the GTC;
- a definition of “related parties” is introduced in terms of which two companies are deemed to be related if:
- one company directly or indirectly holds the majority of the share capital or voting rights of another company, or in fact directly or indirectly exercises the decision-making power; or
- both companies are under the control of the same company.
- the deductibility of expenses that are subject to withholding tax is conditional upon presenting evidence that payments have actually been subject to withholding tax and deductible expenses must contribute to the earning of taxable income;
- headquarter costs of Burkinabe companies, including technical, accounting and financial assistance fees, are now deductible only up to 10% of the general fees;
- commission and brokerage expenses relating to goods purchased on behalf of companies operating in Burkina Faso are now limited to 5% of the amount of purchases made by central purchasing offices or intermediaries;
- royalty payments to related companies are deductible up to 3.5% of the net turnover of the taxpayer;
- the overall amount of deductible interest (excluding payments by banks and financial institutions) may not exceed 15% of gross operating income. In addition, the interest rate on payments to shareholders are capped at two percentage points above the legal interest rate and at the legal interest rate on loans contracted with non-resident persons other than banks and financial institutions;
- rental payments for movable property rented from an individual who manages the company and holds at least 10% of the shares of the company are not deductible;
- payments made to a person or company domiciled or resident in a non-cooperative state or territory are not deductible, whereas payments made to a person domiciled or resident in a country with a preferential tax regime are deductible only if the taxpayer demonstrates that expenses correspond to actual transactions and the amount is not excessive;
- only realised foreign exchange gains and losses are taken into consideration for the computation of taxable income;
- the depreciation/amortisation rates previously prescribed by the tax authorities are abolished and companies are now allowed to depreciate/amortise their fixed assets based on generally accepted rates according to their sector of activity;
- lessees (and not lessors) are entitled to claim depreciation allowances on assets leased under a leasing or hire purchase agreement over the useful life of such assets;
- subject to prior approval by the tax authorities, accelerated depreciation allowances may be claimable;
- losses may be carried forward to the fifth tax year following the loss-making year. Depreciation in a loss-making year may no longer be carried forward indefinitely;
- a deduction for gifts and advertising items is allowed up to 0.2% of turnover (excluding value-added tax (“VAT”));
- capital gains on the sale of companies' shares are subject to tax at a rate of 10%, which is increased to 20% if the transferor is resident in a non-cooperative jurisdiction or a country with a preferential tax regime;
- the transfer of shares of real estate companies (companies whose assets derive more than 50% of their value from real estate properties) is subject to capital gains tax on real estate properties;
- capital gains on the direct or indirect transfer of mining titles are subject to tax at a rate of 20%;
- withholding tax on payments to resident service providers is to be levied on the amount of the payment excluding VAT with effect from 1 January 2018;
- any company operating in Burkina Faso and having an annual turnover excluding VAT, or a gross asset value of at least CFA3-billion must submit to the tax authorities documentation justifying the pricing policy applied in the context of transactions of any kind with related companies operating in or outside of Burkina Faso;
- remuneration received by managers of a limited liability company and sole director of a joint stock company is now subject to wages tax;
- with effect from 1 January 2018, supplies made by telecommunication companies are deemed to be “services”;
- commissions on the sale of travel tickets earned by travel agencies registered in Burkina Faso are deemed to be paid in Burkina Faso and are therefore subject to VAT, irrespective of the destination, transport modus or geographical location of the transport company headquarters;
- the exemption on landline and mobile phones is removed and personnel services charged by intermediate companies are now subject to VAT;
- a company making both VATable and exempt supplies must annually compute a deduction ratio for input VAT. If there is a difference exceeding 10 percentage points (previously five percentage points) between the ratio for two subsequent years, the company must adjust the amount of input VAT on acquired fixed assets;
- taxpayers exclusively exporting services are now eligible for a refund of VAT credits;
- the Burkinabe government or state-owned entities making payment for supplies under public procurement contracts to foreign persons are required to withhold the amount of VAT due from such payment;
- a 0.5% tax is introduced on biodegradable plastic packaging intended to be used other than for processed products. For biodegradable or non-biodegradable plastic packaging used for manufactured products, progressive rates are applied according to the packaging unit capacity and the value of the goods packed;
- the statute of limitation is a period of three years. This period is extended by 24 months in the case of transfer pricing audits or if an exchange of information procedure is used; and
- within three months of receiving a taxpayer's request, the tax authorities may issue an advance tax ruling, binding on the tax authorities, regarding the application of tax legislation to a specific situation proposed by a taxpayer.
GHANA: Cargo tracking note system resumed
On 27 June 2018, the Ghana Revenue Authority announced that the cargo tracking note (“CTN”) system for importers, which had been previously postponed, will resume from 1 July 2018.
For all shipments to Ghana (including transit cargo), shippers/exporters/forwarders at the various ports of loading around the world are required to obtain a valid CTN number using the global online platform provided and attach the CTN number generated to the shipping instructions sent to their shipping lines. Non-compliant shipments will not be cleared through customs in Ghana and fines may apply.
KENYA: Finance Bill, 2018 published
The Finance Bill, 2018 was published on 14 June 2018 following the presentation of the budget to Parliament on the same date. Significant provisions of the Finance Bill, generally applicable from 1 July 2018, include:
- the definition of “dividends” is expanded to include any amount expended by the company for the benefit of or on behalf of a shareholder or any person related to the shareholder including:
- amounts discharging debts owed to the company by the shareholder or a person related thereto;
- amounts incurred by the company to settle third party debts owed by the shareholder or a person related thereto; and
- additional tax liability to the company resulting from transactions with the shareholder or a person related thereto;
- with effect from 1 January 2019, manufacturers will be entitled to an additional deduction of 30% of electricity costs incurred in manufacturing, in addition to claiming the normal electricity expense;
- the transfer of property by general life insurance companies will be subject to capital gains tax at 5%;
- both employers and employees are now required to contribute 1% of the employee's monthly gross income up to a maximum of KES5 000 each month to the National Housing Development Fund;
- demurrage charges paid to a non-resident person using the port of Mombasa will be subject to withholding tax at 20% on the gross amount;
- insurance premiums paid to a non-resident person, except premiums paid for insurance of aircraft, will be subject to withholding tax at 5% on the gross amount;
- the taxable value for mobile cellular services will now include levied excise duty;
- transportation of cargo to destinations outside Kenya will no longer be exempt from VAT;
- VAT exemptions are to include, inter alia,:
- cereals from durum seeds and barley seeds, materials, waste, residues and by-product and preparations of a kind used in animal feeding;
- specialised equipment for the development and generation of solar and wind energy, including deep cycle batteries which use or store solar power;
- parts imported or purchased locally for the assembly of computers, subject to obtaining necessary approvals;
- material and equipment for the construction of grain storage, upon recommendation by the cabinet secretary responsible for agriculture;
- goods and services imported or purchased locally for direct and exclusive use in the implementation of projects under a special operating framework arrangement with the government; and
- asset transfers and other transactions related to the transfer of assets into real estate investment trusts and asset backed securities;
- a person seeking an extension to file a return is required to do so 15 days before the due date for monthly returns, and 30 days before the due date for annual returns. Where no notification has been received from the Kenya Revenue Authority, the application shall be deemed to be granted;
- tax amnesty for income earned from outside Kenya has been extended to cover income relating to 2017, provided the returns are filed by 30 June 2019;
- the rate of interest for the late payment of tax has been revised from 1% to 2% and a penalty of 20% has been introduced for late payment of taxes; and
- an objection to a tax assessment will be considered valid where the taxpayer has made an application for extension of time to pay the tax not in dispute. Currently, an objection is deemed valid only if the amount not in dispute has already been paid.
LIBERIA: Convention and Protocol on Mutual Administrative Assistance in Tax Matters signed
On 11 June 2018, Liberia became the 122nd jurisdiction to join the multilateral Convention on Mutual Administrative Assistance in Tax Matters, as amended by the 2010 protocol.
LIBERIA: VAT system proposed
On 26 May 2018, the Ministry of Finance and Development Planning published the Budget Framework Paper 2018/19, which proposes, inter alia, the replacement of the current goods and services tax regime with a broad-based VAT system. The implementation of the VAT system is scheduled for 2019 due to major economic and logistical constraints.
MAURITIUS: 2018/19 Budget presented
The Prime Minister presented the 2018/19 Budget to Parliament on 14 June 2018. Significant proposed tax measures include:
- the abolishing of the deemed foreign tax credit regime available to companies holding a category 1 global business licence with effect from 31 December 2018. The regime is to be replaced by a partial exemption in terms of which 80% of specified income (foreign source dividends and profits attributable to a foreign permanent establishment, interest and royalties and income from the provision of specified financial services) will be exempted from income tax. The exemption will be granted to all companies in Mauritius, excluding banks;
- the category 2 global business licence regime will be abolished but the current regime will continue to apply until 30 June 2021 for companies that have been granted a licence before 16 October 2017;
- the deemed foreign tax credit regime available to banks will be abolished as from 1 July 2019 and replaced with a regime specific for banks, which will make no distinction between segment A and segment B income and tax chargeable income of up to MUR1.5-billion at 5% and chargeable income exceeding MUR1.5-billion at 15%;
- in terms of a newly-introduced incentive system for banks having chargeable income exceeding MUR1.5-billion, any chargeable income in excess of the chargeable income for a set base year will be taxed at a reduced tax rate of 5% subject to certain conditions;
- the corporate tax rate of 3% applied on profits derived by any company from the export of goods will be extended to global trading activities;
- the current special levy on banks, which is scheduled to end by June 2018, will be extended up to June 2019;
- the solidarity levy on telephone service providers (5% of book profit and 1.5% of turnover), which was introduced in 2009 and subsequently extended, will be further extended for two years up to June 2020. The requirement for book profit of a company to exceed 5% of its turnover to be liable to the levy will be removed;
- a five-year tax holiday will apply to Mauritian project developers and project financing institutions collaborating with the Mauritius Africa Fund for the development of infrastructure in the special economic zones; and
- the corporate tax exemption granted to freeport operators and private freeport developers in respect of the export of goods will be removed, but operators and developers will continue to enjoy the exemption from the corporate social responsibility contribution. The current tax regime will continue to apply until 30 June 2021 to companies that have been granted a freeport certificate before 14 June 2018.
MAURITIUS: Protocol to treaty with Cyprus enters into force
The amending protocol to the Cyprus - Mauritius Income and Capital Tax Treaty (2000), signed on 23 October 2017, entered into force on 30 April 2018. The protocol generally applies from 1 July 2018 in respect of Mauritius and from 1 January 2019 in respect of Cyprus.
NIGERIA: Tax reforms approved by Federal Executive Council
On 6 June 2018 the Federal Executive Council approved the following two executive orders and five amendment bills, to be presented to the National Assembly for review and deliberation:
- the Value Added Tax Act (Modification) Order;
- the Review of Goods Liable to Excise Duties and Applicable Rate Order;
- the Companies Income Tax (CIT) Act (Amendment) Bill;
- the Personal Income Tax Act (Amendment) Bill;
- the Value Added Tax Act (Amendment) Bill;
- the Customs, Excise, Tariff etc. (Consolidation) Act (Amendment) Bill; and
- the Industrial Development (Income Tax Relief) Act (Amendment) Bill.
NIGERIA: Country-by-Country Reporting Regulations, 2018 published
The Federal Inland Revenue Service published the Income Tax (Country-by-Country Reporting) Regulations, 2018 (the Regulations) on 19 June 2018, providing guidance on qualifying entities, filing deadlines, information required and penalties for non-compliance.
RWANDA: 2018/19 Budget presented to Parliament
The Minister of Finance and Economic Planning presented the Budget for 2018/19 to Parliament on 14 June 2018. Significant proposed measures include:
- amending the Law on Tax Procedures in respect of the "electronic billing machine for all" initiative which aims at rolling out electronic billing machines to selected non-VAT-registered taxpayers and addressing other loopholes in the law in order to improve taxpayer compliance procedures;
- enacting the law amending excise duties on beer, wines and liquor as well as mobile data; and
- granting preferential import duty rates as agreed by the member states of the East African Community in order to support some strategic sectors in the promotion of transport services, promote the "Made in Rwanda" agenda, support the cashless economy, provide access to basic needs for the population, and support sport activities.
SENEGAL: Treaty with Luxembourg enters into force
The Luxembourg - Senegal Income and Capital Tax Treaty (2016) entered into force on 14 June 2018 and generally applies from 1 January 2019.
SIERRA LEONE: Finance Act, 2018 gazetted
The Finance Act, 2018 was published in the official gazette on 1 March 2018, with relevant tax measures generally taking effect from 1 January 2018.
TANZANIA: 2018/19 Budget presented
The Budget for 2018/19 was presented to the National Assembly by the Minister of Finance on 14 June 2018, with relevant provisions generally to apply from 1 July 2018. Significant proposals include:
- introducing a reduced tax rate of 20% for new investors in the pharmaceutical and leather industries for five years commencing from the financial year 2018/19;
- empowering the Minister of Finance to grant tax exemption on government projects funded by non-concession loan;
- granting exemption from withholding tax for interest loans provided by banks and financial institutions to finance government projects;
- items exempt from VAT are to include labelled packaging materials produced specifically for use by the local manufacturers of pharmaceutical products, imported animal and poultry feed additives and sanitary towels; and
- increasing the gaming tax rate on gross sales in sports betting operations from 6% to 10%, and that of land-based casino operators from 15% to 18%, whereas the gaming tax on slot machines is to be increased from TZS32 000 TO TZS100 000 per machine per month.
UGANDA: Excise Duty (Amendment) Bill, 2018 passed by Parliament
The Parliament passed the Excise Duty (Amendment) Bill, 2018 on 30 May 2018, revising the duty rates for opaque beer and ready-to-drink spirits, imposing excise duty on non-alcoholic beverages (excluding fruit or vegetable juices) and exempting sugar confectioneries (ie, chewing gum, sweets and chocolates) from excise duties.
The Bill has yet to receive presidential assent.
UGANDA: 2018/19 Budget presented to Parliament
Uganda’s 2018/2019 budget was presented to Parliament on 14 June 2018. Significant proposals include:
- granting a tax exemption for a period of 10 years from the date of commencement of construction to industrial park or free zone developers investing at least USD200-million, and a five-year exemption from the date of commencement of business to operators or other businesses in industrial parks or free zones investing a minimum of USD30-million in the case of a foreigner or USD10-million;
- requiring certain designated taxpayers to withhold 50% of the VAT charged to them. A 10% withholding tax, to be deducted on commission payments by telecoms to agents for airtime distribution or provision of mobile money services, is to be introduced; and
- introducing a tax charge on the deemed disposal by a Ugandan entity of a foreign resident where the underlying ownership of such entity changes by more than 50%.
Sources include IBFD’s Tax Research Platform; www.allafrica.com; http://tax-news.com
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