A. Income Tax: Scheme of the Act
The Act sets out the imposition of income tax according to the nature of the asset or activity generating the income, and in each of these categories it defines the factors which are to be treated as income.
Different categories of income/scheduler taxation system:
There are three categories, known as schedules, within which the income is taxed separately, with no possibility of offsetting the expenses or earnings from one schedule to another.
The three revenue schedules established in the Act are:
- The schedule for rental income: composed of all the income derived from letting a building or land – subject to a rental income tax;
- The schedule for income derived from movable assets: composed of all the income derived from invested capital – subject to a tax on movable capital, and
- The schedule for business income: composed of all income derived from the exercise of an activity, as a business or profession – subject to a business income tax. The act provides for three different regimes:
The industrial and commercial companies regime,
The salaried persons regime, and
The professional, business and income producing regime.
Procedure for determining taxable income
According to the tax schedule in which it is located, this income is taxed on the basis of the net figures for gross income less non taxable items.
Company tax regime
Where companies are concerned, the fiscal notion of revenue, although different from its accounting meaning, still has its point of departure in the income as shown in the company books. Because of this, two situations determine the way in which taxable income is decided:
1. Companies which fall under the standard tax regime:
The way of determining the income will depend on whether or not this company keeps proper accounts.
- A company which keeps proper accounts -
Taxable income will be determined on the basis of the income statement.
On the basis of this statement, and bearing in mind the category of income, the taxable items in other schedules must first be deducted: rental income and dividends. Against this deduction however, all the expenditure related to the acquisition or preservation of this other income is recorded.
Once these deductions have been made, the resulting earnings are subject to further deductions and recoupments before the taxable income per se is arrived at.
- A company which does not keep proper accounts -
In the absence of convincing data, taxable income is determined by comparing the normal profits of one or more similar taxpaying companies and, depending on the case, by taking into account the capital invested, the turnover, the number of offices and employees, together with any other pertinent information (Article 33 § 2).
In order for a company’s book-keeping to be considered proper, accounting procedures are required to comply with prescribed practices.
2. Companies which fall under the presumptive tax regime (Article 33 § 2):
These are usually companies which, because of their form, size or type of activity, generally do not keep proper accounts and for whom the Administration establishes presumed bases for tax assessment, after consulting legally constituted business groups if necessary.
The texts pertaining to these presumptive bases generally treat them as minimum thresholds which the Administration can correct once they have been examined.
- Tax regime for salaried people
Salaried people are taxed on the basis of all the benefits they receive, both in money and in kind, from those who hire their services, after deduction has been made for allowable benefits and expenses (Article 47).
- Tax regime for professional people and those in income producing occupations
Such people are taxed on the difference between their total receipts and allowable deductions; accounts receivable are not taken into consideration when determining taxable income in this category (Article 53).
B. Income Tax on Resident Corporations (National Government)
1. Name of Tax and Levied in Terms of Which (Name, Number and Year)
Corporate Tax Schedules (ICR / BS)
Act no 69-009 of February 10th 1969 on income tax rates.
As income is taxed separately, depending on the schedule, resident companies earning revenues which fall into other categories (assets and rentals) will also pay tax in those specific schedules.
There is not a single tax for resident corporations, but three separate taxes depending on how their earnings are allocated per tax schedule (although there is a single tax return consolidating the earnings in the three schedules).
Tax Administration
2. Definition and Classification
Any legally constituted company falls within the ambit of tax legislation, as well as de facto associations which have no legal status but which have proper accounting procedures, except for consortia (Article 2).
A resident company may be:
- A company constituted under Congolese law
Such a company is constituted according to Congolese legislation and has its registered office and administrative headquarters in the DRC. In addition, such a company must hold its Ordinary General Meeting in the DRC (Article 3 § 2 and 3).
In terms of company law, it is sufficient that a company be constituted in accordance with Congolese legislation for it to be a Congolese company. Fiscal law in this respect takes a slightly different view by instituting additional conditions.
- A company constituted under foreign law:
Any company which is not constituted under Congolese law is, in terms of fiscal law, a foreign company (Article 3, § 1).
Foreign companies are not taxed in the DRC unless they have established a fixed place of business in the country (Article 68).
Deemed to have established a fixed place of business in the DRC is any foreign company which:
has either set up some physical presence in the country, such as a head office, workshops, warehouses, premises for rent,
or, in the absence of a physical structure, one which carries out for at least six months of the year some business activity in the country under its own corporate name (Article 69).
4. Basis of Taxation
4.1 Source-based or residence based
Tax is only payable on income earned in the country (i.e. source); Income earned abroad is not subject to tax in the DRC, regardless of whether or not this income has been taxed in the source country.
The Act levies tax only on income earned within the country, regardless of whether or not the beneficiary is resident there. Income earned abroad, even by residents, is therefore tax exempt: this is the tax jurisdiction system, which holds that where the income is earned is where the tax should be paid.
As a result, the concept of residence in the Congolese tax system does not have the same importance as it does in other systems.
4.2 If source, define:
4.2.1 Actual source
No statutory definition
4.2.2 Deemed source
Rental income is earned in the DRC when it is derived from letting buildings or land located within the country (Article 4):
- income derived from movable assets is earned in the DRC when the corresponding debtor companies are either duly constituted Congolese companies, or foreign companies established in the Congo (Article 13); and
- business income is earned in the DRC when the business activity takes place within the country (Article 27).
4.3 If residence, define:
4.3.1 Define resident
4.3.2 Exclusions from the definition of resident:
4.3.3 Ceasing of residency provided for in the Act
5. Time Tax is Levied
Tax is due from the moment the income is generated:
- For rental income and income derived from movable assets
The income is earned at the time it is made available by the debtor.
Deemed to be made available: the exchange or handing-over of certificates / deeds representing company shares, offsets, etc.
Although distributed, income not yet made available to the beneficiary is not subject to tax.
- For business income
The generating event is the undertaking of activities which are to produce income for the company. However, as the profit is a synthesis of several operations undertaken during a given financial year, the income is taken to be earned before the end of that financial year.
6. Included in Tax Base
Tax is based on the income derived from all operations carried out in the DRC as well as on the growth of assets invested for these activities, including growth resulting from capital gains, whatever the origin or nature (Article 30).
It is the theory of asset growth rather than the operating account which is taken into consideration. However, a company’s taxable income is based on its income statement.
Regarded as income are items such as (Article 31):
- Amounts allocated for the total or partial repayment of capital loans, for company expansion or for the appreciation of plant and equipment, when these amounts are entered as a debit on the income statement;
- Reserves or provisions of any description, items carried forward or any similar allocations, etc.
7. Year of Assessment
The year of assessment is the financial year which, under Congolese law, must correspond to a calendar year (Article 74).
8. Computation of Taxable Income
8.1 Exemptions
8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):
Although they fall into the fiscal definition of income, certain items are nevertheless exempt, i.e. excluded from the tax base, under certain conditions. Namely:
- Accounting gains/Unrealized capital gains
The growth in invested assets and the resulting capital gain simply expressed in the accounts, is tax exempt if:
– The revaluation was done in accordance with the factors determined for this purpose by the Ministry of Finance;
– If the gain thus recorded is incorporated in the capital, without being distributed in any way ;
– If depreciation of the gain in respect of the re-valued asset is applied separately on the gain and on the original value;
– If there is no sharing, even partial sharing, of the asset as the result of the retirement or death of a partner, a merger or take-over of the company.
In principle, the exemption deals with capital gains on fixed assets. The accounting gain on inventories or realisable assets is always treated as income.
- Issue premiums
These are issue premiums received by the Congolese joint stock company when it issues new shares, and not those it would receive in payment for shares it may hold in another joint stock company.
These issue premiums are not regarded as income if:
– They are allocated to an inalienable account under liabilities, or
– Are incorporated into authorised capital (Article 31.5)
- Previously taxed income
To avoid double taxation, income of a company not subject to a single tax levy and income previously taxed in the name of the same taxpayer, is deducted from the tax base (article 59 § 1).
The following is deemed to have been previously taxed (Article 60):
– The income on stocks and shares of national origin, issued by resident companies;
– Income on collective loan certificates of national origin, issued by resident companies;
– Interest, premiums, bonds and other redeemable stock, treasury certificates and other similar instruments, issued by the government;
– Rental income on buildings and land located in the DRC;
– In so far as they were actually subject to tax on the income derived from movable assets, royalties for the use or concession of: patents, copyrights, trademarks, designs, drawings, etc.,
*scientific, industrial or commercial equipment,
*information or specific know-how relating to experience gained in the industrial, commercial or scientific field.
8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income):
Certain companies or groups of individuals are completely or partially exempt from income tax. These are:
- Exemptions for public officials (article 94.1)
– The State and administrative personnel are exempt from income tax;
– Public enterprises are exempt from income tax only:
- if their resources come from budget subsidies; or
- if it is so specified in their constitution.
- Exemptions for Non-profit organisations and similar institutions
These are charitable organisations, political parties, churches or any group which is created and operates on the basis of provisions specific to these associations (Article 94.2)
- Exemptions in terms of the Investment Code (Article 39)
This code provides for two types of exemption:
– Exemptions under the general regime
In this context, the income tax exemption is granted differently according to whether:
The company is new: In which case it enjoys total exemption for a period ranging from two to five years, depending on the circumstances. Or,
Is an existing company: In which case it enjoys a tax credit, calculated on the basis of income tax paid during the last five profit years. The tax credit may likewise be used for a period of two to five years, depending on the circumstances.
– Exemptions under the contractual regime
With regard to income tax, the company enjoys all the benefits accorded in the agreement. Companies enjoying all these exemptions are however required to declare the income they earn, or risk losing the benefits associated with the exemptions (Article 40).
- Exemptions under the special provisions of the Tax Code (Article 39)
Since January 1st 1968, newly-created companies in the provinces of Orientale and Kivu, enjoy a five-year tax holiday. At the time, this was instituted to encourage investors to settle in these provinces which were particularly affected by the rebellions which followed the country’s independence.
8.2 Deductions and recoupments
8.2.1 Allowable deductions
Principle: business expenses
Article 29 § 1 sets out the principle that income is taxable on the net amount, i.e. the gross amount less expenditure incurred during the period in order to earn or to preserve the income.
For an expense to be deductible, it must first of all:
- be an expense, i.e. there is no corresponding realisable asset acquired as a result;
- it must be connected to the activity, i.e. it is incurred with the view to earning or preserving income, and
- it must be incurred during the period, i.e. be paid or acquire the nature of a fixed and liquid debt.
In application of this principle, the Act gives examples of the overheads it considers to be business expenses (article 43):
- The rental and service charges paid in respect of a building or part of a building used in the exercise of the business, and all the incurred overheads - maintenance, electricity, etc. However, the rental value of the building or part of the building owned by the taxpayer cannot be treated as a rental or a service charge.
- Overheads incurred in the upkeep of equipment and movable items allocated to the business activity.
- Salaries and remuneration paid as well as fringe benefits, in so far as they are added to taxable remuneration. However, the remuneration of the business owner’s family members in the company, other than by shares, can only be deducted from taxable profit insofar as it is not overstated. Deductible from taxable income are standing payments actually made for a life annuity, pension and the like, on behalf of the recipient.
- Interest on capital borrowed for business purposes from third parties. Partners in companies other than by their shareholding are not regarded as third parties. Interest on mortgage loans is likewise not deductible from tax levied on business income, if the aforementioned building(s) is rented out.
- Transport, insurance, brokerage, commissions, commercial discounts. These expenses, however, are only deductible if supported by:
– the precise indication of the name and address of each beneficiary, as well as the dates of payment and sums allocated to each of them; and
– for commissions, fees and other remuneration to third parties, by the payment of the CCA (Turnover tax) for services rendered.
- The profits distributed amongst staff members together with the fees paid to members of the Board of directors, insofar as they relate to the exercise of real and permanent duties within the company.
- Depreciation (See below).
- Tax on operating assets.
8.2.2 Valuation of inventory/trading stock
The Act is not specific in determining the applicable method for valuing inventory. However, as each taxpayer is required to maintain his books in accordance with legal provisions in this regard, the rules for valuing the inventory are determined according to the provisions of the Act in respect of standard accounting practice.
Compared to these provisions, the valuation of stock depends on the method used by the company for inventory control:
- Stock entries are valued:
– At the purchase price plus incidental expenses, for goods, raw materials and supplies;
– At the market price on the day they are taken into stock, for waste materials and scrap;
– At production cost, for semi-finished and finished products;
– At production cost or cost of works, for goods being manufactured or works in progress.
- Inventory draw-down is evaluated:
- In the case of continuous stocktaking:
– At the entry cost, plus storage expense if a fixed item;
– If fungible items, continuous stocktaking should follow one of the following three methods:
- Inventory draw-down: first in = first out
- Batch draw-down: last in = first out
- At weighted average cost of goods in stock at time of draw-down
- In the case of intermittent stocktaking
– Inventory draw-down is evaluated at the weighted average cost of the goods in stock at the time of draw-down.
8.2.3 Reserves and provisions
The principle is that tax is levied on the income, regardless of allocation. Consequently, all sums set aside for whatever use remain liable for company tax (Article 30 5 § 1 and 46 6).
However the following is not regarded as income:
- issue premiums provided that they are allocated to an inalienable account or incorporated into the authorised capital of the company (Article 30 5 § 2)
- provision for mine rehabilitation (Article 46 6).
In respect of other provisions, even those which are mandatory in terms of legal requirements and regulations (technical provisions for insurance companies or regulations in respect of banks), the Act remains silent. As a result they are also also taxable as income.
8.2.4 Non-deductible expenses
Generally:
Not deductible from taxable income are : any expenditure which does not meet the conditions required in order to be regarded as a business expense, namely in the case of:
- Expenses which might be incurred
To be deductible from taxable income, an expense must be certain / fixed. However, the rules of prudent management require doubtful debts to be written down as a loss: the same expense must then be recouped in the assessed income
- Gifts
Gifts are any expenditure incurred by the taxpayer without there being any obligation to generate taxable income.
This is the case with donations to charitable organisations and certain forms of advertising, particularly sponsorships.
Fringe benefits or payments in cash to personnel are not regarded as gifts, taxable in the name of the employer-taxpayer, but are seen as additional remuneration, taxable in the name of the employee.
- The share of profits allocated to members of the Board of directors, insofar as this does not correspond to remuneration for real and permanent duties within the company (Article 46.4)
- Tax on income, and the payment of back taxes (Article 46.2)
As well as actual tax on assets not allocated to the business operation
- Fines of whatever sort (legal or administrative) (Article 46.3)
The prohibition refers to fines, of whatever sort, be it handed down by the court or as a settlement. Fines include fees and costs relating to any infringement for which the recipient of the income is liable.
- Expenses relating to income taxed in another schedule
Namely expenditure relating to assets given out for hire, including depreciation of said assets (Article 46.5)
- Generally, expenditure which has nothing to do with the acquisition or preservation of income (Article 46.1)
In a specific way to companies which are connected:
- Unpaid benefits
When a company established in the DRC finds itself directly or indirectly in a relationship of interdependence with regard to a company established abroad, all unfair or unpaid benefits it accords this company or people or companies who have a common interest with it, are added to its own income (Article 31 (a)).
Unfair advantage is taken to mean any unjustified enrichment of the foreign company, particularly through the practice of selling at a price below market value, etc.
- Remuneration of services (Article 43a)
The sums paid by a company constituted under national law to an individual or a foreign company with whom it is linked by way of direct participation in its capital, or through the interest it holds in one or more other companies in the same group, in payment of services rendered, may only be allowed to feature as a business expense of the national company on the triple condition that:
– The service rendered is clearly demonstrated,
– The service in question cannot be rendered in the DRC,
– The remuneration paid corresponds to the actual value of the service.
8.2.5 Recoupments
Since the taxable income is assessed against the income statement, all the allowed book entry expenses which are not deductible on the tax level, as explained in item 8.2.4 above, must be restated.
The same applies to entries which are not shown on the credit side of an income statement but which are treated as such on the tax level (refunding shareholder funds without reducing the authorised capital for instance).
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
The depreciation of tangibles being used for business purposes is tax deductible (Article 43.7) provided that:
- Conditions relating to the status of the taxpayer
– He is not being taxed according to one of the presumptive regimes under the Tax Code,
– He is not enjoying income tax exemption; if so, the depreciable assets, subject to any contrary legal provision particular to one of the exemption regimes, are supposed to be depreciated at the rate of 10% over the period of validity of the exemption (Article 40 § 2).
- Conditions relating to the asset:
– tangibles appearing as capital assets
– tangibles effectively subject to depreciation,
– depreciation thus calculated must also be entered in the books.
- Computation of depreciable value:
Depreciation must be applied on the basis and within the boundary of the original value of the asset or otherwise its assessed value (Art 43 b A 2 and 43 b B). The original value means:
– For purchased tangibles: the acquisition cost, i.e., the purchase price plus any additional expense in refurbishing the asset
– For tangibles acquired free of charge: the monetary value at the time of acquisition
– For tangibles contributed to the company by third parties: the value of the contribution
– For tangibles created by the company: the cost of acquiring the materials and supplies used, plus all the direct and indirect costs of production, excluding financial expenses
- Permitted methods of depreciation:
– Straight-line depreciation (Article 43 b C): This is the usual method.
Annual depreciation corresponds to the allowance set against tax, arrived at by dividing the original value of the asset by its normal useful life.
– Sliding scale depreciation (article 43 b D)
- General conditions for eligibility to use sliding scale depreciation:
- Taxpayer not subject to the presumptive tax regime (article 43 b D § 1)
- Assets acquired after the institutionalisation of this regime, whether or not they are new (Article 43 b D § 2)
- Assets whose useful life is between four years and twenty years (Article 43 b F 2) N.B. buildings are depreciated over twenty years and machines over five years.
- Notification to the relevant national Tax Authority that the special depreciation method will be applied to certain tangibles (Article 43 b M).
- Types of assets eligible for sliding scale depreciation (Article 43 b E)
- Plant and equipment used in industrial manufacturing, processing, mining or transport,
- Handling and lifting equipment,
- Plant producing steam, heat, energy and refrigeration
- Safety and health centre installations
- Office machines, except furniture and equipment (air-conditioners, etc.), as well as the plant and equipment used in scientific or technical research activities
- Specific installations for warehousing and storage
- Agricultural machinery and farming equipment, except for buildings and land
- Buildings and equipment in the hotel industry
- Computation of annual depreciation (Article 43 b G)
- For the first year: Linear rate of depreciation, multiplied by a coefficient determined according to the useful life of the asset (2, 2.5 or 3)
- For the following years: the sliding rate applied to the residual value of the previous year
- When the annual depreciation figure drops below that which would result from straight-line depreciation applied to the residual value: depreciation which would result from the application of the straight-line method (article 43 b I)
– Special depreciation
- General conditions for special depreciation eligibility
- Industrial companies manufacturing finished or semi-finished products, where exports represent at least 20% of sales turnover at the time the eligible asset comes into service;
- Assets eligible for special depreciation are the same as those eligible for sliding scale depreciation;
- Notification to the relevant national Tax Authority that the special depreciation regime will be applied to certain fixed assets (Article 43 b M).
– Computation of annual depreciation
- For the first year: the rate is 60% of the original value, regardless of the utilisation period for this first year (Article 43 b L 1)
- For the following years: by applying the sliding scale system to the residual value after the first year (Article 43 b L 2)
- When the annual depreciation figure drops below that which would result from straight-line depreciation applied to the residual value: depreciation which would result from the application of the straight-line method (Article 43 b L 3)
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
No specific provisions; only Article 43bF which excludes patents, trademarks, goodwill, business, name and other intangibles from the sliding scale method of depreciation. Accordingly: these intangibles may be depreciated on the straight-line method, if this falls within sensible accounting practice:
- intangibles regarded as assets on the balance sheet (whether or not they are owned by the company...)
- intangibles actually subject to depreciation
8.4 Treatment of losses
Losses are deductible from taxable income over a maximum of five tax years following their occurrence, on condition that:
- it is a tax loss and not an accounting loss (Article 42 (a) 4.)
- that this tax loss is lessened by the income already taxed in other schedules (Article 42.1) and that it does not include deficits carried forward from previous tax years (Article 42 (a) 4.).
- that the benefiting company is not taken over by another company, neither does it change its shareholding or its activity such that, despite its legal identity, one is no longer dealing with same company (Article 42 (a) 1.). The deficit must be strictly carried over to the operating results of the first profit year, then to the profit for the following year if there is still a balance outstanding; spreading it out is not allowed (Article 42 (a) 2).
The profit or loss of a fiscal year is assessed in comparison to the pre-tax profit, disregarding the deficits carried forward from previous years (Article 42 (a) 4).
The portion of losses relating to depreciation stated and entered in the accounts may be carried forward indefinitely, insofar as the company has not undergone any change in its business or legal identity (Article 42 (a) 3, 6 and 7).
9. Foreign Exchange Losses and Gains
These are not taken into account when assessing taxable income in the DRC (Article 4.2 § 4)
10. Branch Profits Tax
Regardless of the company results, income earned under the assets and rental schedules do not form part of the basis upon which tax is assessed on industrial and commercial income, either because this income is derived from sources located in the DRC, which are then taxed separately, or because it is income derived from sources located abroad and thus not taxable in the DRC.
However, since companies are deemed to exist only for business purposes, any other income they earn will always be regarded as business income.
11. Group Taxation/Consolidated Returns
There is no group taxation, each company, or legal entity distinct from a group in which it may form a part, must submit a return and pay its tax.
12. Presumptive Tax Measures (for example, a minimum tax in the form of a gross asset tax)
Estimation of tax:
In theory, companies are required to maintain proper accounts in line with legal provisions, so they can only be taxed on a presumptive basis if:
- after scrutiny, their accounts are found to be defective or rejected (Article 33 § 1 and Article 115);
- the company fails to provide relevant documentary proof when requested to do so by the tax inspector (Articles 108 and 115).
In such cases, the assessment is made by comparing the company with similar tax-paying companies, taking into account capital invested, sales turnover, the number of offices and / or employees, as well as any other pertinent information (Article 33 § 1).
Minimum tax:
Companies not subject to the presumptive tax regime are liable for income tax which under no circumstances may be less than 1/1000 of the declared sales turnover, when the operating statement is in deficit or likely to give rise to a lower tax assessment.
Under no circumstances may this minimum tax assessment be less than 5.000 FRF (5.000 USD) (Article 92 b.)
13. Rates
The company tax rate is 40%.
14. Rebates
No tax rebate is provided for companies.
15. Withholding Taxes
Companies are obliged to withhold:
- tax due by partners and other holders of invested capital, on dividends or royalties paid to them (Article 23) ;
- when they are tenants, a provision for the tax which the holder of the rental income must pay (Article 10, Act N83-004 of February 23, 1983) and
- deductions at source of tax due by its suppliers and service providers (Article 122 as amended by Statutory Order 058 of 18 February 1998 regarding the creation of a tax deduction at source on industrial and commercial income).
Taxpaying companies are held personally liable for the tax they collect at source on behalf of the revenue authorities.
16. Beneficiaries of Revenue
The Treasury (Central Government)
C. Income Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Individual Income Tax Contributions
Act no 69-009 of February 10th 1969 regarding Income Tax Contributions.
N.B. As income is taxed according to an income schedule, and business income is further subdivided into several sub-sections, in practice the tax due by an individual businessman, a lawyer or an employee on earned income does not carry the same name. (see C 3)
2. Department Responsible for Administration
General Tax Direction
3. Definition and Classification
Depending on the nature of the occupation carried on by the individual receiving the income, the Act provides for three tax regimes, namely:
- the regime applied to businesses and applicable to individual trades people, which, with certain modifications, is the same as for companies,
- the regime for salaried people,
- the regime for professional people and for those in incoming producing occupations.
The same individual in theory can be taxed simultaneously under two or even three of these regimes.
4. Time Tax is Levied
Same as for bodies corporate.
5. Basis of Taxation
5.1 Source-based or residence based
Same as for bodies corporate.
5.2 If source, define:
5.2.1 Actual source
Same as for bodies corporate.
5.2.2 Deemed source
Same as for bodies corporate.
5.3 If residence,
5.3.1 Define resident
5.3.2 Exclusions from the definition of resident:
5.3.3 Ceasing of residency provided for in the Act
6. Included in Tax Base
6.1 Industrial or commercial income
Same as for companies
6.2 Income from remuneration and salaries
All benefits in kind or in cash, received because of or in the exercise of the profession (Article 47)
6.3 Revenue from professional or income-producing occupations
All the receipts effectively banked, even on behalf of third parties or as expenses (Article 53).
7. Year of Assessment
Same as for bodies corporate.
8. Computation of Taxable Income
8.1 Exemptions (do not only indicate the heading, but provide a brief explanation)
In addition to the partial exemptions provided for companies, the following persons are exempt from tax:
Diplomats and employees of international organisations (Article 94.3 and 4)
8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):
In addition to the partial exemptions provided for companies, the following items are not taken into account when calculating the income tax:
- Family allowances actually granted to employees and salaried persons, insofar as they do not exceed the statutory rates;
- Pensions, allowances and grants allowed in terms of the laws governing the aged, (assistance for disability, death or occupational diseases, as well as maintenance grants);
- Allowances or fringe benefits such as housing, transport and medical care, insofar as they are not of an exaggerated nature.
8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income)
Same as for bodies corporate.
8.2 Deductions and recoupments
8.2.1 Allowable deductions
In addition to the amounts or costs indicated for companies, the following sums or expenditure may be deducted from the tax to be paid (Article 44 and 50):
- Payments actually and definitively made in the name of the taxpayer into a life annuity, pension, health insurance or unemployment insurance plan, insofar as these sums do not exceed 20% of the taxable earned income during the previous financial year;
- Medical expenses, of the taxpayer, his wife and unmarried dependent children, when the taxpayer is resident in the DRC;
- For employees and salaried persons, payments made into either an official pension fund, or compulsorily under the patronage of the employer in order to provide a life annuity, pension, health insurance or unemployment insurance cover in the taxpayer’s name.
In the absence of convincing documentation, the expenses that may be deducted by professional people and those in income generating occupations are fixed presumptively at 25% of receipts, apart from sums received on behalf of third parties (Article 57).
8.2.2 Valuation of inventory/trading stock
Same as for bodies corporate.
8.2.3 Reserves and provisions
Same as for bodies corporate
8.2.4 Non-deductible expenses
In addition to the non-deductible expenses mentioned for companies:
Expenses of a personal nature, other than medical expenses and payments to pension funds, such as household maintenance, schooling, leave and any other expense not required in the exercise of the profession (Article 46 1).
8.2.5 Recoupments
Same as for bodies corporate.
8.3 Depreciable regime
8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)
Same as for bodies corporate.
8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)
Same as for bodies corporate.
8.4 Treatment of losses
Same as for bodies corporate.
9. Foreign Exchange Losses and Gains
Same as for bodies corporate.
10. Rates
Normal tax assessment:
For normal individual income, tax is calculated by applying a stepped rate:
- once the taxable income has been assessed, it is divided into brackets;
- each bracket is taxed at its specific rate, a progressive rate;
- the tax to be paid is the sum of these brackets, which may not exceed 30% of total income (Article 84).
The tax brackets are as follows:
|
From 0 FC to 72.000 FC |
3% |
|
From 72.001 FC to 126.000 FC |
5% |
|
From 126.001 FC to 208.800 FC |
10% |
|
From 208.801 FC to 330.000 FC |
15% |
|
From 330.301 FC to 498.000 FC |
20% |
|
From 498.001 FC to 788.000 FC |
25% |
|
From 788.801 FC to 1.200.000 FC |
30% |
|
From 1.200.001 FC to 1.686.000 FC |
35% |
|
From 1.686.001 FC to 2.091.600 FC |
40% |
|
From 2.091.601 FC to 2.331.600 FC |
45% |
|
Above 2.331.600 FC |
50% |
- For income recovered a year after the activity has ceased, the rate is 20% (Article 85) ;
- For end of career or termination of contract pay-outs, the applicable rate is 10% (Article 86)
- For casual workers, the rate is 15% (Article 87)
Presumptive tax regime:
Individual trades people are subject to two kinds of presumptive tax regimes:
- System applicable to individuals keeping proper accounts. For these people, the presumptive tax regime is the same as for companies:
– A minimum tax of 1/1000 of sales turnover, in the event of a loss or a profit likely to give a lower tax figure;
– A minimum tax equal to 250 USD, if the above minimum tax is less than this figure.
- System applicable to individuals not keeping proper accounts.
Persons who are not legally bound to keep proper accounts are subject to a presumptive tax scale, which in principle is decided upon after consultation with legally constituted professional bodies (Article 33).
11. Rebates/Tax Threshold
Individual tax is reduced by 5% for each dependant (Article 89)
Dependent is taken to be the wife, the unmarried dependent children and the parents / ascendants of both spouses, on condition that they are part of the household (Article 90).
12. Fringe Benefit Taxes (Benefits Flowing from an Employer-Employee or an Office Relationship)
Any benefit, whether in cash or in kind, received by an employee is brought in to his tax base (Article 47 §2). The doctrine holds that any sort of benefit is taxable.
This principle notwithstanding, certain benefits are exempt provided they are not excessive (Article 48 3).
Namely:
- housing,
- transport and medical care.
While it is not stated, the doctrine regards as a non-taxable benefit such things as the provision of non-alcoholic beverages at the place of employment, provided that this is not excessive.
Allowances reimbursing business expenses incurred by the employee on behalf of his employer, as well as the provision of expenses to the employee to cover such costs, do not form part of his taxable income but are, however, regarded as deductible costs provided they are not excessive.
Travelling expenses.
Entertainment allowances: these are only allowed if the agent is charged with representing the company.
13. Allowances
Allowances are only tax exempt if they are granted for reasons recognised by the Act and comply with the rates stipulated (Article 48. 1)
14. Treatment of Pension, Provident or Retirement Annuity Fund Income
Funds designed to provide pension benefits in the name of the taxpayer, are exempt from tax on earned income (Article 44. 1).
Pensions themselves, on the other hand, are only exempt from tax on earned income if they are awarded in terms of the laws governing old-age pensions, disability grants and the like (Article 48. 2), i.e. if they were set up through earlier payments made by the taxpayer, or his employer on his behalf.
Pensions granted free of charge are deemed to be remuneration (Article 47 §1).
15. Treatment of Professional Income
No particular treatment other than that described above.
16. Treatment of Investment Income
Same as for bodies corporate
17. Withholding Taxes
Same as for bodies corporate
18. Beneficiary of Revenue
The Treasury (Central Government)
D. Income Tax on Non-Residents (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Corporate tax schedules (ICR / BS)
Act no 69-009 of February 10th 1969 on income tax rates
2. Department Responsible for Administration
General Tax Direction
3. Included in Tax Base
Only income generated in the DRC
4. If Sourced-Based, Define (If Not Already Done)
4.1 Actual source
Non-residents are only taxed on their income generated in the DRC if they have a fixed place of business there (article 68).
A fixed place of business in terms of the Act would be:
- physical installations of a productive nature, such as: head offices, factories, branches, warehouses / depots, offices, buildings rented out (Article 69 § 1)
- the exercise of a business activity for a period of at least six months, except if the activity is technical assistance (Article 69 § 2)
4.2 Deemed source:
The doctrine deems a fixed place of business to also include the exercise of an activity on behalf of a non-resident by a resident under his own corporate name, without management independence: this is the case with shipping agents, representative offices, etc.
Although it is not expressly stated in the Act, individuals who place themselves in the same position as foreign companies, i.e. who, independently and without being resident, have installations producing income in the DRC, or who carry out gainful activity there for at least six months, will also be treated as having a fixed place of business in the DRC.
(See definition of individual resident (point C.4.3.1.)
5. Rates
Same as for residents.
6. Beneficiary of Revenue
The Treasury (Central Government)
E. Income Tax: Treatment of Dividends, Interest, Royalties and Fees
1. Dividends
Dividends are taxed separately in relation to earned income (Article 1. 2 and 13)
- The term dividend covers:
– income from stocks and shares, as well as income from joint-stock company bonds,
– income from the profit sharing rights of non-active partners in companies other than joint-stock companies,
– a director’s percentage of profits in joint-stock companies,
– income from profit sharing rights and shares in foreign companies which have a fixed place of business in the DRC, as well as the percentage of profits allocated to the directors of these companies.
- Regarded as a dividend is any profit attributed for whatsoever reason and in whatsoever form:
– Sums owing by the company but allocated to the paying up of shares or the repayment of debts,
– The distribution of reserves and capital gains,
– The incorporation of these reserves or gains into authorised capital, with the corresponding hand-over of certificates when incorporation is not compulsory,
– The refunding of authorised capital effected without reducing the authorised capital (Article 14. 2),
– The distribution of issue premiums,
– The division, even partial division, of company assets particularly after the withdrawal of one of the partners, or the profit from liquidation ; in other words, any sum received by a partner over and above his initial investment (Article 17),
– The distribution of capital gains previously incorporated into the authorised capital (Article 17). The following, however, do not constitute the distribution of dividends:
– The sale by former shareholders of their preferential subscription rights and the repurchase of shares by the company;
– The subscription for new shares below the issue price (because there is no present enrichment, but tax will be due when they are redeemed);
– The handing over of shares by the company to repay its debts, including the practice of stock-options, it being understood that in this respect the company also has an obligation towards its employees;
– The issue of new certificates, even with a greater face value, following a merger either by a take-over or by the creation of a new company (no present enrichment) (Article 18).
- Interest, premiums or awards allocated to bond holders, warrants, certificates or any other instrument constituting a collective loan, whatever the duration, as well as the portion of this income fixed according to the profits, are deemed to be dividends (Articles 13. 1, 14 § 2, and 19).
- Dividends are taxed at 20% of their gross value;
- Tax is deducted at source by the issuer, at the time the dividend is paid or made available to the beneficiary.
Deemed to have been made available to the beneficiary:
– The entry of the income in an account opened in the name of the recipient (Article 25 Al 2),
– The delivery of certificates, representing the income and likely to produce a return, to the actual value of the deemed payment (Article 25 § 3),
– In companies other than joint-stock companies, profits for the year are deemed to be distributed at least to cover the amounts due to non-active partners, at the end of the financial year (Article 25 § 4),
– For foreign non-joint-stock companies established in the DRC, the income from the management shares of non-active partners is fixed presumptively at 50% of the taxable rate for earned and rental income (Article 15 § 2).
- The acceptance of liability on the part of the payee of the income for the tax due by the beneficiary, involves a recalculation of the taxable amount in order to recoup as a taxable benefit the benefit thus awarded by the payee.
2. Interest
- Definition:
Within the meaning of Article 13.3, interest covers any payment on capital borrowed for business purposes, other than in the form of a collective loan (Article 13. 3).
However, this interest is not liable for tax if it is due to national or foreign companies established in the DRC (Article 22). Consequently, the interest on capital borrowed from individuals or foreign companies not established in the DRC is subject to tax on movable assets.
- The rates and modalities for collecting this tax are the same as for dividends.
3. Royalties
- Definition:
Article 13. 8 defines the royalty as being; " payments of any kind for the use or concession of:
– copyright on a literary, artistic or scientific work, including cinematographic film,
– a patent, trade mark, pattern, drawing, formula or secret process,
– industrial, commercial or scientific equipment,
– information in respect of experience gained in the industrial, commercial or scientific field.
- The difference between royalties and fees for services giving rise to CCA (Turnover tax).
The use of or the concession to use industrial equipment for example, may only be liable for royalty payments if the equipment is of a specific nature and cannot be sourced commercially, and which the recipient of the income agrees to make available in return for a royalty fee.
In all other cases, there is hiring of movable assets, liable for CCA (Turnover tax) on services rendered (on the gross value of the rental).
- Computation of the taxable amount
Contrary to other income derived from movable assets, royalties are only taxed on their net value, that is to say the gross value less expenses or costs incurred by the recipient of the income in acquiring or preserving them (and not the debtor!). In the absence of convincing evidence, these costs are presumptively fixed at 30% of the gross value of the royalty.
- The rates and modalities for collecting this tax are the same as for dividends.
4. Fees
Fees do not constitute income derived from movable assets but represent income derived from the exercise of an occupation (Article 27 3).
They are therefore subject to the tax on earned income applied to professionals, insofar as the activity giving rise to the fees was conducted in the DRC.
There is no provision for fees paid to a non-resident, even if the service is rendered in the country. The conclusion is that this type of income is only taxable in the DRC if the beneficiary has a fixed place of business there (office, representative, etc.) or if he has worked there for at least six months.
5. Rents
Rents also fall within an income category which is assessed separately (Article 11):
- Rents taxable in terms of the Act are represented by income derived from the letting of buildings or land situated in the DRC, regardless of the country of residence or actual residence of the beneficiaries (Article 4).
- Deemed income from rent:
– Housing allowances awarded to salaried personnel occupying their own houses or those of their wives,
– Compensation for requisition or occupation without title, or relocation expenses, paid by the tenant after early termination of a contract,
– Contributions of any sort paid by the tenant, releasing the lessor,
– Costs, other than repairs incumbent upon the tenant, borne by the tenant on behalf of the lessor, whether or not they are incurred as the result of the lease being terminated (Article 8).
- The letting of furnished premises for business purposes ceases to be a simple letting procedure and becomes the exercise of a business, liable for tax and CCA (Turnover tax) on services rendered and for the tax on earned income to be borne by the beneficiary of the rent.
The same applies to the letting of furnished premises for residential purposes, when the rental conditions specify "fully serviced" (upkeep, domestic staff, etc.)
- Rental income is determined on the basis of the contract. However, where there is presumed inaccuracy, taxable rents are computed for each taxpayer based on the normal rents of one or more similar taxpayers (Article 9).
In application of this ruling, minimum rents are determined according to the type of building and its location.
- Assessed income is made up of gross rentals less expenses, which are presumptively fixed at 30% of gross rents (Article 7 §1).
- Exempt from tax on rental incomes (article 12):
– The State as well as resident public officials,
– Religious, philanthropic or scientific organisations,
– Non-profit organisations involved in scientific, religious or philanthropic work,
– International organisations and,
– Buildings constructed after August 1st 1968 in the provinces of Kivu and Orientale, up to year 5 following building completion.
- The tax rate is (Article 11):
– when the recipient of the rent is a corporate entity,
– when the beneficiary of the rent is an individual, the progressive rate per bracket for individuals is applied. It is deducted at source as an interim payment based on 20% of gross rental, if the debtor is a corporate entity (Article 11 of Act no 84-004 of February 23, 1983).
F. Income Tax: Specific Industries
1. Mining Tax
The tax system of mining enterprises is fixed by the mining act. It is therefore about a particular tax system that’s right is to examine the setting of tax incentives.
2. Insurance Business
No specific provisions
3. Farming
No specific provisions
4. Ships and Aircraft Owners
Subject to reciprocity, the income which a company established abroad derives from operating ships or aircraft which it owns and which stopover in the DRC to take on goods or passengers, is exempt from tax on business earnings (Article 38).
5. Other
No specific provisions
G. Income Tax: Administrative Procedures (National Government)
1. Payment Periods
General principles:
- Current fiscal procedure results from the law No 004/03 of March 13 2003 on fiscal procedures reform.
- All Taxes are paid by the indebted, to the deadlines fixed by the law, at the same time as the declaration is deposited.
- No-declared or unpaid Taxes at the deadlines are recovered by the fiscal administration.
- For some taxes, some deposits are even required before these deadlines.
Taxes paid by withholding:
All Taxes paid by withholding done by the incomes debtor in the receipt of the recipients, must be paid within ten days following the payment or the moment the incomes are available to the aforesaid recipients (art. 17 and 19)
Taxes paid by the indebted for himself.
About declaration deadlines:
- Income taxes, other than those paid by withholding, must be declared and paid by their recipients:
– before April 1st of the year following that in which one income was earned, when it's about tax on profit; and
– at the latest February 1st of the year following that in which one income was earned, when it's about tax on rental incomes.
- The tax return is completed on a form sent out by the tax authorities (in practice, the taxpayer collects the form himself).
- The taxpayer himself determines the taxable income for the period, incorporating the non-deductible items and deducting those that are not taxable.
About provisional instalments and prepayments:
- Provisional instalments and prepayments to be worth on income tax are ruled by the law No 006/03 of March 13, 2003. This law provides two alternative systems: provisional instalments (paid by the indebted himself) and prepayments (withholded at the source on the taxpayer's behalf by his debtors).
– About provisional instalments (art.2).
– Taxpayers managed by the Direction of Large Enterprises are those liable to the provisional instalments regime.
– Every Taxpayer liable for professional income tax is required to make provisional instalments to be worth on his tax of the current exercise, deposits calculated on the basis of the taxable incomes of previous fiscal year.
- Two provisional instalments are thus provided at the rate of:
– 40% of the incomes of previous fiscal year, payable before August 1st of the year in which the taxable income is earned,
– 40% other of the same incomes, payable before December 1st of the year in which the taxable income is earned,
– Before April 1st of the year following that in which the taxable income is earned, the taxpayer will fulfill the balance according to the reported incomes.
About prepayments on industrial and commercial profit (art.3 and 4):
- Taxpayers other than those managed by the Direction of Large Enterprises are liable for prepayments on the tax on Industrial and commercial profit.
- These prepayments are calculated at the rate of 2% of the value of operations on which they are based. These prepayments are, whether:
– withheld at the source, by the rendering of services recipients, to the taxpayer benefit, or
– collected by manufacturers and wholesalers on the Taxpayer purchases or by Customs, on the taxpayer imports or exports.
About the payment of the tax itself:
To the extent that it is not absorbed by the credit balance on the taxpayer fiscal running-account, income tax is payable, at the same time that the yearly tax return is introduced, that means before April 1st of the year following that in which the taxable income is earned (art. 2 & 3 and art 8). If provisional instalments or prepayments are superior to the due tax, overpayments are registered to the credit of the taxpayer fiscal running-account (art 10).
2. Rulings
2.1 Possibility of advance rulings
None: tax returns are introduced after the fence of concerned exercises and before fixed deadline.
These rulings must, at the risk of being declared invalid, be introduced at the latest on maturity and be accompanied by payment.
2.2 Publication of rulings
None. At the risk of legal action, tax officials are required to maintain professional secrecy.
3. Codification of Revenue Practices
In principle, the revenue authorities do not publish any documents, as tax instructions and circulars fall under the Minister of Finance.
In practice however, internal notes delivered by Tax officials by the High Commissioner are looked like official statements by Taxpayers.
4. Refunds
Legal provisions of former article 139 * 6 have not been taken back in the new law. It ensures that repayments are no more possible, otherwise by credit of the taxpayer fiscal running-account and after he had introduced a complaint, according to the due procedure (art. 104 of the new law on fiscal procedures)
5. Interest, Charges and Penalties
Neither interest nor charges are levied, only penalties. Two kinds of penalty are provided for, namely tax base penalty and recovery penalty.
However, in the application of these penalties, equally for the normal recovery of sums due to the Treasury, tax at the time it is accrued is converted into a Unit of Account known as the "Franc fiscal", a Unit on a par with the Congolese franc fixed by Order of the Minister of Finance (this conversion is named: "crystallisation").
Tax Penalties: Basics Penalties (art. 89)
- Any default of declaration is subject to basis penalty which amounts to 50% of sums which should have been paid, as assessed by Tax officials. In case of recidivism, this penalty is of 100%.
- In other cases of official assessment (default of conclusive accounting, no communication of information required during a tax control, etc), basis penalty is of 25% and, in case of recidivism, of 50%.
- In case of tax adjustment (following a regular tax return), insufficiencies of tax payment are punished by a basis penalty equal to 20% of sums that should have been paid.
- Default in payment of provisional instalment is subject to an overcharge of 50% of the due deposit amount (art. 90).
Recovery Penalties (art. 91):
Any sums paid after expiration of deadlines to which they're related are liable to recovery penalties (interest on arrears) at the rate of 10% per month in arrears, any period of a month commenced is also due in its entirety.
Crystallisation:
- All sums due in respect of tax or penalties are converted into tax Francs at the time they are prescribed, at the rate applicable to the tax Franc at the date they were incurred (Article 2 of Decree No 099 of July 3rd 2000).
- They are then payable in Congolese Francs at the rate on the day of payment.
- Currently, the tax Franc is equal to one dollar, at the rate prevailing on the last day of the week preceding the date the tax was incurred or the date of payment.
H. Income Tax: Anti-Avoidance Provisions (National Government)
1. Transfer Pricing Legislation
Transfer pricing on international contracts:
When a company established in the DRC is directly or indirectly connected to a company abroad, any unfair or unwarranted advantage given to the latter because of these ties is added to the earnings of the company established in the DRC.
The notion of interdependence:
Connected or interdependent means not only companies which are controlled one by the other or both by a third company, but also those that are bound by supply agreements or works contracts. In particular, the advantage given to a company with whom a subsidiary company or associate company negotiates a supply agreement will be regarded as being awarded to a connected company, bearing in mind the significance and implications of this advantage on the operating results of the associate company.
The notion of unfair or unwarranted advantage:
- An advantage is unfair or unwarranted when, to the benefit of the outside firm, there is enrichment without anything in return for the local company.
- Such is the case when goods or services are bought at a price higher than the market price or the prices charged to other buyers, or are sold more cheaply. This is also the case when the local company takes on the expenses properly belonging to the outside firm. On the other hand, the granting of generous conditions of sale, such as a longer payment or delivery period, does not in principle constitute an unwarranted advantage.
- The unwarranted advantage may not have been given in order to avoid tax but rather to facilitate the establishment of a group company in a foreign market, for example. It is enough that it is unwarranted, i.e. with nothing in return, to render it taxable.
Price fixing in the domestic market:
- Unfair or unwarranted advantages given to a national company by another company also established in the country are not taxable against the conceding company; this is justified insofar as there is a transfer of place of taxation, and it remains to the benefit of the Treasury.
- On the other hand, when the benefiting company is in a position where it does not have to pay tax, either because it has tax losses to recover, or because it is exempt from income tax in terms of the legislation in this regard, the unfair or unwarranted advantage will have to be restated in the income of the conceding company, according to the economic reality (see point 4. below).
2. Thin Capitalisation Legislation
Sums paid by a national company to a foreign individual or legal entity with whom it is linked, either through direct interest in the firm or through interest held by several companies in the same group in payment for services rendered, are only likely to be allowed as business costs on the triple condition that:
- the actual service rendered be demonstrated;
- the service in question cannot be rendered in the DRC;
- payment relates to the actual value of the service rendered (Article 43 (a)).
The burden of proving the reality of the service rests with the benefiting company; if this cannot be done, it is considered an invisible transfer of capital. The same presumption of transfer holds when the service rendered, even though real, could be done by someone established in the DRC, but is in fact done by a person resident abroad and finding himself in a position of interdependence in relation to the recipient of the service.
3. Controlled Foreign Entities (CFES)
No other specific provisions
4. Provide a Brief Discussion of General Anti-Avoidance Provisions (both under common and statutory law)
The law does not provide any particular guidelines in the fight against tax avoidance. These principles proceed from the doctrine and have become accepted general principles of law. They are:
Principle of simulation:
- Scope of the principle:
This principle postulates that fiscal law is not a self-contained law but one which borrows the definitions of the legal terms and processes it imposes from the traditional disciplines where these matters are handled. The definitions of these disciplines thus laid over fiscal law, the tax man must respect the description that the parties have given to their operation, unless it is established that these parties do not themselves comply with the legal qualifications attached to the description they claim. In this case then, there is simulation, the apparent act hiding the real act: as simulation is not opposable to the tax department, the Receiver has the right to base his assessment on the act which actually took place between the parties.
Application:
In application of this principle, the Receiver may for example:
- Regard as a sale an instalment agreement signed by the parties in order to avoid the tax on the sale, when he establishes that the tenant behaves like an owner-buyer.
- Consider that the acquisition of industrial plant presented as a concession contract liable to a movable assets tax of 20% on the net value of the royalty (gross value less 30% for costs) is in fact a sale coupled with a technical assistance contract liable to a CCA (Turnover tax) of 30% on the gross value of the invoice, if it is established that the company presented as the licenser does not assume all the obligations incumbent upon a licenser, in particular the obligation to guarantee the result.
The principle of economic reality:
- Scope of the principle:
The simulation theory is only valid when the operation suspected of covering up tax evasion consists of a single act. When it is broken up into several acts forming one and the same operation, it becomes difficult to establish that the parties did not comply with the legal conditions attached to each individual act comprising the operation. Under these circumstances, one resorts to the principle of economic reality by establishing that the operation alleged by the parties does not have any economic foundation.
- Application
In application of this principle, the Receiver may for example consider that:
– if the repayment of a portion of shareholders’ funds effected by reducing the authorised capital is not liable to tax on movable assets, it becomes liable if in a subsequent board meeting the partners decide to increase the aforementioned capital by incorporating the reserves. No economic reality can explain why, one week after reducing authorised capital, a decision is taken to increase it;
– the take-over of one company by another, specifically created for that purpose, followed by the sale by certain former partners of the firm that has been taken over of the new replacement shares they have been allocated, constitutes a transfer of company assets aimed at avoiding capital gains tax, even though in so doing the parties have complied with all the legal conditions arising from each separate act constituting the operation.
In all cases, the burden of proof, of simulation and non conformity with economic reality falls to the Receiver of Revenue.
5. Transactions Between Connected Persons
No specific provisions apart from points 1 and 2 above. See also B 8.2.4
I. Capital Gains Tax on Corporations (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year)
There is no specific capital gains tax.
When taxable, they are included in the tax base applicable to corporations.
No specific text relating to capital gains tax.
The applicable provisions are those indicated above.
2. Department Responsible for Administration
The Receiver of Revenue / National Revenue Service
3. Basis of Taxation (Source-based or residence-based)
A capital gain is defined as any appreciation of an asset, whatever the origin (even if it is the result of currency devaluation) and however this appreciation is recorded.
4. Time When Tax is Levied
The same as for income tax on corporations in which it is incorporated.
5. Included in Tax Base
The appreciation margin is the difference between the current value and the original value. This difference is computed in various ways, depending on whether it relates to:
- assets or liabilities;
- and on the assets side, if it relates to fixed assets or to realisable assets;
- and where fixed assets are concerned, if it relates to accounting gains or realised gains.
Capital gains on liabilities:
This is the gain resulting from the drop in value of liabilities (for example, accounts payable in foreign currency if this currency depreciates against the national currency).
In fact, the depreciation of liabilities can only affect accounts payable. Therefore, it is always treated as a taxable gain.
Capital gains on assets:
- Realisable assets
Realisable assets in principle are valued at the end of the period, at the weighted average unit price. If this method of valuation results in an appreciation of the inventory, the accruing gain is always treated as a taxable gain, whether or not it is reflected in an account. Defective accounting makes for hidden reserves.
The valuation formula is as follows:
– inventory value at beginning of period + cost of purchases for the period
– inventory on hand at beginning of period + stock purchases during the period
Even in the event of exceptional gains on inventories that a company has on hand, the Receiver may not require the company to use another method of valuation, based for example on the replacement cost.
- Fixed assets
– Capital gains realised:
- A gain is always taxable, regardless of its origin or nature.
- A gain is regarded as realised when the asset is:
– Sold or used to cover a debt to a third party;
– Transferred as a contribution of capital to another company;
– Taken into account when determining the value to be refunded to a partner who retires or whose successor inherits the shares;
– Contributes to absorbing previous losses:
- In this case the gain will be made up of the difference between the value of the transfer or contribution, the value of the compensated debt or the amount incorporated in the funds to be shared, less the original value of the asset (purchase price, value of the contribution or construction cost), less the depreciation regularly and actually applied, including that applied to the reassessed value.
Should the asset, once acquired, undergo any modification which increases its value, the cost of these modifications is also deducted from the disposal value.
– Accounting gains:
Accounting gains, when related to fixed asset items, are only exemptions, insofar as all the conditions to this effect are met (see point 6. below).
6. Exemptions/Exclusions
Exemptions only relate to accounting gains on fixed assets.
Currently, increases in invested assets resulting from capital gains simply expressed in the accounts are exempt from income tax if:
- The revaluation was done in accordance with the methods designed for this purpose by the Ministry of Finance (no free revaluation),
- If the subsequent gain is incorporated into the capital, with no distribution of any sort,
- If depreciation of the gain on re-valued assets is clearly practised on both the gain and the original value,
- If there is no sharing of the company’s assets, even partial sharing, as the result of the retirement or death of a partner, a merger or take-over of the company.
It should be specified that in principle we are only dealing here with gains on fixed assets. Accounting gains on inventories or realisable assets are always treated as income.
7. Allowable Deductions
None
8. Non-Deductible Expenses
None
9. Roll-Overs
None
10. Treatment of Losses
Same as for income tax purposes.
11. Rates
Same as for income tax purposes.
12. Rebates
None
13. Tax Period
Same as for income tax purposes.
14. Withholding Taxes
15. Beneficiary of Revenue
The Treasury (Central Government)
J. Capital Gains Tax on Individuals (National Government)
1. Name of Tax and Levied in Terms of Which Levied (Name, Number and Year)
Same as for bodies corporate.
2. Department Responsible for Administration
3. Basis of Taxation (Source-based or residence-based)
4. Time When Tax is Levied
5. Included in Tax Base
6. Exemptions
7. Allowable Deductions
8. Non-Deductible Expenses
9. Treatment of Losses
10. Rates
11. Rebates/Annual Deduction
12. Tax Period
13. Withholding Taxes
14. Beneficiary of Revenue
K. Special Taxes (Other Than Income Tax) on Certain Industries/Types of Income
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Special tax on remuneration paid to expatriates. Act no 69/007 of February 10, 1969.
2. Department Responsible for Administration
Receiver of Revenue / National Revenue Service.
3. Taxpayer
The employer, responsible for the remuneration, who pays tax on his income (taxation not-deductible from the income tax base) and who may not deduct it from the salary to be paid (Article 5).
4. Included in Tax Base
All taxable items in the remuneration for the account of the expatriate representative.
Nationals of neighbouring countries are considered local nationals in the application of these provisions.
5. Tax Rate
33%
6. Beneficiary of Revenue
The Treasury (Central Government)
L. Taxation of Capital
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
Effective tax on:
- Land: developed and not developed,
- Motor vehicles and
- Mining concessions.
Act no 69-006 of February 10, 1969
2. Department Responsible for Administration
General Tax Direction
3. Taxpayer
For the effective tax on land which is developed and not developed:
- Actual taxpayer
The holder of the deed of possession, long lease, acreage, transfer, concession or usufruct of the taxable assets, notwithstanding any contrary clause in the event of renting (Article 8 and 9).
However, if the estate is divided up, the tax is due by the person who enjoys the asset (Article 8). Persons who in terms of a lease occupy State administered property, are also deemed to hold title and are therefore liable for tax (Article 8).
- Exemptions
Exempt from this tax:
– The State, provinces and other territorial entities, as well as publicly-owned institutions who have no resources other than budget subsidies (Article 2. 1).
– Religious, scientific or philanthropic organisations which have legal status in terms of the Act (Article 2. 2).
– Persons over 55 years of age and widows, provided that they personally live in the buildings in question and that their income does not exceed the ceiling of the 8th income tax bracket (Article 2 (a)).
– Farmers, in respect of the land and buildings used for farming (Article 3. 1).
For the effective tax on vehicles.
- Actual taxpayers
Owners of any motor vehicle, on land or water, regardless of the method of propulsion.
Taxpayers liable for effective tax on vehicles, notwithstanding any contrary provision contained in their statutes, are public institutions that have no financial resources other than those received from budget subsidies (Article 40).
- Exemptions
Exempt from this tax however:
– Exemption depending on the taxpayer
- The State and other national public bodies,
- International organisations,
- Religious, scientific and philanthropic organisations that have legal status, the vehicles of diplomats and consular officials (provided there is reciprocity),
- Non-residents who have no fixed place of business.
– Exemption depending on the nature of the vehicle
- Special machines (road rollers, crushers, mechanical cranes, mining or farm machinery, etc.),
- Vehicles used for handling and transport in ports, railway stations and air terminals,
- Fire-fighting vehicles, ambulances, breakdown trucks and demonstration vehicles,
- Motor-cycles up to 50 cc,
- Vehicles for the disabled,
- Ocean-going vessels, coasters and sailing ships.
For the tax on mining and hydrocarbon concessions.
Taxpayers are individuals or entities who hold an exclusive mining or hydrocarbon exploration or development right. This tax is therefore not payable by those who only hold a prospecting or exploration concession (concessions which are presently non-exclusive in the mining legislation).
4. Included in Tax Base
For the effective tax on developed and undeveloped land:
- Developed land
The law does not expressly define what is meant by developed land; but from former Articles 15 and 16 (repealed in 1987), it appears to be a question of a construction creating a determinable volume, defined by its external walls.
It therefore covers not just apartment blocks but any other construction such as factories, warehouses, reservoirs, including associated structures such as verandas, balconies, steps, etc.
- Non-developed land
Non-developed land is the area which remains after subtracting the developed area of the land from the total area.
Only undeveloped land in urban areas is liable for tax.
Effective tax on vehicles:
- The motor vehicle itself represents the taxable unit.
- Trailers however, although not motorised, constitute vehicles in their own right in terms of the above provisions.
Tax on mining and hydrocarbon concessions:
- Tax is calculated according to the surface area of the concession, expressed in hectares, as indicated on the mining deeds held by the taxpayer.
- Parts of a hectare are not taken into account (Article 54 2).
5. Tax Rate
For developed and undeveloped land:
- Developed land:
Except for villas / detached houses, the computation of the amount of tax to be paid has been fixed since 1987 in a presumptive and uniform way, according to the type of building and urban location. The rules regarding taxable area are now only useful for detached houses.
Villas / Detached houses:
Although the Act does not define what is meant by villa, it nevertheless stipulates a tax rate equivalent in Congolese Francs to:
– $US/m2 for category 1 villas (top of the market)
– $US/m2 for category 2 villas
– $US/m2 for category 3 villas
– $US/m2 for category 4 villas
Other developed land:
There are several specific rates depending on the type of building and locality. In the most up-market areas, for example, the rates are fixed as follows:
– $US per floor, for buildings belonging to a legal entity,
– $US for apartments (per apartment),
– $US per floor for buildings belonging to an individual, when the buildings are located in Kinshasa,
– $US per floor for buildings belonging to individuals and located in the countryside,
– $US per building, for other buildings.
- Undeveloped land:
This is also taxed presumptively, based solely on the urban location of the land and according to the following rates (in equivalent Congolese francs):
– $US for land situated in category one, up-market areas,
– $US for land situated in category 2 areas in Kinshasa,
– $US for category 2 land in the countryside,
– $US for category 3 land in Kinshasa,
– $US for category 3 land in the countryside,
– $US for all category 4 land.
Effective tax on vehicles:
Motor vehicles are taxed on a scale which varies according to the engine rating of the vehicle. This engine rating depends on the power of the engine, expressed in cylinders (litres and decilitres) as well as the standard weight of the vehicle (in Kilos).
For private vehicles for example, the rates are as follows, (in equivalent Congolese francs):
- Vehicles belonging to individuals:
– From 01 to 10 horsepower 9 $US,
– From 11 to 15 horsepower 11 $US,
– Above 15 horsepower 13 $US
- Vehicles belonging to legal entities:
– From 01 to 10 horsepower 15 $US,
– From 11 to 15 horsepower 20 $US,
– Above 15 horsepower 25 $US
Mining and hydrocarbon concessions:
The rate is [ ] per hectare for operating concessions, and per hectare for exploration concessions.
6. Beneficiary of Revenue
Territorial entities when dealing with:
- The effective tax on developed and undeveloped land, and
- The effective tax on vehicles.
The Treasury, when it comes to mining concessions.
M. Donations Tax (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
None
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
N. Other (National Government) (National Government)
1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year
2. Department Responsible for Administration
3. Taxpayer
4. Included in Tax Base
5. Tax Rate
6. Beneficiary of Revenue
O. Relief from Double Taxation
Double taxation agreements exist with:
- France,
- Belgium, and
- Morocco.