1. Overview
General incentives provided in the Investment Code.
The incentives contained in the new Investment Code promulgated under Act no 004/2002 of February 21st 2002 constitute a break from previous systems in the sense that they are aimed particularly at investments in certain fields, considered key areas.
Investments eligible for incentives in terms of the Investment Code must represent a minimum of 200.000 $US, except Small and Medium Enterprises (SMEs) and Small and Medium Industries (SMIs) which qualify with investments between 10.000 $US and 200.000 $US; but the Act does not specify if this must be capital or loan funds.
In principle, they must also be able to generate an added value of 35% of sales turnover, although this is not specified in the Act, nor does it say whether this is turnover before tax.
Investments made in certain areas of economic activity, however, are not eligible for incentives under the new code. The following economic sectors do not qualify (Article 3):
- Mining and hydrocarbons
- Banking and insurance
- Commercial activities
- The arms industry and military equipment
Nevertheless, these sectors may benefit from specific incentives within the framework of particular legislation.
Approval and responsibilities
In order to benefit from the Investment Code, the developer is required to submit his investment project for approval.
Approval is granted by interdepartmental decree, issued by the ministers responsible for planning and finance, on the proposal of the National Investment Promotion Agency.
The implementation of the investment project, and particularly the promoter’s regard for his commitments in terms completion dates, the recruitment and training of the work force, and the added value contributed, is assessed by the National Investment Promotion Agency. Should the promoter fail to keep his commitments despite being put on notice, approval may be withdrawn.
2. Investment Policy
The aims of the government through the new Investment Code are:
- To support the establishment of civil engineering companies charged with the construction and maintenance of roads and motorways as well as public transport for passengers and goods, whether it be on land, by river, or in the air;
- To support investments which develop mechanised agriculture and agri-processing, in order to ensure self-sufficiency in food production and reduce imports of basic commodities, while at the same time raising incomes in rural communities, improving supplies of raw materials to agribusiness and widening the domestic market for every-day consumer goods;
- To support the heavy investment required to create a solid industrial base on which to build durable economic growth;
- To support investments which will develop the country’s natural resources within its borders, thereby raising the added value and growing export capacity.
3. General Incentives
Among the general investment incentives provided under the new code, the important ones are:
- Investment guarantees:
The principle of equal treatment
Foreign individuals or entities receive the same treatment as Congolese individuals or entities, subject to reciprocity.
This treatment, however, does not extend to the privileges that the DRC might grant to the nationals of another State by virtue of its participation in a customs union, free trade area or other form of regional economic grouping (Article 24).
The principle of fair and equitable compensation The personal or collective property rights acquired by an investor are guaranteed by the Constitution of the DRC. An investment cannot, directly or indirectly, completely or partially, be nationalised or expropriated, unless it be in terms of a law or ruling of a local authority and on the grounds of public usefulness.
In such a case, the investor is entitled to receive fair and equitable compensation. Compensation is regarded as being fair if it is based on the market value of the asset that has been nationalised or expropriated. This value must be determined after due hearing of the parties, immediately before expropriation or nationalisation (Article 26).
- Specific mechanisms for dispute resolution:
Any dispute which might arise in the interpretation or application of the provisions of the Investment Code may result in arbitration, in accordance with the prevailing provisions of the civil procedures code. Any other dispute regarding the investment agreement, the investment permit granted by a proper authority or any violation of the rights of the investor, is to be settled amicably through negotiations. If no satisfactory solution is found within three months from the time notification of such negotiations is made, the dispute may go to arbitration in accordance with:
either, the Convention of March 18, 1965 on the settlement of disputes relating to investments between States and the Nationals of other States, ratified by the DRC,
or, the provisions of the supplementary Settlement Mechanism, if the investor does not meet the conditions of nationality stipulated in Article 25 of this convention,
or, the arbitration board of the International Chamber of Commerce in Paris.
The consent of the parties to this arbitration mechanism is deemed to follow from the provisions of the Investment Code (Article 25) as far as the DRC is concerned, and, in terms of the investor, from his application under the Investment Code.
In applying these provisions, it is agreed that the company constituted under Congolese law through whom an investment will have been made, will be considered as a foreign national from the point of view of these Dispute Resolution conventions (Article 38).
- Repatriation of profit guarantees.
General principle
The freedom to transfer abroad, as it relates to investment operations, is guaranteed by the state in accordance with exchange control regulations. However, should restrictions prove necessary, foreign investors under the investment incentives scheme wishing to transfer funds will be treated at least as favourably as prevailing commercial transactions in foreign currency (Article 27).
Special guarantees
These relate to:
- The transfer of dividends
- The transfer of royalties, interest and loan capital
- Transfer of the compensation, in the event of nationalisation
In the event of restrictions, these operations are deemed to be current commercial transactions in foreign currency.
- Guarantees of the stability of the legal regime governing investments:
No legal or lawful provision coming into effect after the investor has been accepted into the investment incentives scheme as the law stands as present, may result in the restriction of the guarantees or benefits, or prevent the exercise of the rights that would have been conferred on the benefiting company or its promoters (Article 40).
4. Free Trade Zones
No free trade zone is provided for in the present legislation
5. Export Incentives
Approved companies which plan to export all or part of their finished or semi-finished products under terms favourable for the balance of payments, are exempt from export duties and taxes (Article 12).
6. Financial Assistance
No mechanism for financial assistance has been instituted in the promulgated laws.
However, in order to facilitate the financing of investments, a special tax has been created, levied both on imports and on domestic production, intended to provide credits and/or credit facilities to business (the Investment Promotion Tax, or TPI).
This tax is managed by a public company, the Investment Promotion Fund (FPI), which is responsible for providing financial assistance to productive investment projects, principally through:
- Direct assistance in the form of credit,
- Facilities in the form of interest rebates, etc.
- But not in the form of a shareholding.
7. Regional Incentives
There are none at present.
8. Industrial Financing
9. Development Programmes and Incentives for Specific Industries
TAX BREAKS OF MINING ACT
These tax incentives are offered exclusively to mining investors, in application of the mining act.
- Recipient of the mining act tax breaks
Can pretend to the tax breaks foreseen by the mining act all society owners of the mining permits as instituted by this mining act. These advantages also spread to the affiliated companies exercising, without proper mining permit but in the setting of the contracts with a mining rights holder, of the mining activities, as well as to the subcontractors, in the settings of the exclusive contracts signed with the same holders of mining rights (article 223).
However, the societies operating in the activities of research and exploitation of the career products cannot benefit from these advantages. Are considered like products of career: the sand, the chalk, gravel, the granite, marble, the stones to lime etc (article 4 paragraph 3).
- Particular Fiscal and customs system instituted by the mining act
Main features of mining exploitations fiscal system
- Exclusive application of the mining act fiscal and customs system;
- Stability of this regime, regardless of all tax, right or tax that would be created or modified, in the future, except more favourable disposition (article 222);
- The administrative taxes and the royalties remain however ruled by the common right.
Tax incentives: About taxes on assets
- Vehicles used exclusively in the mine area leased for people and materials transportation, are tax-free on the vehicles (article 236)
- The tax on mine leases is fixed to an increasing rate, to discourage immobilization of the concessions. This rate is fixed thus, in American dollars and by hectare, to:
TYPE OF THE RIGHTS MINING 1ST YEAR 2ND YEAR 3RD YEAR OTHER YEARS
Research Permit 0,02$ 0,03$ 0,035$ 0,04$
Exploitation Permit 0,04$ 0,06$ 0,07$ 0,08$
- Mining royalty, paid for mine lease exploitation (tax to be shared between the central Government and the territorial entities) is not only deductible of the income tax but, in addition, open a right to a tax credit equal to the third party of the paid royalties (article 240).
About tax on dividends
- Interest paid by a mining right holder, in remuneration for a loan in motto contracted abroad, are tax-free on tax gains from funded capital (article 246.G).
- Dividends and other assignments paid by the holder of a mining right to his shareholders, are taxable to the rate of 10%, instead of the rate of 20% applicable in common right.
About profit tax
- Profit tax is calculated to the rate of 30%, instead of the rate of 40% applicable in common right.
- The holder of mining rights is allowed to apply an accelerated depreciation method where 60% of the cost price of permanent assets are deducted, since the first year, to condition, however that it was about tied-up capital whose service life is at least of 4 years and at more of 20 years (article 249).
- Deferred amortizations, in case of result showing a deficit, are recoverable without limitation of length, whereas this limit is fixed to 5 years, in common right (article 250).
- Research and development expenditures are actualized on the day of the exploitation permit concession and are redeemable in two years (article 252).
- The holder is also allowed to constitute, exempt of tax on the profit:
- a provision for reconstitution of layer, of an amount not passing 5% of the taxable profit, provision to use in the 5 years of its constitution (article 257);
- a provision for rehabilitation of site, of an amount not passing 0,5% of the turnover. This provision must also be used in the 10 years of its constitution (article 258).
About the turnover tax
- Sales of products to transformation entities located on the national territory are exempted of tax on turnover (article 259);
- Other sales are liable of a tax of 10% instead of 18% applicable in common right;
- Turnover tax chargeable to a mining right holder is calculated to the rate of:
- 5%, for rendering of services linked to social object,
- 3%, for goods produced locally and that are used in the mining activity.
- About the exceptional tax on versed payments to expatriate staff
For holders of mining rights, the exceptional rate of tax on remunerations versed to expatriate staff is of 10%, instead of 33% applicable in common right.
In addition, this tax is deductible of taxable profit, what is not allowed in common right, either.
- Customs advantages
Holders of mining rights can import, in particular customs regimen, all mater or spare parts necessary to research or exploitation, provided that this material appears on the list addressed by the holder, for approval, to the ministers in charge of mines and finances. This approval is reputed acquired if, on expiration of a 30 work day delay:
Material imported before effective on stream stake of the mine is liable of customs duties to the rate of 2%,
Material imported since the beginning of effective exploitation, is liable of import duty to the rate of 5%. (article 232)
Material destined to be re-export is imported duty-free temporary of import duties, for a length of six months, renewable two times. (article 231)
Other advantages and measures of incitement
- About incomes transfer guarantees
Holders of mining rights benefit of right to transfer out of national territory, after discharge of taxes possibly due, amounts necessary to non-residents payment, whether is about current transfers or funds movements (article 264).
- About export returns management
A holder of mining rights is allowed to keep, in abroad accounts but under Central Bank control, 70% of export returns, in order to guarantee the debt service opposite to outside funds lessors (article 269).
10. Tax
10.1 Rates
The income derived from approved new investments is completely exempt from business tax.
10.2. Deferral Period
Exemptions granted under the code are limited in time, with the deferral period varying according to the investment locality:
- Investments made in zone A (city of Kinshasa) are exempt for a maximum period of three years.
- Investments in zone B (the Province of Bas-Congo and the towns of Lubumbashi, Kolwezi and Likasi), are exempt for a maximum of four years.
- Investments in zone A (other provinces and towns), are exempt for up to five years.
10.3 Tax Holiday
10.4 Depreciation
Investments in socio-economic infrastructure such as schools, hospitals, sports installations and roads, made in addition to the approved projects, are depreciable using the sliding scale method (Article 14).This is also applicable to approved SMEs and SMIs (Article 21).
10.5 Other
Other tax benefits:
- Approved companies who buy from local producers and who source equipment and industrial inputs manufactured in the DRC, or who deal with local service providers in the property/construction business, are exempt from Turnover Tax (Article 17).
- Approved companies are exempt from paying tax on their land concession areas and the buildings constructed in respect of areas directly connected to the approved investment project (Article 16).
In addition, approved SMEs and SMIs are allowed to deduct from their taxable income expenditure incurred in training and improving the skills of the company manager and staff (Article 21).
Customs benefits:
Approved companies benefit from the absolute exemption from import duties and taxes on new machines, plant and equipment, and spare parts not exceeding 10% of the CIF value of the aforementioned equipment. Second hand heavy-duty vehicles, ships and aircraft are totally exempt. The same applies to second hand machines, plant and equipment imported by small or medium-sized enterprises (Article 20). These benefits, however, are only applicable on goods which are not manufactured in the DRC (Article 11).
Special tax benefits:
- At the time they are incorporated or when there is an increase in their capital, joint stock companies are exempt from the ad valorem duty usually payable. The same applies to the fixed duty levied on other forms of company.
- SMEs and SMIs are exempt from the duty levied on the company’s founding charter and from company registration fees (Article 22).