Business Guide
Carrying out business in Equatorial Guinea: synthetic tax and business guide*
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1. TAX MATTERS
Most of the tax provisions in Equatorial Guinea (EG)’s system stem from Law N° 4/2004 dated 28th October 2004 regulating the taxation system of the Republic of Equatorial Guinea (generally referred to as the “Tax Code”).
Two different tax and legal regimes coexist in Equatorial Guinea: a common law regime and a specific one for the hydrocarbon sector.
Any person or entity that does not belong to the hydrocarbon sector is subject to the common law regime.
1.1 Tax Residency in EG
An individual or legal entity which is present in EG more than three months within a calendar year, or more than six months within two consecutive calendar years, performing an economic activity or providing paid services in country is considered as a resident for tax and legal purposes.
From the text of Law Nº 4/2004 regulating the Taxation System of
the Republic of Equatorial Guinea, we understand that the term “present” implies and means
“physical presence” in the territory of Equatorial Guinea.
The notion of residence applies equally to any kind of activity (even if there is some specificity in the Oil & Gas sector).
The notion of Permanent Establishment is not defined, nor used in EG’s Tax Code. Authorities mainly refer to the notion of residence as defined above.
1.2 Tax rules for the residents not belonging to the hydrocarbon sector
1.2.1 Corporate Income Tax (“CIT”)
CIT must be paid by any resident entity, according to the following conditions:
– Payment of a Minimum Income Tax, which must be made before the end of March, each year.
The MIT liability equals to 3% of the turnover of the previous Fiscal Year;
– Payment (as the case may be), of the remaining quota of CIT liability at a 35% rate in case of profits, after filing the CIT Return (before the 30 th April, each year).
1.2.1.1 Minimum Income Tax (“MIT”)
This amount cannot be lower than XAF 800,000 (even if the entity does not have any revenue). The MIT paid can be totally or partially deducted from the CIT liability.
The penalty for lack of payment or payment in arrears of MIT equals to 50% of the amount that should have been paid.
1.2.1.2 Deductions from the CIT taxable base
The following will be treated as deductible expenses: overheads of any type, staff expenses and labour, expenses relating to the premises and material and furniture, miscellaneous and special expenses, insurance premiums, gifts, donations and subsidies.
As a general rule, the following conditions must be met:
– The expense must be incurred in the interest of the company;
– The expense must represent a diminution of the net assets;
– The expense must be related to the Fiscal Year during which it was incurred;
– The expense must be justified.
Furthermore, the Tax Code states special deductibility conditions for some expenses.
1.2.2 Personal Income Tax (“PIT”)
1.2.2.1 Salaries and Wages’ category
Taxable income is:
– Income received and related to a work contract;
– Income received for an activity performed in EG.
The salaries of national and expatriate employees working in EG are subject to PIT.
Taxable base of the PIT on Salaries and Wages
According to the Tax Code, the taxable income is composed of:
– Basic salary;
– Bonuses indemnities and allowances;
– Expenses refunding;
– Benefits in kind.
Calculation, declaration and payment of the PIT on Salaries and Wages
The calculation is done in various stages.
The following amounts must be deducted from the taxable salary:
– Professional expenses: based on effective amounts, or according to the legal limit of 20% of the taxable salary (up to XAF 1,000,000 /year);
– The employee’s part for the social contributions to the National Institute of Social Security (INSESO) and to the Work Protection Fund and Training Tax (WPF).
After this, the PIT rate is applied to the taxable salary according to the following annual progressive tax scale:
| ANNUAL TAXABLE SALARY | APPLICABLE RATE |
| From XAF 0 to 1,000,000 | 0% |
| From XAF 1,000,001 to 3,000,000 | 10% |
| From XAF 3,000,001 to 5,000,000 | 15% |
| From XAF 5,000,001 to 10,000,000 | 20% |
| From XAF 10,000,001 to 15.000.000 | 25% |
| From XAF 15,000,001 to 20,000,000 | 30% |
| More than XAF 20,000,000 | 35% |
According to the provisions of the Tax Code, the PIT liability shall be withheld each month by the employer and paid to the Public Treasury within the first 15 days of the month following the payment of the salaries.
However, in practice, the employer shall declare the PIT liability on Salaries and Wages within the first 15 days of the month following the month of payment of the salaries and then must pay said tax within the 15 days following the date when the tax liquidation is provided to the taxpayer.
Penalties for lack of payment or late payment of the PIT liability equal to 25% of the amount due plus 10% per month in arrears.
1.2.2.2 Social Contributions
– To the National Institute of Social Security (“INSESO” for its Spanish acronym).
Contributions to INSESO include:
– An employer part, equal to 21.5% of the base salary;
– An employee part, equal to 4.5% of the base salary.
The employer withholds the employee’s part and declares it along with its own part within the first 15 days of the month following the month of payment of the salary.
Penalties for lack of payment or late payment of INSESO contributions equal to 20% of the amount due.
– To the Work Protection Fund (“WPF”)
Both employers and employees must pay their contributions to the WPF. This contribution includes:
– The employer’s part, equals to 1% of the gross salary;
– The employee’s part, equals to 0,5% of the net salary.
Since it is impossible to calculate a contribution based on a net amount, the administrative practice is to calculate and pay both of these contributions based on the base salaries.
This contribution is monthly withheld by the employer who declares it to the Ministry of Labour and Social Security within the first 15 days of the month following the month of payment of the salary.
Penalties for lack of payment or late payment of contributions to the WPF equal to 20% of the amount due.
1.2.2.3 Income from Investments’ category
The following are considered Income from Investments:
– Proceeds from stock and corporate portions and related income;
– Income from bonds;
– Income from loans, deposits, guarantees and checking accounts except for special provisions that may exonerate them the interests of short-term bonds;
– Capital gains obtained through the sale of components of the investments’ capital.
The calculation of the Income from Investments for resident individuals or resident legal entities is done by applying the aforementioned PIT annual progressive tax scale.
Income from Investments benefiting to individuals or legal entities not having their usual domicile or headquarters in Equatorial Guinea, are subject to a discharging tax of 25% by way of PIT.
1.2.3 Value Added Tax (“VAT”)
1.2.3.1 Scope of VAT
The following are subject to VAT:
– Goods sold or assigned for valuable consideration;
– Services;
– Self-consumed goods and services;
– Imports of goods;
– Any other operation done by individuals or legal entities, related to their professional, individual or business activities.
1.2.3.2 Calculation of the VAT liability
The taxable base varies according to the nature of the concerned operation. In general, the taxable base amounts to the price, tax excluded, due in compensation of a sale of a good or a provision of a service.
Then, a normal rate of 15 % or a reduced rate of 6 % (mainly for the primary necessity goods) is applied to this basis.
There is also a 0% rate related to some products listed by the Tax Code (cranes, handling machines, paving machines, etc.).
The amount of VAT paid to the providers is deductible from the collected one.
When a company benefits from a tax exoneration for VAT, said the company must apply a pro rata deduction on the totality of VAT amount collected.
1.2.3.3 Declaration and payment modalities
VAT is declared monthly and the liability must be paid within the first 15 days of the month following the one in which the taxable event occurs.
As for the tangible movable property, the good’s transfer determines the taxable event, the date when the tax can be claimed by the Tax Authorities thus being concomitant.
As for the services, the collection for the sums paid in compensation of said services determines the taxable event, and as a consequence, the date when the tax can be claimed by the Tax Authorities.
Once liquidated by the General Direction of Taxes and Contributions, the VAT liability must be paid to the Public Treasury. Refund of VAT is not possible.
1.2.4 10% Withholding Tax for non-residents
Non-resident entities or individuals must pay an amount of 10% of their gross income earned in the Equatoguinean territory.
The Tax Administration considers said tax as a withholding tax for the client company. In practice, said 10% tax on gross income for non-residents must be declared within the first 15 days following the month when said tax was withheld.
1.3 Tax rules applicable to the Hydrocarbon sector
1.3.1 Notion of Hydrocarbon sector
The notion of Hydrocarbon sector is defined as “Companies, corporations, individuals and agencies of all kinds involved in the search, exploration, exploitation, and marketing of hydrocarbons in the Republic of Equatorial Guinea”.
The Tax Code provides a list of taxes to which companies from the Hydrocarbon sector are subject to, as follows:
– Income Taxes
- a) Corporate Income Tax;
- b) Personal Income Tax;
- c) Tax on Income from residents or non-residents individuals or entities;
- d) Tax on individuals;
– Taxes on Transfer and Assignment generating Capital Gains not invested in Equatorial Guinea;
– Export duties;
– Gross Output Royalties;
– Surface premiums or rental rates;
– Discovery, production and marketing bonds.
Our position is that said list is exhaustive and therefore no other tax is applicable to companies belonging to the Hydrocarbon sector.
1.3.2 Tax on Income of Individuals and Legal Entities belonging to the Hydrocarbon sector
This withholding tax is applicable to:
– Gross income related to the sale of goods and provision of services (even if in practice it is only applied to the provision of services);
– Performed by a resident or non-resident legal entity or individual;
– Within the Hydrocarbon sector
– In Equatorial Guinea’s territory.
This withholding tax is equal to:
– 6.25% when payments are made to a resident entity;
– 10% when payments are made to a non-resident entity.
The taxable base are the gross amounts paid to the provider.
The amount withheld by the withholding agent during a fiscal year is deductible from the CIT liability to be paid for the following fiscal year.
2. BUSINESS MATTERS
2.1 Economic Incentives
Tax and Customs exemptions can be granted by the Government for some specific economic sectors (e.g. Oil & Gas, Public Works, etc.). These exemptions shall be negotiated in the contract to be signed between the company and the Administration (e.g. Production Sharing Contract, Public Work Contract, etc.).
Companies that have their management headquarters and effective centralization of their operations in District administrative centres not on the coast, including Annobón, will receive a rebate of 50% of the CIT levy.
However, said rebate shall not be applicable to companies which activities related to the extraction of raw materials of forestry, mining, hydrocarbons, energy generation, mineral and non-mineral water, emergent or obtained from drilling and fishing.
Any tax incentive should be in principle based on a legal norm according to the Tax Code.
2.2 Types of legal structures available to carry out business in EG
2.2.1 General provisions
In order to carry out an activity in EG, a foreign Company can either set a Representation or Liaison Office, incorporate a Company or Subsidiary or register a Branch.
– Representation or Liaison Office
This relatively new legal structure presents itself as a very convenient way for companies to be able to participate in bidding rounds and tenders at a considerably lower cost, with no tax obligations.
– Companies or subsidiaries
According to the OHADA regulations, a subsidiary can take one of the three main legal forms:
– Simplified Stock Company;
– Private Limited Company; or
– Public Limited Company.
– Branch
It is a commercial, industrial or service-providing establishment which belongs to a company or an individual (and has no legal personality on its own) and which has been granted a certain degree of autonomy in its management.
2.2.2 Specific provisions applicable to companies belonging to the Oil & Gas sector
Presidential Decree n°127/2004 dated 14 th September 2004, which sets forth complementary norms empowering national participation in the Oil & Gas sector created the obligation for foreign companies operating in the Oil & Gas sector as well as their sub-contractors to enter into partnership with national investors. Moreover, Sections 2 and 8 of said Decree states the following rules regarding national partnership:
- GEPetrol (a Public Company representing the Oil interests of the EG State) has a pre-emptive right to be a national partner in foreign Oil & Gas companies and can be accepted as one sole partner if its participation is higher than 35% of the share equity
capital; - If GEPetrol is not to hold more than 35% of the shares of the company, the national participation shall not be less than 3 national partners (individuals or companies);
- National should have 1/3 representatives in the Board of Directors of the company.
We consequently assume that only companies with a board of directors can be constituted.
From these provisions, we understand that:
– Only Public Limited Companies can be constituted; and
– A prior written waiver from GEPetrol of its pre-emptive right should be obtained where you would like to contract with other national partners.
September 2018
* The contents of this publication are based on our knowledge and interpretation of current law and practice which are likely to change over time. The publication is provided for information purposes only and does not constitute professional advice of any kind. The information provided in the publication should not be used as a substitute for consultation with professional advisers. Before making any decision, taking any action, or refraining from taking any action, the client should first consult a professional adviser who has been provided with the pertinent facts relevant to the client’s particular situation. No responsibility for any loss occasioned to any person acting or refraining from acting as a result of any material in the publication can be accepted by LI&P, the author, copyright owner or publisher or any of their related entities, partners, directors, employees, agents or subcontractors.
Summary of the main tax and legal aspects to be taken into account for a branch and a company in Senegal*
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| Branch | Company (the main forms being the Public Limited Company, the Private Limited Company, and the Simplified Shares Company) | |
| Duration | For 2 years renewable for 2 more years (except for branches of OHADA companies) |
99 years |
| Advantages | The registration, management, and closure of the branch are faster, simpler, and less costly than those of a company. It is managed by a single manager (branch manager). Statutory audit of the accounts not compulsory. | Generally considered by the Authorities and the third parties (banks, clients, etc …) as more solid and trustable than a branch particularly regarding the accuracy of the financial statements which does not need to be audited for a branch |
| Drawbacks | Duration of a maximum of 4 years. The renewal should be moreover approved after 2 years by the Ministry in charge of Commerce. Then the company holding the branch is obliged to close it or to be provided to a company. | Registration, management, and closure more complicated than a branch. A statutory audit is compulsory for Public Limited Companies and some Private Limited Companies |
| CIT filing obligations | The tax return must be filed every year on 30 April latest | |
| CIT rate | Corporate tax rate of 30% on taxable profits plus an additional 10% withholding tax on branch remittances to the head office | 30% of the taxable profits plus a withholding tax of 10% on the distribution of dividends |
| PIT rate | From 0% to 40% of the taxable revenues (depending on the remuneration) for the normal regime | |
| WHT | Withholding Tax of 20% on remuneration paid for services (including royalties) rendered by a foreign individual or foreign company and withholding tax of 5% on remuneration paid for services rendered by a resident individual (liable for tax under lump-sum taxation, among others) or resident company that are not subject to CIT. The rate can be however reduced due to the Double Tax Treaty (Belgium, Canada, France, Italy, Mauritius, Portugal, Spain amongst other examples). | |
| Registration timeframe | Between 4 to 6 weeks | |
*This table is not exhaustive and just focus on the main aspects based on the documents received. We provide you these services in accordance with current professional practice and guidelines and on the basis of Lechêne, Iñiguez & Partners’ understanding of the proper interpretation of the law, court decisions, and regulations in existence on the date on which the Services are provided. We accept no liability for any losses arising from changes in the law or regulations, or their interpretation, that occurs subsequent to the date on which Our advice is given. You agree to provide on a timely basis all information and materials reasonably required to enable Us to provide the Services. You agree that all information disclosed or to be disclosed to Us is or will be true, accurate, and not misleading in any material respect. We will rely on, and We will not independently verify, the accuracy and completeness of the information You supply to Us. You are responsible for informing Us if our understanding of the facts and the information provided is incorrect and of any changes to the information originally presented to Us. We will accept liability to pay damages in respect of loss or damage suffered by You as a direct result of a breach of Our contractual obligations, or negligence, arising from the provision of the Services but the total aggregate liability of Lechêne, Iñiguez & Partners for all resulting losses, damages, costs, and expenses shall in no circumstances exceed two times the fees that We receive for the provision of the relevant service giving rise to the breach or negligence as the case may be. The remedies available and the liability We accept under this clause are, to the extent permissible by law, the only remedies and the absolute limit of Our liability arising under or in connection with the Contract. To the extent permissible by law, all other liability is expressly excluded in particular, but without limitation and subject to any valid liability under the previous clause, liability for failure to realize anticipated savings or benefits. The Services performed by Us for Our clients are done so for the benefit and internal use of the latter only. The documents issued by Us (consultations, reports, letters, opinions, etc.) may not be used by third parties unless agreed in writing by Us, in which case the third party in question shall hold Us harmless by signing a discharge from liability. You undertake not to disclose these documents or any part thereof to any third party, by any means, and on any medium, thus allowing the third party to benefit from Our Services. We cannot be held liable for any use by a third party of all or part of the Deliverables made by Us, without its prior written consent.
Summary of the main tax and legal aspects to be taken into account for a branch and a company in Gabon*
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| Branch | Company (the main forms being the Public Limited Company, the Private Limited Company, and the Simplified Shares Company) | |
| Duration | For 2 years renewable once (except for branches of an OHADA’s company but for the benefit of the Simplified Tax Regime – STR – 4 years is considered as a maximum) | 99 years |
| Advantages | Can benefit from the STR of oil subcontractors (which allows excluding from the taxable base the amounts related to mobilization and demobilization of the equipment and crew as well as reimbursement of expenses). The registration, management, and closure of the branch are faster, simpler, and less costly than those of a company. It is managed by a single manager (branch manager). Statutory audit of the accounts not compulsory. | Generally considered by the Authorities and the third parties (banks, clients, etc …) as more solid and trustable than a branch particularly regarding the accuracy of the financial statements which does not need to be audited for a branch |
| Drawbacks | Duration of a maximum of 4 years. The renewal should be moreover approved after 2 years by the Ministry in charge of Commerce and the General Director of Taxes if the STR is used. Then the company holding the branch is obliged to close it or to be provided to a company. Some public contracts can be denied to branches. | Can not benefit from the STR. Registration, management, and closure more complicated than a branch. A statutory audit is compulsory for Public Limited Companies and some Private Limited Companies |
| CIT filing obligations | The tax return must be filed every year on 30 April latest. Simplified for the STR | The tax return must be filed every year on 30 April latest |
| CIT rate (for 2017-2018) | The effective rate of 5,95% for the STR and 35 % of the taxable profits for the normal regime in the Oil & Gas sector | 35 % of the taxable profits for the normal regime in the Oil & Gas sector |
| PIT rate (for 2017-2018) | The effective rate of 2,8% for the STR and from 0% to 35% of the taxable revenues (depending on the remuneration) for the normal regime | From 0% to 35% of the taxable revenues (depending on the remuneration) for the normal regime |
| WHT | When they are paid by a debtor established in Gabon to companies subject to CIT or PIT that do not have a permanent establishment in Gabon, the following amounts are subject to a 20% WHT: All amounts paid pursuant to the practice of an ‘independent profession’ in Gabon. Payments received by inventors, payments relating to copyrights, and all payments relating to intellectual and commercial property as well as assimilated rights. All amounts paid for services materially rendered or effectively used in Gabon. Interest, arrears, and all other fixed-income investment-products pertaining to income declared as professional revenue of the beneficiary. There is also a 20 % WHT on branch income paid to the head office in both cases. The rate can be however reduced due to the Double Tax Treaty (Belgium, Canada, France, and Morocco). For companies, inter-company dividends are taxed at a reduced rate in full discharge of the 20% WHT if paid and received by or from companies with their registered office in a CEMAC country, shares were allotted at the time of issue or kept for two years, and the Gabonese company owns more than 25% of the share capital of the subsidiary. |
|
| Registration timeframe | Between 15 to 21 working days | |
*This table is not exhaustive and just focus on the main aspects based on the documents received. We provide you these services in accordance with current professional practice and guidelines and on the basis of Lechêne, Iñiguez & Partners’ understanding of the proper interpretation of the law, court decisions, and regulations in existence on the date on which the Services are provided. We accept no liability for any losses arising from changes in the law or regulations, or their interpretation, that occurs subsequent to the date on which Our advice is given. You agree to provide on a timely basis all information and materials reasonably required to enable Us to provide the Services. You agree that all information disclosed or to be disclosed to Us is or will be true, accurate, and not misleading in any material respect. We will rely on, and We will not independently verify, the accuracy and completeness of the information You supply to Us. You are responsible for informing Us if our understanding of the facts and the information provided is incorrect and of any changes to the information originally presented to Us. We will accept liability to pay damages in respect of loss or damage suffered by You as a direct result of a breach of Our contractual obligations, or negligence, arising from the provision of the Services but the total aggregate liability of Lechêne, Iñiguez & Partners for all resulting losses, damages, costs, and expenses shall in no circumstances exceed two times the fees that We receive for the provision of the relevant service giving rise to the breach or negligence as the case may be. The remedies available and the liability We accept under this clause are, to the extent permissible by law, the only remedies and the absolute limit of Our liability arising under or in connection with the Contract. To the extent permissible by law, all other liability is expressly excluded in particular, but without limitation and subject to any valid liability under the previous clause, liability for failure to realize anticipated savings or benefits. The Services performed by Us for Our clients are done so for the benefit and internal use of the latter only. The documents issued by Us (consultations, reports, letters, opinions, etc.) may not be used by third parties unless agreed in writing by Us, in which case the third party in question shall hold Us harmless by signing a discharge from liability. You undertake not to disclose these documents or any part thereof to any third party, by any means, and on any medium, thus allowing the third party to benefit from Our Services. We cannot be held liable for any use by a third party of all or part of the Deliverables made by Us, without its prior written consent.
Summary of the main tax and legal aspects to be taken into account for a branch and a company in Kenya*
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| Branch (non-resident) | Company (the main forms being, a subsidiary, a Public Limited Company, and LLC) (resident) | |
| Duration | Indefinite until operation cease (cease of activities for a maximum of 6 months – then automatic wind up) | Indefinite until deregistered for whichever reason |
| Advantages | The simple registration process and cheaper than incorporating a company. The management and closure of the branch are faster, simpler, and less costly than those of a company. It can be managed by a single director (branch manager). There is no branch profits tax or readmittance tax (no withholding tax). | Limited liability. The taxation of the subsidiary is on the subsidiary’s income alone and at 30% instead of 37,5% for a branch. The company can be incorporated with a minimum of 1 shareholder and 1 director (of any nationality). No minimum share capital. No resident shareholder/director or representative required. Can benefit from the Simplified Tax Regime (STR) if registered in a free zone. |
| Drawbacks | Higher CIT rate of 37,5%. Legal liability is unlimited and attributed to a foreign company. Kenyan representative is required. | The legal procedure involved in creating a subsidiary can be lengthy and expensive; the process of incorporation is quite technical. A statutory audit is compulsory for Public Limited Companies and Private Limited Companies. Foreign ownership is restricted. |
| CIT filing obligations | The fiscal year is a calendar year. The tax return must be filed within six months following a company’s financial year-end. | |
| CIT rate (for 2018-2019) | The effective rate of 37.5 % of the taxable profits for the normal regime in the Oil & Gas sector. | 30% of the taxable profits for the normal regime in the Oil & Gas sector. Companies established in Export Processing Zones are taxed at 0% CIT for the first 10 years and 10% CIT for companies for 10 years in the Special Economic Zones. |
| PIT rate (for 2018-2019) | The effective rate of 0% to 30% of the taxable revenues (depending on the remuneration) for the normal regime (non-residents: only on income earned in the country as a result of employment) | The effective rate of 0% to 30% of the taxable revenues (depending on the remuneration) for the normal regime |
| Withholding Tax (WHT) | When payments are made by a debtor established in Kenya to companies, the following amounts are subject to the following WHT (depending on the exact nature and the residence status of the beneficiary of the payment): Dividends: 5% to 10%; interest: from 10 % to 25%; royalties: 5% to 20%; management of professional fees: 5% to 20%. Many other types of WHT apply. | When payments are made by a debtor established in Kenya to companies, the following amounts are subject to the following WHT (depending on the exact nature and the residence status of the beneficiary of the payment): Dividends: 5% to 10%; interest: from 10 % to 25%; royalties: 5% to 20%; management of professional fees: 5% to 20%. Many other types of WHT apply. |
| Double Taxation Treaties (DTT) | Kenya has DTTs with the following countries: Canada; Denmark; France; Germany; India; Iran; Norway; Qatar; South Africa; South Korea; Sweden; United Arab Emirates; the United Kingdom and Zambia the most interesting reduced WHT rates being for the DTT between Iran, Qatar and France (i.e. from 5 to 12% for dividends, interests, royalties and professional fees). For a non-resident company to enjoy the benefits of a DTT between its resident country and Kenya, then at least 50% of its owners must be residents of its country or the non-resident company must be listed in a stock exchange in its country. | |
| Registration timeframe | Between 4 to 6 weeks | |
*This table is not exhaustive and just focus on the main aspects based on the documents received. We provide you these services in accordance with current professional practice and guidelines and on the basis of Lechêne, Iñiguez & Partners’ understanding of the proper interpretation of the law, court decisions, and regulations in existence on the date on which the Services are provided. We accept no liability for any losses arising from changes in the law or regulations, or their interpretation, that occurs subsequent to the date on which Our advice is given. You agree to provide on a timely basis all information and materials reasonably required to enable Us to provide the Services. You agree that all information disclosed or to be disclosed to Us is or will be true, accurate, and not misleading in any material respect. We will rely on, and We will not independently verify, the accuracy and completeness of the information You supply to Us. You are responsible for informing Us if our understanding of the facts and the information provided is incorrect and of any changes to the information originally presented to Us. We will accept liability to pay damages in respect of loss or damage suffered by You as a direct result of a breach of Our contractual obligations, or negligence, arising from the provision of the Services but the total aggregate liability of Lechêne, Iñiguez & Partners for all resulting losses, damages, costs, and expenses shall in no circumstances exceed two times the fees that We receive for the provision of the relevant service giving rise to the breach or negligence as the case may be. The remedies available and the liability We accept under this clause are, to the extent permissible by law, the only remedies and the absolute limit of Our liability arising under or in connection with the Contract. To the extent permissible by law, all other liability is expressly excluded in particular, but without limitation and subject to any valid liability under the previous clause, liability for failure to realize anticipated savings or benefits. The Services performed by Us for Our clients are done so for the benefit and internal use of the latter only. The documents issued by Us (consultations, reports, letters, opinions, etc.) may not be used by third parties unless agreed in writing by Us, in which case the third party in question shall hold Us harmless by signing a discharge from liability. You undertake not to disclose these documents or any part thereof to any third party, by any means, and on any medium, thus allowing the third party to benefit from Our Services. We cannot be held liable for any use by a third party of all or part of the Deliverables made by Us, without its prior written consent.
Summary of the main tax and legal aspects to be taken into account for a branch and a company in Mauritania*
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| Non Resident activities | Branch | Company (the main forms being the Public Limited Company and the Private Limited Company) | |
| Duration | 6 months maximum | Limited to that of the head office | 99 years |
| Advantages | No registration needed which strongly simplify the operations | The registration, the management and closure of the branch are faster, simpler and less costly than those of a company. It can be managed by a single manager (branch manager). | Generally considered by the Authorities and the third parties (banks, clients etc …) as more solid and trustable than a branch particularly regarding the accuracy of the financial statements which does not need to be audited for a branch |
| Drawbacks | For a limited period of 6 months maximum and professional facilities in country forbidden | A distribution tax of 10% applies to the realization of profits (deemed to be distributed) from branches of foreign companies. |
A statutory audit is compulsory for Public Limited Companies and Private Limited Companies. |
| Possible tax regimes | Can benefit from Simplified Tax Regime (STR) for foreign non-resident operating for 6 months maximum in country (with prior approval) i.e. a WHT 15% on revenues from foreign companies or non resident entities which includes any other corporate tax but the Personal Income Tax is payable according to the common regime. The RSI will constitute a tax credit, which the foreign services or goods provider is entitled to claim back from the Mauritanian tax administration. |
Can benefit from the following Simplified Tax Regime (STR) of petroleum industry subcontractors for contracts of maximum 12 months (to be granted by the Tax Authorities) i.e. 16% on the turnover on which 25 % CIT is applied (which includes any other tax). Personal Income Tax also amounts to a reduced tax of 10% of the turnover on which the tax rate will vary from 0% to 35%. If the common tax regime applies, the main taxes are CIT which is 25 % on profits realized in country, and the Minimum Tax which is 2,5% of the turnover. | The main taxes are the CIT which is 25 % on profits realized in country and the Minimum Tax which is 2,5% of the turnover. |
| CIT filing obligations | Latest on 31st March each year | ||
| CIT rate (for 2018-2019) | 16% on the turnover on which 25 % CIT is applied (which includes any other tax) for the Oil and Gas STR. If the common tax regime applies, the main taxes are CIT which is 25 % on profits realized in country and the Minimum Tax which is 2,5% of the turnover. | 16% on the turnover on which 25 % CIT is applied (which includes any other tax) for the Oil and Gas STR. If the common tax regime applies, the main taxes are the CIT which is 25 % on profits realized in country and the Minimum Tax which is 2,5% of the turnover. Companies established in free zones are exempt from taxes on profits for the first five years. | |
| PIT rate (for 2018-2019) | From 0% to 40% of the taxable revenues (depending on the remuneration) but only on income earned in country as a result of employment | 0% to 40% of 10 % of the turnover for Oil and Gas STR. From 0% to 40% of the taxable revenues (depending on the remuneration) for the normal regime. | 0% to 40% of 10 % of the turnover for Oil and Gas STR. From 0% to 40% of the taxable revenues (depending on the remuneration) for the normal regime. |
| Withholding Tax (WHT) | WHT 15% on revenues from foreign companies or non-resident entities which includes any other corporate tax | The following amounts are subject to the following WHT: Dividends: 10%; interest: 10%; royalties paid to non-residents (patent, know-how, etc …): 15%; Branch remittances: 10 %. | |
| Double Taxation Treaties (DDT) | Mauritania has DTTs with the following countries: Senegal, France, and Arab Maghreb Union countries. | ||
| Registration timeframe | Approximately one month | ||
*This table is not exhaustive and just focus on the main aspects based on the documents received. We provide you these services in accordance with current professional practice and guidelines and on the basis of Lechêne, Iñiguez & Partners’ understanding of the proper interpretation of the law, court decisions, and regulations in existence on the date on which the Services are provided. We accept no liability for any losses arising from changes in the law or regulations, or their interpretation, that occurs subsequent to the date on which Our advice is given. You agree to provide on a timely basis all information and materials reasonably required to enable Us to provide the Services. You agree that all information disclosed or to be disclosed to Us is or will be true, accurate, and not misleading in any material respect. We will rely on, and We will not independently verify, the accuracy and completeness of the information You supply to Us. You are responsible for informing Us if our understanding of the facts and the information provided is incorrect and of any changes to the information originally presented to Us. We will accept liability to pay damages in respect of loss or damage suffered by You as a direct result of a breach of Our contractual obligations, or negligence, arising from the provision of the Services but the total aggregate liability of Lechêne, Iñiguez & Partners for all resulting losses, damages, costs, and expenses shall in no circumstances exceed two times the fees that We receive for the provision of the relevant service giving rise to the breach or negligence as the case may be. The remedies available and the liability We accept under this clause are, to the extent permissible by law, the only remedies and the absolute limit of Our liability arising under or in connection with the Contract. To the extent permissible by law, all other liability is expressly excluded in particular, but without limitation and subject to any valid liability under the previous clause, liability for failure to realize anticipated savings or benefits. The Services performed by Us for Our clients are done so for the benefit and internal use of the latter only. The documents issued by Us (consultations, reports, letters, opinions, etc.) may not be used by third parties unless agreed in writing by Us, in which case the third party in question shall hold Us harmless by signing a discharge from liability. You undertake not to disclose these documents or any part thereof to any third party, by any means, and on any medium, thus allowing the third party to benefit from Our Services. We cannot be held liable for any use by a third party of all or part of the Deliverables made by Us, without its prior written consent.
1. TAX MATTERS
Most of the tax provisions in Equatorial Guinea (EG)’s system stem from Law N° 4/2004 dated 28th October 2004 regulating the taxation system of the Republic of Equatorial Guinea (generally referred to as the “Tax Code”).
Two different tax and legal regimes coexist in Equatorial Guinea: a common law regime and a specific one for the hydrocarbon sector.
Any person or entity that does not belong to the hydrocarbon sector is subject to the common law regime.
1.1 Tax Residency in EG
An individual or legal entity which is present in EG more than three months within a calendar year, or more than six months within two consecutive calendar years, performing an economic activity or providing paid services in country is considered as a resident for tax and legal purposes.
From the text of Law Nº 4/2004 regulating the Taxation System of
the Republic of Equatorial Guinea, we understand that the term “present” implies and means
“physical presence” in the territory of Equatorial Guinea.
The notion of residence applies equally to any kind of activity (even if there is some specificity in the Oil & Gas sector).
The notion of Permanent Establishment is not defined, nor used in EG’s Tax Code. Authorities mainly refer to the notion of residence as defined above.
1.2 Tax rules for the residents not belonging to the hydrocarbon sector
1.2.1 Corporate Income Tax (“CIT”)
CIT must be paid by any resident entity, according to the following conditions:
– Payment of a Minimum Income Tax, which must be made before the end of March, each year.
The MIT liability equals to 3% of the turnover of the previous Fiscal Year;
– Payment (as the case may be), of the remaining quota of CIT liability at a 35% rate in case of profits, after filing the CIT Return (before the 30 th April, each year).
1.2.1.1 Minimum Income Tax (“MIT”)
This amount cannot be lower than XAF 800,000 (even if the entity does not have any revenue). The MIT paid can be totally or partially deducted from the CIT liability.
The penalty for lack of payment or payment in arrears of MIT equals to 50% of the amount that should have been paid.
1.2.1.2 Deductions from the CIT taxable base
The following will be treated as deductible expenses: overheads of any type, staff expenses and labour, expenses relating to the premises and material and furniture, miscellaneous and special expenses, insurance premiums, gifts, donations and subsidies.
As a general rule, the following conditions must be met:
– The expense must be incurred in the interest of the company;
– The expense must represent a diminution of the net assets;
– The expense must be related to the Fiscal Year during which it was incurred;
– The expense must be justified.
Furthermore, the Tax Code states special deductibility conditions for some expenses.
1.2.2 Personal Income Tax (“PIT”)
1.2.2.1 Salaries and Wages’ category
Taxable income is:
– Income received and related to a work contract;
– Income received for an activity performed in EG.
The salaries of national and expatriate employees working in EG are subject to PIT.
Taxable base of the PIT on Salaries and Wages
According to the Tax Code, the taxable income is composed of:
– Basic salary;
– Bonuses indemnities and allowances;
– Expenses refunding;
– Benefits in kind.
Calculation, declaration and payment of the PIT on Salaries and Wages
The calculation is done in various stages.
The following amounts must be deducted from the taxable salary:
– Professional expenses: based on effective amounts, or according to the legal limit of 20% of the taxable salary (up to XAF 1,000,000 /year);
– The employee’s part for the social contributions to the National Institute of Social Security (INSESO) and to the Work Protection Fund and Training Tax (WPF).
After this, the PIT rate is applied to the taxable salary according to the following annual progressive tax scale:
| ANNUAL TAXABLE SALARY | APPLICABLE RATE |
| From XAF 0 to 1,000,000 | 0% |
| From XAF 1,000,001 to 3,000,000 | 10% |
| From XAF 3,000,001 to 5,000,000 | 15% |
| From XAF 5,000,001 to 10,000,000 | 20% |
| From XAF 10,000,001 to 15.000.000 | 25% |
| From XAF 15,000,001 to 20,000,000 | 30% |
| More than XAF 20,000,000 | 35% |
According to the provisions of the Tax Code, the PIT liability shall be withheld each month by the employer and paid to the Public Treasury within the first 15 days of the month following the payment of the salaries.
However, in practice, the employer shall declare the PIT liability on Salaries and Wages within the first 15 days of the month following the month of payment of the salaries and then must pay said tax within the 15 days following the date when the tax liquidation is provided to the taxpayer.
Penalties for lack of payment or late payment of the PIT liability equal to 25% of the amount due plus 10% per month in arrears.
1.2.2.2 Social Contributions
– To the National Institute of Social Security (“INSESO” for its Spanish acronym).
Contributions to INSESO include:
– An employer part, equal to 21.5% of the base salary;
– An employee part, equal to 4.5% of the base salary.
The employer withholds the employee’s part and declares it along with its own part within the first 15 days of the month following the month of payment of the salary.
Penalties for lack of payment or late payment of INSESO contributions equal to 20% of the amount due.
– To the Work Protection Fund (“WPF”)
Both employers and employees must pay their contributions to the WPF. This contribution includes:
– The employer’s part, equals to 1% of the gross salary;
– The employee’s part, equals to 0,5% of the net salary.
Since it is impossible to calculate a contribution based on a net amount, the administrative practice is to calculate and pay both of these contributions based on the base salaries.
This contribution is monthly withheld by the employer who declares it to the Ministry of Labour and Social Security within the first 15 days of the month following the month of payment of the salary.
Penalties for lack of payment or late payment of contributions to the WPF equal to 20% of the amount due.
1.2.2.3 Income from Investments’ category
The following are considered Income from Investments:
– Proceeds from stock and corporate portions and related income;
– Income from bonds;
– Income from loans, deposits, guarantees and checking accounts except for special provisions that may exonerate them the interests of short-term bonds;
– Capital gains obtained through the sale of components of the investments’ capital.
The calculation of the Income from Investments for resident individuals or resident legal entities is done by applying the aforementioned PIT annual progressive tax scale.
Income from Investments benefiting to individuals or legal entities not having their usual domicile or headquarters in Equatorial Guinea, are subject to a discharging tax of 25% by way of PIT.
1.2.3 Value Added Tax (“VAT”)
1.2.3.1 Scope of VAT
The following are subject to VAT:
– Goods sold or assigned for valuable consideration;
– Services;
– Self-consumed goods and services;
– Imports of goods;
– Any other operation done by individuals or legal entities, related to their professional, individual or business activities.
1.2.3.2 Calculation of the VAT liability
The taxable base varies according to the nature of the concerned operation. In general, the taxable base amounts to the price, tax excluded, due in compensation of a sale of a good or a provision of a service.
Then, a normal rate of 15 % or a reduced rate of 6 % (mainly for the primary necessity goods) is applied to this basis.
There is also a 0% rate related to some products listed by the Tax Code (cranes, handling machines, paving machines, etc.).
The amount of VAT paid to the providers is deductible from the collected one.
When a company benefits from a tax exoneration for VAT, said the company must apply a pro rata deduction on the totality of VAT amount collected.
1.2.3.3 Declaration and payment modalities
VAT is declared monthly and the liability must be paid within the first 15 days of the month following the one in which the taxable event occurs.
As for the tangible movable property, the good’s transfer determines the taxable event, the date when the tax can be claimed by the Tax Authorities thus being concomitant.
As for the services, the collection for the sums paid in compensation of said services determines the taxable event, and as a consequence, the date when the tax can be claimed by the Tax Authorities.
Once liquidated by the General Direction of Taxes and Contributions, the VAT liability must be paid to the Public Treasury. Refund of VAT is not possible.
1.2.4 10% Withholding Tax for non-residents
Non-resident entities or individuals must pay an amount of 10% of their gross income earned in the Equatoguinean territory.
The Tax Administration considers said tax as a withholding tax for the client company. In practice, said 10% tax on gross income for non-residents must be declared within the first 15 days following the month when said tax was withheld.
1.3 Tax rules applicable to the Hydrocarbon sector
1.3.1 Notion of Hydrocarbon sector
The notion of Hydrocarbon sector is defined as “Companies, corporations, individuals and agencies of all kinds involved in the search, exploration, exploitation, and marketing of hydrocarbons in the Republic of Equatorial Guinea”.
The Tax Code provides a list of taxes to which companies from the Hydrocarbon sector are subject to, as follows:
– Income Taxes
a) Corporate Income Tax;
b) Personal Income Tax;
c) Tax on Income from residents or non-residents individuals or entities;
d) Tax on individuals;
– Taxes on Transfer and Assignment generating Capital Gains not invested in Equatorial Guinea;
– Export duties;
– Gross Output Royalties;
– Surface premiums or rental rates;
– Discovery, production and marketing bonds.
Our position is that said list is exhaustive and therefore no other tax is applicable to companies belonging to the Hydrocarbon sector.
1.3.2 Tax on Income of Individuals and Legal Entities belonging to the Hydrocarbon sector
This withholding tax is applicable to:
– Gross income related to the sale of goods and provision of services (even if in practice it is only applied to the provision of services);
– Performed by a resident or non-resident legal entity or individual;
– Within the Hydrocarbon sector
– In Equatorial Guinea’s territory.
This withholding tax is equal to:
– 6.25% when payments are made to a resident entity;
– 10% when payments are made to a non-resident entity.
The taxable base are the gross amounts paid to the provider.
The amount withheld by the withholding agent during a fiscal year is deductible from the CIT liability to be paid for the following fiscal year.
2. BUSINESS MATTERS
2.1 Economic Incentives
Tax and Customs exemptions can be granted by the Government for some specific economic sectors (e.g. Oil & Gas, Public Works, etc.). These exemptions shall be negotiated in the contract to be signed between the company and the Administration (e.g. Production Sharing Contract, Public Work Contract, etc.).
Companies that have their management headquarters and effective centralization of their operations in District administrative centres not on the coast, including Annobón, will receive a rebate of 50% of the CIT levy.
However, said rebate shall not be applicable to companies which activities related to the extraction of raw materials of forestry, mining, hydrocarbons, energy generation, mineral and non-mineral water, emergent or obtained from drilling and fishing.
Any tax incentive should be in principle based on a legal norm according to the Tax Code.
2.2 Types of legal structures available to carry out business in EG
2.2.1 General provisions
In order to carry out an activity in EG, a foreign Company can either set a Representation or Liaison Office, incorporate a Company or Subsidiary or register a Branch.
– Representation or Liaison Office
This relatively new legal structure presents itself as a very convenient way for companies to be able to participate in bidding rounds and tenders at a considerably lower cost, with no tax obligations.
– Companies or subsidiaries
According to the OHADA regulations, a subsidiary can take one of the three main legal forms:
– Simplified Stock Company;
– Private Limited Company; or
– Public Limited Company.
– Branch
It is a commercial, industrial or service-providing establishment which belongs to a company or an individual (and has no legal personality on its own) and which has been granted a certain degree of autonomy in its management.
2.2.2 Specific provisions applicable to companies belonging to the Oil & Gas sector
Presidential Decree n°127/2004 dated 14 th September 2004, which sets forth complementary norms empowering national participation in the Oil & Gas sector created the obligation for foreign companies operating in the Oil & Gas sector as well as their sub-contractors to enter into partnership with national investors. Moreover, Sections 2 and 8 of said Decree states the following rules regarding national partnership:
- GEPetrol (a Public Company representing the Oil interests of the EG State) has a pre-emptive right to be a national partner in foreign Oil & Gas companies and can be accepted as one sole partner if its participation is higher than 35% of the share equity
capital; - If GEPetrol is not to hold more than 35% of the shares of the company, the national participation shall not be less than 3 national partners (individuals or companies);
- National should have 1/3 representatives in the Board of Directors of the company.
We consequently assume that only companies with a board of directors can be constituted.
From these provisions, we understand that:
– Only Public Limited Companies can be constituted; and
– A prior written waiver from GEPetrol of its pre-emptive right should be obtained where you would like to contract with other national partners.
September 2018
* The contents of this publication are based on our knowledge and interpretation of current law and practice which are likely to change over time. The publication is provided for information purposes only and does not constitute professional advice of any kind. The information provided in the publication should not be used as a substitute for consultation with professional advisers. Before making any decision, taking any action, or refraining from taking any action, the client should first consult a professional adviser who has been provided with the pertinent facts relevant to the client’s particular situation. No responsibility for any loss occasioned to any person acting or refraining from acting as a result of any material in the publication can be accepted by LI&P, the author, copyright owner or publisher or any of their related entities, partners, directors, employees, agents or subcontractors.