The amount of deductible depreciation should not exceed the amount that is calculated according to the following rates of depreciation provided by the law:
|Asset||Depreciation rate (%)|
|Plant and machinery||10|
|Mining exploration and development (licence)||33|
|Transportation (utility cars, vans, trucks)||25|
With the exception of buildings, it is also possible to practise a graduated depreciation. In this case, the annual depreciation corresponds to 30% of the net book value of the asset.
In case of loss, depreciation of assets can be deferred and carried forward to the next financial years until absorption.
There is no provision concerning deductibility of goodwill in the Madagascar tax code.
There is no specific tax provision on start-up expenses. Accounting rules are applicable for the profit and loss recognition.
Start-up and prospecting expenses for the installation of an overseas establishment, as well as the costs of running such a foreign establishment, for the first three years are tax deductible. However, the amounts deducted must be reported, in equal amounts, to the taxable income of the five consecutive years from the fifth year following the creation of the foreign establishment.
Interest expenses are deductible. However, interests on inter-company loans are subject to thin capitalisation rules (see Thin capitalisation in the Group taxation section for more information). In addition, interest on inter-company loans is not deductible if the loan agreement is not documented by a written agreement submitted according to registration procedures.
To be tax-deductible, provisions for doubtful debt must be subject to justification of existence of amicable or judicial settlement. The claims must be individualised.
Payments made for the benefit of educational, social, or cultural recognised public associations; accredited bodies for scientific research; or for the promotion and creation of businesses for achievement of planned economic and social development are deductible within the limits of 0.5% of annual turnover.
Gifts in kind or in cash granted in case of natural calamities and donations in cash granted to a corporation established by decree for the interest of the nation are also deductible.
Any other charitable contributions are not deductible.
Deductible social expenses for mining companies
Donations and expenses related to the social responsibility of mining companies are deductible if they are mandatory or provided in the Cahier des charges.
Expenditures for site security and high intensity of manpower (haute intensité de main d’oeuvre or HIMO), provided that expenses were subject to WHT at a rate of 5%, are also deductible.
Salaries and wages that are not included in salary income taxes or not declared to Caisse Nationale de Prévoyance Sociale are not deductible.
Only 50% of the difference between the total benefits in kind and the value of benefits in kind included in the tax base of salary income tax are deductible expenses.
Fines and penalties
Fines and penalties are not deductible for CIT purposes.
Except for CIT, taxes in relation to business in Madagascar are deductible.
Third-party taxes borne by the company are not tax-deductible.
Net operating losses
Accumulated loss can be carried forward for the next five financial years following the period in which the loss occurs. Carryback of losses is not permitted in Madagascar.
Payments to foreign affiliates
For branches, the deductible amount of overhead that the head office can charge to the branch is limited to 1% of the turnover of the branch.
For interest on inter-company loans, see Thin capitalisation in the Group taxation section.
Payments to foreign companies established in a country having a very favourable fiscal regime
Payments made to a foreign company established in a country having a very favourable fiscal regime are not tax deductible unless there is proof of effectiveness of the services and reasonability of the amount.