Expenses are deductible under the following conditions:
- They must lead to a reduction of the assets.
- They must be incurred in the interest of the enterprise.
- They must be regularly included in the accounts of the entity and justified by receipts.
- They must be related to the fiscal year within which they are incurred.
- They must not be considered as non-deductible by the law.
According to accountancy principles, depreciation is calculated based on the probable length of use of the asset. The straight-line system of depreciation is applicable, and rates vary according to the nature of the business activity concerned and the normal useful life of the assets involved.
From an accountancy point of view, it is possible to depreciate whatever amount corresponds to the above-mentioned principles. However, from a tax point of view, depreciation (i.e. enabling a deduction of the depreciated amount from the taxable income) is only possible under the condition that the depreciation has been entered into the statement of accounts. Therefore, only a legal entity in Chad owning the assets is able to depreciate its assets. In addition, if depreciation in the statement of accounts is higher than the depreciation authorised, the difference is not deductible and has to be reinstated in the taxable income.
The starting point for depreciation is the day of first use. If this date is not the first day of the financial year, the first year’s depreciation is reduced pro-rata.
It should be noted that, despite the above, goods that are leased are depreciated at the rate that they are paid for.
Depreciation of goods that are made available for free to managers and supervisors of the business are deductible if the corresponding benefit in kind is declared.
The sum of depreciation applied to the acquisition or creation of an asset cannot, at the end of each financial year, be less than the amount of depreciation calculated on the linear system and spread out over the normal usage period.
Depreciation in loss-making years may be carried forward to the first profitable financial year, and to subsequent years if necessary.
The major repairs carried out by a company on the assets listed in the balance sheet are only deductible by way of depreciation.
There are no provisions for goodwill as regards deduction of expenses.
There are no provisions for start-up expenses.
Interest paid for the depositing of funds by a shareholder is deductible within the base rate of the central bank plus two points, calculated on the basis of the share capital.
However, interest paid to a foreign related entity is deductible up to 10% of the tax intermediary result of the Chadian debtor.
In the event that the beneficiary of these interests is located in a tax haven, the deduction is limited to 50% of the gross amount without prejudice of the application of the limitation of 10% mentioned above.
Provisions for credit customers are deductible if judicial actions have been taken for the recovery of the said debt.
Donations and liberalities are deductible within a 0.5% limit of the annual turnover, net of tax, when they are duly justified. However, a decision from the Minister of Finances is required.
Fines and penalties
Tax and customs penalties are not deductible.
Income taxes are not deductible.
Structural VAT credits
Structural VAT credits are deductible if the following conditions are met:
- The company justifies the origin of the VAT credits by producing the statement of the deductible VAT accompanied by the original invoices and the receipts of the customs.
- An attestation of VAT credit, signed by the General Tax Director, is produced.
Other significant items
The following expenses are not deductible:
- Provisions for laying off employees.
- Provisions for self-insurance.
- Insurance premiums paid for a third-party.
The following expenses are not fully deductible:
- Foreign social security contributions are deductible only within 15% of the base salary of the expatriates when related to a compulsory retirement plan. Nonetheless, Chad’s social security contributions are fully deductible.
- Restaurants, hotels, receptions, and related costs are deductible within a 0.5% limit of the turnover, net of tax.
- Travel expenses for expatriates and their families for vacation are deductible, limited to one trip per year.
Net operating losses
Losses arising from normal business activities of the company are deductible and may be carried forward for up to three years. Carryback of losses is not permitted.
Payments to foreign affiliates (foreign technical assistance and administrative fees)
There is a specific regulation relating to foreign general administrative and technical assistance costs, which are subject to a 10% limitation of deductibility. The scope of the 10% limitation covers study expenses, technical assistance, and other expenses, including commercial and industrial royalties and interests, paid to the head office of an enterprise established outside Chad and outside the CEMAC zone.
These costs are only deductible within 10% of the intermediary fiscal profit (accounting profits plus non-allowable charges/costs) prior to their deduction if the following conditions are met:
- The details of these general administrative and technical assistance costs shall be annexed to Table 22 of the annual tax returns (Déclaration Statistique et Fiscale or DSF).
- The details shall present the amounts paid according to the activities’ sectors and countries where the company carries out its activities.
However, from fiscal year 2018, foreign technical assistance fees or administrative fees paid to beneficiaries located in a tax haven are deductible up to 50% of their gross amount without prejudice to the limit of 10%.