Congo, Democratic Republic of the
To arrive at taxable income, a taxpayer may deduct all costs actually incurred and which have served in the production of income of the company during the year.
Depreciation of fixed assets used in the company’s operations may be deducted. Depreciation rates are as follows:
|Nature of the good||Depreciation rate (%)|
|Buildings||2 to 5 (depending on the materials used)|
|Machinery and equipment||10|
|Vehicles||20 to 25 (depending on its use)|
|Item's nature||Useful lives adopted (years)|
|Building - general purpose or heavy equipment||20 to 25|
|Building - specific purpose||8|
|Computer equipment||3 to 5|
|Software||3 to 5|
|Motor vehicles||4 or 5|
|Furniture and fittings||8 or 10|
As per the OHADA accounting law, however, assets should be depreciated as per the practice of the specific industry so as to depreciate each category of asset over the related normal expected useful life.
There is no specific provision relating to depreciation of goodwill in DRC Tax Law.
However, it is generally agreed that taxpayers can amortise goodwill in accordance with the linear system. The amortisation of goodwill rate is at the discretion of the taxpayer, but with the risk that the tax authorities can assess the rate otherwise.
Start-up expenses are deductible, provided they are staggered over three or four years.
Interest costs on funds borrowed from third parties and invested in the company’s operations are, in principle, deductible. Further to the tax authorities, the deduction, in principle, requires an effective payment.
Please note that if the borrower is a private limited company and the lender is one of its shareholders, the interests on loans paid are not deductible from the CIT basis.
Moreover, assuming the terms of the loan are at arm’s length, the interest expense will be tax deductible in the Democratic Republic of the Congo provided that (i) the interest rate applied is less than the average international interbank market rate in the month the payment of the principal is made and (ii) the repayment of the principal takes place within five years from when it has been made available.
As a general rule, any kind of provisions (e.g. for bad debts) may not be deducted to arrive at taxable income.
However, provisions constituted by credit institutions in respect of doubtful debts can be deducted from CIT under certain conditions
Charitable contributions or donations are not deductible.
Fines and penalties
Legal or administrative fines of any nature are not deductible.
Income taxes are not deductible.
Other significant items
The following are examples of other expenses that may be deducted to arrive at taxable income:
- Rents actually paid and rental expenses linked to buildings or parts of buildings used in the exercise of the activity and any overhead derived from their maintenance, lighting, etc.
- Overhead costs from maintenance of furniture and equipment used in connection with the company’s activities.
- Wages, salaries, bonuses, and allowances of employees and workers used in the operation, as well as benefits in kind if these have been added to remunerations paid.
- Professional expenses incurred for the purpose of acquiring or maintaining income or earnings.
The following are examples of other expenses that may not be deducted to arrive at taxable income:
- Expenses of a personal nature (i.e. for private purposes), such as accommodation, school fees, leave indemnities, and any other expenses not necessarily incurred in the business.
- Expenses linked to rental properties as a landlord as well as related depreciation expenses.
Net operating losses
The Finance Act for 2016 significantly amended the rules applicable to the offsetting and carryover of business losses. Henceforth, the new wording of Article 42-1° of the legislative-order n° 69/009, dated 10 February 1969, pertaining to the scheduled income taxes:
- repeals the prior authorisation of the tax administration to the offsetting of the losses carried over, but
- limits the offsetting to 60% of the tax profits made in the tax period prior to applying the deduction of said business losses, and
- no longer fixes a time limit for carrying over business losses.
There is no carryback loss regime in the Democratic Republic of the Congo.
Payments to foreign affiliates
As a general rule, payments to foreign affiliates should be at arm’s length and transfer pricing documentation must be provided.
In respect of payments made by a local company to a foreign company for services (e.g. management services, technical assistance services), such expenses are deductible, provided that:
- the services rendered can be clearly identified
- the services cannot be rendered by a local company, and
- the amount paid for the service is not overstated and is commensurate to the nature of the service itself.
Under the notion of abnormal acts of management, in addition to expenses, any form of benefits or aid granted to third parties without equivalent consideration for the company will be taxable, such as:
- Payments in the form of mark-ups or markdowns of purchases or sales.
- Payments of excessive royalties without any equivalent consideration.
- Income waivers (sales at a reduced price, free supply of services, grant of interest-free loans or loans bearing insufficient interest).
- Debt or commission waivers.
- Debt forgiveness.
- Benefits disproportionate to the service rendered.
Benefits or aids granted to companies within the same group may be deemed as normal acts of management, provided that the company shows the existence of its own interest in granting such benefits or aids. The sole general interest of the group is not sufficient to justify such practices.