Congo, Republic of
Generally, a deduction is allowed for all expenditures incurred to obtain, collect, and maintain business profits. To be deductible, expenses should be incurred necessarily for the normal purposes of the business and be supported by suitable evidence.
Depreciation and depletion
In general, all types of fixed assets, except land, are depreciable for tax purposes as long as they can be shown to have been acquired for business purposes of the corporation. Depreciation must be calculated on the original purchase price. The straight-line method is used, and the Congolese General Tax Code sets forth maximum rates of depreciation. Goods costing less than XAF 500,000 per item may be written-off at purchase as expenses.
Depreciation recorded when the company is in a loss position may be carried forward without limitation and deducted from the first available taxable profits, provided it was appropriately disclosed in the annual CIT return.
Recoverable and identifiable packaging is regarded as a fixed asset and is recorded in a fixed asset account at the time of purchase. This packaging is regarded as returnable packaging when the supplier intends to act as the sole owner of the packaging.
Unrecoverable packaging is recorded as an expense and is deductible for tax purposes.
Exceptional accelerated depreciation may be authorised in certain circumstances for heavy equipment with a value of more than XAF 40 million. This special accelerated depreciation does not apply to private vehicles owned by the enterprises.
The following list contains maximum rates of depreciation as set forth in the General Tax Code:
|Assets||Rates per year (%)|
|Construction||5 to 20|
|Fixed devices and equipment||5 to 25|
|Movable equipment||10 to 100|
|Transport materials||5 to 33.33|
|Furniture, fittings, and other equipment||10 to 33.33|
|Fishing equipment||10 to 20|
|Hotels, bars, and restaurants||10 to 50|
|Plastic equipment (moulding)||10 to 33.33|
|Equipment subject to chemical action||20|
Exceptional depreciation method
The exceptional depreciation method is an accelerated depreciation method.
Companies may elect the accelerated depreciation method for heavy materials and equipment that:
- are purchased new for a value higher than XAF 40 million
- have a useful life of at least three years
- are used for manufacturing, processing, transport, and handling, and
- are bound to an intensive use.
The application for the accelerated depreciation method must be submitted to the head office of taxes within three months of the purchase of the assets to be depreciated. The option is granted upon approval of the Ministry of Finances. If the administration fails to respond to the application for accelerated depreciation within three months, the application is tacitly granted.
Under the exceptional depreciation method, a 40% deduction may be taken in the year of acquisition of the previously mentioned assets, increased by the normal rate calculated on the residual value after application of the accelerated depreciation. These assets are depreciated on a straight-line basis thereafter.
There is no specific provision relating to amortisation of goodwill in the Republic of Congo.
There is no specific provision in the Congolese General Tax Code on the deduction of start-up expenses. Start-up expenses that occurred in the first year of incorporation (N) are deductible in the second year of operation (N+1).
According to the OHADA Uniform Act relating to Accounting Systems and Accountancy, start-up expenses can be amortised either in one year (in such a case, they are booked in the deductible expenses during the first fiscal year) or in two years (50% during the first fiscal year and 50% during the second fiscal year).
Interest is deductible, subject to the following conditions:
- General limit: Regardless of the form under which a legal entity is registered, the deduction is allowed with an interest rate limited to the rate of the advances in current accounts on states funds of the Bank of the States of Central Africa (BEAC) raised by two points. Currently, the ceiling for the deduction of interest is 5.25%.
- For private limited companies and public limited companies, the deduction is allowed according to the status of control over the management of the enterprise, as follows:
- For shareholders who have control over the company de facto or de jure, the deduction is allowed only to the extent that the sums paid do not exceed, for the shareholders as a whole, half of the paid-up capital and are within the limit sets forth in the ‘general limit’.
- For other shareholders, the ‘general limit’ applies.
Donations and gifts made to beneficiaries in the Republic of Congo are deductible from CIT basis at a limit of 0.5‰. The limit is 0.5% as regards donations and subsidies made for the support and development of sport, natural calamities and accidental disasters. 50% of amounts of donations and payments upon the occurrence of a natural disaster or accidental disaster are deductible.
Total tax exemptions are granted for donations made to the state within the framework of the COVID-19 Solidarity Fund aimed to fight against COVID-19.
Fines and penalties
Penalties relating to violation of regulations are not deductible.
Taxes, other than income taxes, are usually deductible. Examples of deductible taxes include customs duties, excise duties, payroll taxes, business tax and accessory taxes, registration taxes, and unrecoverable VAT.
CIT itself is not deductible, nor is the special tax on company-owned cars.
Taxes withheld on remuneration, paid to third parties (third parties taxes), and remitted to the tax office by a Congolese enterprise are not deductible.
Net operating losses
For tax purposes, losses may be carried forward to offset profits earned in the three succeeding fiscal years. Carryback losses are not permissible.
As mentioned above, depreciation recorded when the company is in a loss position may be carried forward without limitation.
Payments to foreign affiliates
Allowable deductions include sums paid abroad to foreign companies for:
- actual services, notably overhead for the operations made for the benefit of a company based in the Republic of Congo, including costs of studies; technical, financial, and accounting assistance; commissions and fees; and interests, and
- use of patents, licences, trademarks, drawings, manufacturing processes, patterns, and similar rights to the extent the payer proves they correspond to actual operations, and they are neither abnormal nor excessive.
Subject to the provisions of tax treaties (France, Italy, Mauritius, and CEMAC), the deduction is allowed within a limit of 20% of taxable profits before deduction of the expenses in question. For specific activities, such as, namely, public works business, the limitation of deductibility is capped at 2% of turnover.
In the event of losses, the rate is applied on the results of the last profit period that is not statutory limited. In the absence of profits during the period out of statutory limitation, the sums paid are not allowed as tax deductions.
When the sums are not allowed, as a whole or in part, in the deductible expenses, they are deemed to be paid benefits and are subject to tax on the dividends at the rate of 15%.
Royalties for the transfer or concession of patents, trademarks, drawings, and other similar titles are deductible to the extent the payer proves they are still valid. When these royalties benefit an enterprise contributing in the management or share capital of an enterprise in the Republic of Congo, they are deemed to be paid benefits and are subject to tax on the dividends at the rate of 15%.
Commission or brokerages relating to goods purchased on behalf of enterprises based in the Republic of Congo are allowable tax deductions at up to 5% of the purchase amount made by the central purchasing office, the head office, or the intermediaries. The reductions shall benefit enterprises based in the Republic of Congo. An original supplier's invoice must be attached to the intermediary's invoice.
The payer shall prove that:
- the purchases necessitated the interventions of a broker or intermediary
- the commissions provided better supply conditions compared with the actual situations on the market, and
- the commissions are not excessive compared with the nature of the services.
In the event of an audit, amounts invoiced by foreign companies that do not respect the arm's-length principle are added back to the taxable basis for the Congolese company.