During the International Conference on Tax in Africa held in Abuja from 26 to 28 September 2017, the African Tax Administration Forum launched its “Toolkit for Transfer Pricing Risk Assessment in the African Mining Industry”, providing tax administrations a step-by-step guide on how to review transfer pricing risks associated with related party transactions involving marketing arrangements, intercompany financing, procurement services and management services. As part of its role in driving transfer pricing initiatives across Africa, an Excel-based risk model which can assist tax authorities to identify and flag potential cases for transfer pricing audits was also published. CAMEROON: Treaty with South Africa enters into force On 13 July 2017, the Cameroon/South Africa Income Tax Treaty, 2015 entered into force and generally applies from 1 January 2018. Key features of the treaty include:
- the residence tie-break for dual-resident companies is the mutual agreement procedure between the two tax authorities;
- the definition of “permanent establishment” largely follows the Organisation for Economic Co-operation and Development Model Convention with a six-month threshold for building sites and installation projects. Specifically included in the definition are situations where an enterprise renders services (through its employees or other personnel) for an aggregate of 183 days or more in a 12-month period;
- in respect of capital gains, gains from the alienation of shares deriving more than 50% of their value from immovable property situated in a state are taxable in the such state; and
- a maximum tax rate on dividends of 10% if the beneficial owner is a company holding at least 25% of the capital of the company paying the dividends, or 15% in all other cases are allowed for and the tax rate is limited to 10% in the case of interest and royalty payments.
GHANA: VAT Flat Rate Scheme clarification On 2 October 2017, the Commissioner-General of the Ghana Revenue Authority (“GRA”) clarified that the Value Added Tax (“VAT”) Flat Rate Scheme, in terms of which VAT/National Health Insurance Levy (“NHIL”) is charged at a reduced rate of 3% (implemented on 1 July 2017), is only applicable to retailers and wholesalers. Manufacturers and service providers are required to continue charging VAT/NHIL at the standard rate of 17.5%. GHANA: Reviewed policy on tax exemption on import duties The Ministry of Finance on 18 September 2017 issued a statement announcing the review and reversal of the administrative policy on the tax exemption regime introduced by the 2017 budget in terms of which tax exemption holders are required to provisionally pay import duty and taxes upfront and subsequently apply for a refund in line with the guidelines issued by the Commissioner-General of the GRA. In order to counter perceived abuse of the exemption regime, the statement provides that with effect from 1 October 2017:
- an application for exemption is to be accompanied by the required supporting documents;
- "exemption status" is not transferable and no person or business will qualify for exemption by virtue of their association or relationship with an exemption holder;
- no imported goods will be exempted from the payment of import duties and taxes unless the original importer of the goods (as stated on the bill of lading or customs declaration) is an exemption holder, or the goods are generally exempted from import duties and taxes by law;
- no exemption letter from the Ministry of Finance will be issued for the purpose of clearing any consignment of goods imported by exemption holders unless the application for the exemption includes an undertaking (in the standard form) signed by the company's Chief Executive Officer affirming compliance of the imports to all applicable laws and requirements;
- the GRA is required to institute a post-audit desk to audit exemption holders for compliance regarding goods that have been cleared under exemptions; and
- criminal charges and/or penalties will be sanctioned on the beneficiary company and its Chief Executive Officer if the post audit review reveals any infractions.
GHANA: Excise tax stamp policy launched In an attempt to combat counterfeiting and smuggling, as well as improving revenue generation by effectively monitoring the payment of excise taxes, the Minister of Finance on 31 August 2017 launched the Excise Tax Stamp Policy, which will become effective from 1 January 2018. In terms of the policy, tax stamps will be affixed to specific excisable products and local manufacturers and importers of excisable products are required to register with, and obtain the tax stamps from, the GRA. The government has undertaken to bear the full costs of the tax stamps supplied to businesses from 1 January 2018 to 30 June 2018 and half of the cost from 1 July 2018 to 31 December 2018. The position will be reviewed subsequently, depending on the cost burden of providing the tax stamps. IVORY COAST: Treaty with Portugal enters into force On 18 August 2017, the Ivory Coast/Portugal Income Tax Treaty, 2015 entered into force and generally applies from 1 January 2018. LESOTHO: Income Tax Regulations 2017 published On 22 September 2017, the Income Tax (Amendment of Monetary Amounts) Regulations, 2017 were published in the Official Gazette, giving effect to some of the tax measures proposed in the budget for 2017/18, including:
- increasing the annual tax credit from LSL6 732 to LSL6 960;
- amending the minimum annual taxable income from LSL33 660 to LSL34 800; and
- revising the threshold of the tax bracket from LSL56 964 to LSL58 680.
MALAWI: Road access fee introduced On 19 September 2017, the Malawi Revenue Authority (“MRA”) announced, with effect from 1 November 2017, the imposition by the Road Fund Administration of a Road Access Fee (“RAF”) of USD20 on all foreign registered small vehicles issued with a temporary importation permit and not currently paying the international transit fee, including motor cycles and trailers. The MRA will be responsible for the collection of the RAF. MOZAMBIQUE: Transfer Pricing Regulations approved The Mozambican Council of Ministers on 12 September 2017 approved Transfer Pricing Regulations which will become effective from 1 January 2018. NIGERIA: Public notice on valuation of employee accommodation benefit published The Lagos State Internal Revenue Service (“LIRS”) recently issued a public notice clarifying the valuation of accommodation benefits provided by employers to their employees. According to the notice, the taxable value of a leased accommodation is the rent paid and where the accommodation is owned by the employer, this shall be the commercial rental value of comparable properties in a similar location. The taxable benefit of hotel accommodation exceeding 90 days is the amount paid by the employer for the hotel room or the room rate. NIGERIA: Public notice on taxing of compensation for loss of employment issued The LIRS also issued a public notice confirming that compensation for loss of employment will qualify for exemption under the Personal Income Tax Act (“PITA”) if the amount paid is not pre-agreed, but such payments would be liable to capital gains tax (“CGT”) under the CGT Act. All pre-agreed payments, on the other hand, are taxable under the PITA. A distinction is made between “terminal benefits” and “termination benefits”. A termination benefit is a redundancy lump sum accruable on premature termination of employment or contract, which may not be fully tied to the employment duties performed. A terminal benefit is a retirement or resignation lump sum payment such as gratuity and pension usually based on predefined terms and satisfactory performance of employment duties. Termination benefits are capital in nature, subject to CGT, whereas terminal benefits are revenue in nature, subject to personal income tax. NIGERIA: Public notice on taxation of foreigners published The LIRS issued a public notice on the taxation of foreigners performing employment duties in Nigeria, which also specifies the compliance requirements for foreigners holding a Temporary Work Permit (“TWP”). The notice defines a non-national with a TWP as an individual who is a national of another country with a visa to work in Nigeria on specialised projects such as installations and repair for a period not longer than 90 days and clarifies the tax treatment of such individuals, generally in line with the provisions of the PITA. It also stipulates that, non-nationals acting as independent contractors in Nigeria would be subject to tax in Nigeria if their activities result in the creation of a fixed base there. In contradiction with the conditions for the creation of a fixed based as per section 6 of the PITA, the notice indicates that a fixed base can be created simply where a work permit other than a business visa is required by the contractor. Such individuals will also be subject to tax when, in the view of the LIRS, there is profit shifting or pricing that is not supported by appropriate transfer pricing analysis. NIGERIA: Public notice on the employees’ tax and withholding tax treatment of employee outsourcing arrangements published The LIRS further published two public notices respectively addressing the employees’ tax (pay-as-you-earn (“PAYE”)) and withholding tax treatment of employee outsourcing arrangements. In arrangements where workers, who are not part of the ultimate employer’s regular workforce, are employed through an outsourcing firm or labour broker, but economically employed by the ultimate employer, the ultimate employer pays the outsourcing firm a fee for procuring the staff on its behalf, while the outsourcing firm pays salaries to the staff through its payroll. According to the LIRS, the outsourcing firm is responsible for the deduction and remittance of PAYE on outsourced employees, and filing of the related PAYE tax returns. However, any tax exposure arising from improper deduction of PAYE tax from the employees will be extended to the ultimate employer as per the Operation of PAYE Regulations. In respect of payments by the ultimate employer to the outsourcing firm, the amount liable to withholding tax is the margin earned by the outsourcing company on the service (ie the difference between the contract sum and the payroll cost of the outsourced employees). However, it is a prerequisite that the margin is clearly specified on the face of the invoice, with clear documentary evidence of the salary cost incurred and evidence that PAYE tax has been properly accounted for. NIGERIA: Public notice on taxation of employees’ share schemes issued As per a public notice issued by the LIRS clarifying the taxation of share schemes where an employee derives a gain or benefit from the arrangement, it is stipulated that employers are required to deduct PAYE on the benefit (calculated as the difference between the price paid for the shares and the value of the shares at the date of exercise) at the date of exercise.
For listed entities, the value of the shares will be the price of the stock as traded on the relevant exchange, whereas for non-listed entities, the value of the stock will be the net asset per share. Where the employee does not make any payment, the total number of the shares (based on market value) awarded to the employee will be subject to tax. Any gains accruing to the employee following exercise will be treated as capital gains which is currently exempt from tax. Any dividend or phantom dividend earned by the employee during the vesting period will be treated as employment income and taxed at applicable rates rather than withholding tax. NIGERIA: Public notice on taxation of interest benefit on employee loans issued The tax treatment of the interest benefit arising from employee loans is also clarified in a public notice issued by the LIRS.
In terms of the notice, a taxable benefit is deemed to arise where an employer grants a loan to an employee at an interest rate which is more than 3% lower than the adjusted monetary policy rate, currently 14%. Accordingly, if an interest rate of less than 11% per annum is charged, a taxable benefit would accrue.
SAO TOME: Treaty with Portugal enters into force
On 12 July 2017, the Portugal/Sao Tome and Principe Income Tax Treaty, 2015 entered into force and generally applies from 1 January 2018. ZAMBIA: 2018 budget On 29 September 2017, Minister of Finance presented the budget for 2018 to the National Assembly. Key proposals include:
- replacing the five-year tax holiday regime for investments in the priority sectors under the Zambia Development Act with accelerated depreciation allowances;
- amending the definition "residence" for corporate tax purposes to the effect that a company will be deemed to be resident in Zambia if either it is incorporated or formed under the laws of Zambia or it has its place of effective management in Zambia, instead of having its place of "central management and control” in Zambia; and
- amending the definition of "management or consultancy fee” to include payment in any form, other than an emolument, for or in respect of any administrative, consultative, managerial, technical, or any service of a like nature or any creation, design, development, installation and maintenance of any information technology solution, programme, system, or a combination;
- introducing a requirement for mandatory disclosure of all related-party transactions for transfer pricing purposes;
- discontinuing the deductible contribution to approved pension funds of ZMW3 060 for personal tax purposes;
- changing the due date for payment of withholding taxes from the 10th to the 14th day of the month following that in which the transaction is occurred;
- increasing the presumptive tax on public transport operators by 50%;
- exempting re-insurance premiums from the insurance premium levy of 3%;
- exempting tobacco from VAT;
- changing the due date for submission of VAT returns from the 16th to the 18th day of the month following that in which the transaction is made; and
- including intellectual property (ie, trade marks, patents, brands, etc.) and the indirect transfer of shares in the definition of property for property transfer tax purposes.