The finance act n°17/014 for the fiscal year 2018 (hereafter referred to as "The Finance Act") was passed on the 24 December 2017 by the Parliament and enacted by the President of the Democratic Republic of the Congo. It has been published in the Official Journal on the 3 of January 2018.
The Finance Act amends the following tax legislation:
- Ordinance n° 69/009 of 10 February 1969 concerning income tax;
- Law n° 004/2003 of the 13 March 2013 reforming fiscal procedures;
- Ordinance n°10/001 of the 20 August 2010 establishing the value added-tax;
- Ordinance n°13/002 of the 23 February 2013 setting out the prerogatives, taxes and fees of the central authority;
- Ordinance n°13/002 of the 23 February 2013 reforming the procedures of tax base, control and collection of non-fiscal revenues.
Throughout this overview, we shall peruse the following major fiscal and parafiscal measures of the Finance Act:
- Amendment of tax legislation on fixed or permanent establishment of foreign companies;
- Introduction of a VAT-free purchasing mechanism;
- Amendment to the "tax-base and collection penalties" and their calculation basis;
- Abolition of the payment of disputed tax in connection with the admissibility of a judicial remedy
- Reduction of the rate on deferment of recovery in tax matters
- Reduction in the rate of default interest on non-tax revenue collection
- Reduction of the rate on suspension of recovery in parafiscal matters
1. Amendment of tax legislation on fixed or permanent establishment of foreign companies
In terms of article 68 of the Ordinance n° 69/009 of 10th of February 1969 concerning income tax, foreign companies are taxable in the DRC on the basis of the income generated by their fixed or permanent establishment in the country.
The Finance Act supplements this article by providing that legal and natural persons established fixedly or permanently in the DRC are those:
- that possess a physical installation in the country such as a mine, an oil or gas well, a quarry or any other site of extraction and exploitation of natural resources;
- provide services, including consulting services, by the means of employees or other persons if the activities are conducted for a period of six month or several periods amounting to six month during a one year period.
Furthermore, the Finance Act implements articles 69 bis, 69 ter A et 69 ter B to the Ordinance, providing that:
Article 69 bis: "Where a person, other than an agent with self-employed status, acts on behalf of a foreign enterprise, the latter shall be deemed to have a permanent establishment in the Democratic Republic of the Congo for all activities carried out by that person for that enterprise if that person:
(a) Has powers in the Democratic Republic of the Congo, which it usually exercises in order to conclude contracts on behalf of the company;
(b) Not having this power, it usually retains in the Democratic Republic a stock of goods on which it regularly stores goods for delivery on behalf of the foreign company.
Article 69 ter A:"An insurance company of a foreign State shall be regarded, except in the case of reinsurance, as having a permanent or fixed establishment in the Democratic Republic of the Congo if it collects premiums in the territory of the Democratic Republic of the Congo or insures risks incurred there through a person other than an agent who is an independent agent to whom Article 69 ter B applies."
Article 69 ter B:"An enterprise of a foreign State shall not be considered as having a permanent or fixed establishment in the Democratic Republic of the Congo solely because it carries on its activity in the Democratic Republic of the Congo through a broker, a general commissionaire that these persons act in the ordinary course of their activity. However, where the activities of such an agent are carried out exclusively or almost exclusively on behalf of that company and conditions are agreed or imposed between that company and the agent in their commercial and financial relations which are different from those which might have been established between two independent companies, he shall not be regarded as an agent with independent status within the meaning of this Article."
2. Introduction of the value-added tax-free purchasing mechanism
The Finance Act introduced an Article 23bis to the Ordinance n° 10/001 of 20 August 2010 on the introduction of Value Added Tax, as amended and supplemented to date. Under this provision, exporting companies, production oil companies and companies which have made major investments in their start-up phase are allowed, in respect of their local acquisitions, to have their goods and services supplied free of value added tax for their operating and investment needs.
In order to benefit from these provisions, the companies concerned will have to submit to their suppliers a certificate certified by the tax administration department to which they belong certifying that the goods and services purchased free of value added tax are intended, as is or after processing, for their operating and investment needs.
The detailed rules for the application of the procedure for purchasing free of value added tax shall be laid down by order of the Minister of Finance.
3. Amendment to the "tax-base and collection penalties" and their calculation basis
3.1. Amendment to the "tax-base and collection penalties"
Prior to the Finance Act, base penalties were imposed for failure to report within legal deadlines, incorrect, incomplete or false statements.
On the other hand, collection penalties were penalties for late payment of taxes and other duties due.
Under the Finance Act, base penalties will include interest for delay and surcharges. Interest on for delay means interest which is intended to make good the damage suffered by the Treasury as a result of the delay in the payment of taxes and other duties due. As far as surcharges are concerned, these penalties shall be imposed for failure to make declarations within the legal time limits, for inaccurate, incomplete or false declarations.
In the case of collection penalties, these will include any surcharges that apply in the event of default, inadequacy or delay in the timely payment of taxes and other duties declared or levied.
In our opinion, the concept of base and recovery penalties as defined in the Finance Act would lead to a double penalty on the taxpayer's part, since the definition of interest for delay is very similar to collection penalties.
It is therefore necessary that this anomaly can be rectified very quickly by the legislator.
3.2. Modification of the penalties calculation basis
3.2.1. Base penalties
Prior to the Finance Act, base penalties were based on the amount of tax due, evaded, reconstituted or fixed in a lump sum by law or under the law.
With the Finance Act, the surcharges and interest on arrears applied in the preparation of tax supplements or ex officio taxation will be based on the amount of tax due, evaded, reconstituted or fixed in a lump sum by law or by virtue of the law.
3.2.2. Recovery penalties
Prior to the Finance Act, the basis for calculating recovery penalties was only the amount of the principal amount of fees evaded, reconstituted or fixed in a lump sum by law.
In addition, in the event of late payment of a notice of assessment, recovery penalties were calculated on the basis of the amount of duties and base penalties. With the Finance Act, in the event of default, insufficient or delayed payment of taxes and other duties declared or levied, the surcharges are calculated on the basis of the amount of duties declared or levied.
4. Abolition of the payment of disputed tax in connection with the admissibility of a judicial remedy
Paragraph 2 of Article 108 of Law n° 004/2003 of 13 March 2003 on the reform of tax procedures provided that, in order for the appeal in tax matters to be admissible before the Administrative Court of Appeal, the taxpayer was required to pay the amount of the tax contested in respect of the principal.
This provision has been widely criticized by taxpayers as an obstacle to the principle of free access to justice.
With The Finance Act, the taxpayer can, without justifying any payment, appeal to the Administrative Court of Appeal against a tax imposed by the tax administration.
5. Reduction of the rate on deferment of recovery in tax matters
Article 110 of Law No. 004/2003 of 13 March 2003 on the reform of tax procedures provided that, when a disputed claim was lodged, the taxpayer could benefit from the suspension of collection of the disputed tax and the related penalties, provided that he paid an amount at least equal to one fifth of the disputed tax supplement.
With the Finance Act, the taxpayer will now have to pay an amount equal to one-tenth of the disputed tax supplement.
6. Reduction in the rate of default interest on non-tax revenue collection
Article 53 of Ordinance No. 13/003 reforming the procedures for assessment, control and collection of non-tax revenue provided that the application of default interest of 4% per month of default on the amount due was to be applied.
With the Finance Act, the taxpayer will now have to pay default interest of 2% per month of delay.
7. Reduction of the rate on suspension of recovery in parafiscal matters
Article 62 (2) of Ordinance No. 13/003 of 23 February 2013 reforming procedures relating to the assessment base, control and methods of collecting non-tax revenue stipulated that the taxpayer could benefit from a stay of recovery of the disputed rights provided that he paid at least one third of the tax.
With the Finance Act, the taxpayer will now have to pay at least 10% of the disputed amounts.