On 24 September 2012 the Democratic Republic of the Congo (DRC)
published some amendments to its tax legislation. The amendments,
some of which came into effect on 24 September 2012 with others to
become applicable from 1 January 2012, provide good and bad news
for South Africans investing up north.
The good news is that the general corporate income tax rate of 40% applied to a DRC-incorporated company, subsidiary or branch of a foreign company has been reduced to 35% (applicable to the 2013 fiscal year in the DRC).
The bad news, however, is a major legislative change which introduces a new withholding tax of 14% on service fees. This withholding tax applies to payments for any type of services made by an individual or company in the DRC to a foreign natural or corporate person not having a presence in the DRC.
Some further good news is that, finally, on 24 October 2012, the Double Tax Agreement (DTA) between South Africa and the DRC for the avoidance of double tax, was published in the Government Gazette. South Africa is only the second country to have signed a double tax treaty with the DRC, Belgium being the first.
The treaty came into force on 18 July 2012, and is applicable to:
- withholding taxes on amounts paid or credited on or after 1 January 2013; and
- other taxes, levied in respect of taxable periods beginning on or after 1 January 2013.
The DTA provides substantial benefits to South African
businesses investing in the DRC: it reduces the 20% withholding tax
on dividends and interest from the DRC to South Africa to 5% (for
at least 25% held shareholdings) and 10% respectively.
Furthermore, the DTA, which is based on the OECD Model Convention, should also protect South African recipients of fee income from the newly introduced 14% withholding tax. However, it will remain to be seen whether in practice the DRC authorities, will correctly apply the DTA to the service fee income, since it is well known that many African countries are not willing to reduce their withholding tax on fees, even if the DTA requires them to do so.
Some bad news to end with: the amendments to the DRC's tax legislation published on 24 September 2012 include an amendment to the procedural rules for an appeal against a tax assessment with the courts. The admissibility of such appeal has been made subject to the payment in full of the principal amount of the contested taxation. The introduction of this "pay now, argue later rule" further strengthens the position of the DRC tax authorities and should incite caution for companies with activities in the DRC.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.