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
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.
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