CONSUMPTION, MAJOR TRENDS IN THE 2020 COST OF LIVING

• For a new commercial enterprise, the planned investment must entail the creation of a new activity and not be the result of any legal amendments to an entity that has already used assets for a targeted activity and whose acquisition is included in the program that is being submitted for approval.

The fiscal benefits are granted for the investment implementation and operations phases. During the implementation phase, for three years the new company will be granted customs benefits that include exemption from import duties on equipment and materials that are not produced or manufactured in Senegal and that are specifically allocated to the production or the operations of the approved program. The terms and conditions for tax exemptions for spare parts and passenger vehicles, if they are part of the approved program, and commercial vehicles will be set out in a decree. During the operational phase, companies that make investments – through company creation or expansion, – in eligible sectors in an amount equal to or higher than 100 million FCFA are eligible for tax credits equal to 40% of the investments, but not to exceed 50% of the new company’s taxable profits. Tax credits can be spread over 5 financial years starting with the year following the termination of the investment program or for 10 financial years for investments that exceed 250 million FCFA.

These regimes are especially applicable to “remote services” companies, (mainly functional or real-time services, or software programs) that can be provided, used or consumed outside of the immediate production area, e.g. new companies that are eligible for the Investment Code benefits are exempt from the Contribution forfaitaire à la charge des employeurs (CFCE Flat-rate employer contribution) for 5 years. If the approved investment program creates more than 200 jobs, or if at least 90% of the jobs created are located outside the Dakar region, this exemption is extended to 8 years. Companies that carry out investments extension programs are also exempt from the CFCE for a period of 5 years. If the approved investment program creates more than 100 additional jobs, or if at least 90% of the jobs created are located outside the Dakar region, this exemption is extended to 8 years.

AN INCENTIVIZING FISCAL SYSTEM FOR COMMERCIAL ENTERPRISES IN THE FREE ZONE

The status of Entreprise franche d’exportation (Export Free Enterprise) is granted to industrial, agricultural or remote-services enterprises established in the Senegalese customs zone if all of the goods or services they produce are for the export market. This status is also granted to enterprises that can demonstrate an export potential of at least 80% of their turnover. Such firms are exempt from: • Income tax on securities (IRVM Impôt sur le

Revenu des Valeurs Mobilières) levied by the company on dividends paid; • Any tax based on the salaries paid by the company out of company funds, in particular the employers’ flat-rate contribution; • Registration and stamp duties, in particular those levied at the time of the company’s creation or the amendment of the company’s

Articles of Association; • Contribution économique locale (CEL) (Local

Economic Contribution i.e. property contribution and value added contribution, formerly business license tax), land taxes on built and non-built real estate, and license taxes.

Lastly, for these companies, taxes are levied on 50% of the taxable profits, in other words, the corporate income tax rate is 15%. Financial transfers abroad are more strictly controlled as part of the fight against tax evasion. Payment by Senegalese companies to companies located outside of Senegal are subject to a 10% withholding tax on dividends, 16% on interest payments and 20% on fees and payments for services, except if the rates are capped in a tax treaty.

Law 2018-10 of 30 March 2018 amending certain provisions of the General Tax Code introduces a new tax regimen for international transactions to fit in with the OECD BEPS (Base Erosion and Profit Shifting) project designed to fight erosion of the tax base and all other forms of profit shifting.

THE HIGH STAKES OF TRANSFER PRICES

The OECD defines transfer prices as “the prices at which an enterprise transfers tangible property and intangible property or provides services to associated enterprises”. These are the prices at which goods and services are traded between companies belonging to the same group but established in different countries. The problem of transfer prices is that groups of companies set their own prices and therefore can make optimal tax choices that directly affect the tax base of the companies involved in these transactions. In response, Article 17 of the General Tax Code stipulates that, (NdTr unofficial translation) “to determine the corporate tax rate for a company that is dependent on or controls companies located outside of Senegal, profits indirectly transferred to such a company by increasing or decreasing the purchasing or sales price, by under-capitalization or by other means will be included in the results reported in the accounts. The same applies to companies accountable to a company or a group of companies that control a company located outside of Senegal”.

Businesses must keep documents on transfer prices. The legal entity established in Senegal must be able to provide the government tax authorities with documentation that justifies their pricing policy for transactions of all types carried out with associated companies established abroad. This obligation applies to all legal entities that have an annual turnover figure (excluding taxes) equal to or greater than 5 billion FCFA or that directly or indirectly own more than 50% of the capital or voting rights of a company whose annual turnover (excluding taxes) exceeds 5 billion FCFA, or a company with over 50% of the capital or 50% of the voting rights owned by a company whose pre-tax annual turnover figures (excluding taxes) exceeds 5 billion FCFA. Sanctions are applicable to indirect transfer of gains. With regard to the corporate income tax, except in the case of a deficit, excessive expenses or additional income reincorporated in the income statement will be subject to a 30% corporate income tax.

Regarding income tax on investment (IRCM Impôt sur le Revenu de Capitaux Mobilier), profit indirectly transferred in connection to the transfer price is treated like distributed dividends. All such transferred sums shall be subject to income tax on securities (IRVM, Impôt sur les Revenus des Valeurs Mobilières). Regarding the value added tax, VAT is applied in case of insufficient revenue from services rendered and operations that are carried out in Senegal but charged to a company that is controlled and located abroad. The transfer price formality is not difficult to understand, but applying it is still a major challenge. This is the case in sectors where there are constant changes and hence where it is necessary to constantly factor in the goods and services (IT and data) or in proposed oil and gas operations, which in the near future will actually be integrating reports from groups of rather complex companies. One can expect legal and of course financial problems in working out the results, especially on questions related to the transfer of goods and services. Then add the special problem of the new figures introduced into the working base in order to calculate the transfer price in markets that are as unstable as the energy sector. The new petroleum code, thus, could be challenged because of optimization practices (whose legality, however, is not seriously questioned) that could affect the principles of the contract-based approach and hence fiscal equity.