DRC Corporate Tax Guide

Congo, Democratic Republic of

Kinshasa/Lubumbashi

EY

Boulevard du 30 juin

2nd Immeuble Onze Treize

Local B

Kinshasa – Gombe Democratic Republic of Congo

EY

Croisement Chausée Laurent Désiré

Kabila et Avenue Lomami Lubumbashi – Haut Katanga Democratic Republic of Congo

Principal Tax Contact

999-30-68-68

A. At a glance

Corporate Income Tax Rate (%) 30 (a)

Capital Gains Tax Rate (%) 30

Special Capital Gains Tax Rate for Mining Companies 30 (b) Branch Tax Rate (%) 30

Withholding Tax (%) (b)

Dividends 20 (c)

20 (d)

20 (e)

14 (f)

Net Operating Losses (Years)

Carryforward Unlimited (g)

(a) The corporate income tax rate is 30% for all companies registered in the Democratic Republic of Congo (DRC).

(b) See Section B.

(c) The rate of dividend withholding tax for mining companies is 10%. A divi dend withholding tax applies to branches. The rates of this tax are 8% for public limited liability companies and 10% for other limited liability compa nies.

(d) Under the amended Mining Code, dated 9 March 2018, interest on loans abroad to mining companies is not subject to withholding tax if the following conditions are satisfied:

• The loan is exclusively used for the mining project.

• The interest rates and other borrowing terms for carrying out the projects are established in accordance with the arm’s-length principle.

(e) The net amount of royalties is subject to tax. For this purpose, net royalties equal gross royalties minus professional expenses, or 30% of gross royalties (resulting in an effective tax rate of 14%).

(f) This withholding tax applies to payments for services provided to Congolese companies by foreign companies and individuals without a permanent estab lishment in the DRC. The tax base is the gross amount of the applicable invoice.

(g) Under the amended Mining Code, dated 9 March 2018, the carryforward period for mining companies is limited to five years following the year of the loss.

B. Taxes on corporate income and gains

Corporate income tax. Congolese companies are taxed on the territoriality principle. As a result, companies carrying on a trade or business outside the Democratic Republic of Congo (DRC) are not taxed in the DRC on the related profits. Congolese compa nies are those registered in the DRC, regardless of the nationality of the shareholders or where the company is managed and con trolled. Foreign companies (for example, branches) engaged in activities in the DRC are subject to Congolese corporate tax on Congolese-source profits only.

A company is considered to have a permanent establishment in the DRC if it satisfies either of the following conditions:

• It has a fixed place of business in the DRC, including an effective place of management, branch, office, factory, plant, work shop, agency, store, offices, laboratory, buying and selling counter, warehouse, real estate property under rental agree ment, a mine, an oil or gas well, a quarry or any other place of exploitation and extraction of natural resources or any other fixed or permanent place of business, or in absence of a fixed place of business, it carries out a professional activity directly, under its own name, during a period of at least six months.

• It provides services, including advisory services, through employees or other individuals engaged by a company for that purpose, and the activities of this nature continue for a period or periods that represent a total of more than 6 months within any 12-month period.

The 2018 Finance Law further provides that foreign companies are taxable on the benefits that they realize through their perma nent establishment in the DRC. It further states that “when a person other than an agent with an independent status acts on behalf of a foreign company, that person is considered as having a permanent or fixed establishment in the DRC for all activities that this person carries out for this company, if the said person:

• has power in the DRC, which he usually exercises to allow it to enter into contracts on behalf of that company;

• does not have such power, he usually keeps in the DRC a regu lar stock of goods for delivery on behalf of the foreign com pany.”

Rates of corporate tax. The regular corporate income tax rate is 30%.

The minimum tax payable is 1% of the annual turnover for larger corporations.

For small corporations with annual revenues of less than CDF10 million, the corporate income tax is set at CDF30,000. For average-sized corporations with annual revenues between CDF10 million and CDF80 million, the corporate income tax rate is 1% of the annual revenue for sales of goods and 2% for the provision of services.

Capital gains. Increases resulting from capital gains and deprecia tion that are realized and either realized or expressed in the accounts or inventories are included in profits and are subject to tax at a rate of 30%.

Increases resulting from unrealized capital gains that are expressed in the accounts or inventories and that are not treated as profits are not yet taxable. This rule applies only if the taxpayer holds a regular accounting and if it fulfills its declarative obligations.

Increases resulting from realized capital gains on buildings, tools, materials and movable assets (regardless of whether they result from rent payments), as well as on participations and portfolios, are taxable to the extent that the sales price exceeds the acquisi tion price or cost. A deduction is made from the amount of the depreciation that has already been claimed for tax purposes.

Special tax on capital gains for mining companies. Law No. 007/ 2002 of 11 July 2002 on Mining Code and Decree No. 038/2003 of 26 March 2003 regarding the Mining Regulations, as amended and completed to date, introduced a special tax at a rate of 30% on capital gains from the sale of shares (Article 253 bis of the Mining Code and Article 529 bis of the Mining Regulations). Ministerial Order No. CAB/MIN/FINANCES/2020/021 of 3 December 2020 set out the terms of calculation, filing and set tlement of the special tax on capital gains from the sale of shares.

Administration. The fiscal year extends from 1 January to 31 December. Tax returns must be filed by 30 April.

Corporate tax must be paid in four installments before 1 June, 1 August, 1 October and 1 December. Each installment must equal 20% of the preceding year’s tax (increased by any tax reas sessment received by the tax office during the current year). The balance of tax due must be paid by the following 30 April.

A penalty of 2% per month is assessed for late payment of tax. Tax is fixed automatically if a tax return is not filed.

Dividends. In principle, dividends paid are subject to a 20% with holding tax. The rate of dividend withholding tax for mining companies is 10%. A dividend withholding tax applies to branches. The rates of this tax are 8% for public limited liability com panies and 10% for other limited liability companies.

Foreign tax relief. In general, foreign tax credits are not allowed. Income subject to foreign tax that is not exempt from Congolese tax under the territoriality principle is taxable.

C. Determination of trading income

General. Taxable income is based on financial statements pre pared in accordance with principles set by the Organization for the Harmonization of Business Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires, or OHADA) Accounting Act, except for banks and insurance companies. The net amount of income is taxed. This amount equals gross income minus business expenses incurred during the tax year to acquire and retain the income. Business expenses are generally deductible unless specifically excluded by law. The following expenses are not deductible:

• Head office, remuneration or management fees for services paid to nonresidents that are not justified

• Head office overhead or remuneration for certain services (studies and technical assistance) paid to nonresidents

• Expenditure of a personal nature, such as maintenance of household, appraisal fees, holidays and other expenses not necessary for the profession

• Corporate income tax, as well as real tax (tax on movable assets, tax on vehicles or tax on mining concessions), to the extent that the real tax does not constitute an operating expense

• All judicial or administrative fines, and fees and charges relat ing to breaches by income beneficiaries

• Certain specific charges, gifts, subsidies and penalties

• Directors’ fees allocated under the Corporations Act to mem bers of the General Council

• Expenditures on leased property, including depreciation of the property

• Provisions for losses, expenses or depreciation of assets, excluding provisions for the recovery of mineral deposits and provisions for the recovery of bank capital

• Commissions and brokerage fees if it cannot be proven that the tax on turnover (see Section D) has been paid for these items

• Most liberalities (payments that do not produce a compensatory benefit, such as excessive remuneration paid to a director)

Inventories. Inventories are normally valued at their historical cost or acquisition cost.

Provisions. In determining accounting profit, companies must implement certain provisions, such as a provision for risk of loss or for certain expenses. These provisions are not deductible for tax purposes. However, provisions for recovery of bank capital and provisions for the recovery of the mineral deposit are deduct ible for tax purposes.

Tax depreciation. Land and intangible assets, such as goodwill, are not depreciable for tax purposes. Other fixed assets may be depreciated using the straight-line method at rates specified by tax law. The following are some of the specified annual rates.

Asset Rate (%)

Buildings 2 to 5

Office equipment 10

Motor vehicles 20 to 25

Plant and machinery 10

Companies can also opt for a regressive method for tax deprecia tion of specific assets with an annual rate of two to three times the straight-line rate.

Relief for tax losses. Tax losses incurred in a tax year may be car ried forward indefinitely. However, the deduction of the available tax losses is capped at 60% of the annual taxable income.

Under the amended Mining Code, dated 9 March 2018, the car ryforward period for mining companies is limited to five years following the year of the loss.

Groups of companies. The DRC does not have a fiscal integration system equivalent to a consolidated filing position.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

Value-added tax

Standard rate 16 Reduced rate 8

Payroll taxes

Annual income not exceeding CDF43,200,000; progressive rates 3 to 40 Annual income exceeding CDF43,200,000; flat rate 30

Exceptional income tax for expatriates (IERE) Mining companies; Article 244 bis of Law No. 18/001 of 9 March 2018, which reformed the Mining Code, increases the exceptional income tax rate to 12.5% for the first 10 years of the project and provides for the common rate of 25% for the following years 12.5 Other companies 25

Social Security National Institute (Caisse national de sécurité sociale, or CNSS) contributions; payable monthly Employers 13 Employees 5

National Institute for Professional Preparation (Institut national de préparation professionnelle, or INPP); payable monthly by employers 1 to 3 National Agency for Labor (Office National de l’Emploi or ONEM); payable monthly by employers 0.2

E. Miscellaneous matters

Foreign-exchange controls. The currency in the DRC is the Congolese franc (CDF). The exchange rate is variable.

In the DRC, the Central Bank of Congo regulates foreignexchange controls. It also supervises the regulation on the trans fer of currency. Cash transfers from or into the DRC are not subject to restrictions if they do not exceed the equivalent of USD10,000. An exchange control fee of 0.2% is levied on pay ments to or from abroad.

Debt-to-equity rules. The DRC does not have any thin-capitalization rules, but several measures may apply to related-party transac tions (see Transfer pricing).

Transfer pricing. The DRC has several measures applicable to related-party transactions that are not conducted on an arm’slength basis.

These provisions include the disallowance of loan interest with respect to rates exceeding the annual average of the effective rates charged by the credit institutions of the country in which the lending company is established and the repayment of principal beyond five years.

Management fees paid to a related party may be deducted from the corporate income tax base if the following conditions are satisfied:

• The services rendered can be clearly identified (that is, they are genuine services that are effectively rendered and directly re lated to operating activities).

• The services cannot be rendered by a local company (that is, overhead expenses recharged to the local entity are excluded).

• The amount paid for the services corresponds to the remuneration paid in identical transactions between independent compa nies.

These arm’s-length requirements are consistent with those set forth in the Mining Code.

The 2015 Finance Law introduced transfer-pricing documenta tion requirements. As a result, companies must put at the disposal of the tax administration during a tax audit, general and specific information on an affiliated group of companies (Master File and Local File), including the following:

• General description of the deployed activity, including changes that occurred during the year

• A general description of the legal or operational structures of the affiliated group of companies, including identification of the related companies engaged in transactions involving the com pany established in the DRC (local company)

• A general description of the function performed and risk as sumed by the affiliated companies as soon as they affect the local company

• A list of the main intangible assets owned, including patents, trademarks, trade names and know-how, relating to the local company

• A general description of the group’s transfer-pricing policy

• A description of transactions made with other affiliated compa nies, including the nature and amount of cash flows, such as royalties

• A listing of the cost-sharing agreement, copies of preliminary agreements related to transfer pricing that are concluded under the conditions of the regulation, and the prescription relating to the determination of transfer pricing, affecting the results of the local company

• Presentation of the method or methods for determining transfer pricing, in compliance with the arm’s-length principle, includ ing an analysis of the functions performed, assets used and risks assumed, and an explanation concerning the selection and ap plication of the methods used

• An analysis of comparative elements considered as relevant by the company if the selected method requires it

Under the 2019 Finance Law, the transfer-pricing documentation (a condensed version) must be filed with the tax administration within two months after the filing of the corporate income tax return.

In addition, the corporate income tax law disallows branches from deducting overhead charges incurred by the parent company and charged back to the branch.

F. Tax treaties

The DRC has entered into double tax treaties with Belgium and South Africa. The following are the withholding tax rates under the treaties.

Dividends Interest Royalties % % %

Belgium 10/15 (a) 10 10 South Africa 5/15 (b) 10 10 Non-treaty jurisdictions (c) 20 20 20

(a) The 10% rate applies if the Belgian recipient company was eligible under the Investment Code or another investment incentive and if it holds at least 25% of the capital of the payer. Otherwise, the rate is 15%.

(b) The 5% rate applies if the South African recipient company holds at least 25% of the capital of the payer. Otherwise, the rate is 15%.

(c) For further details, see Section A.