Dakar GMT
EY
+221 (33) 849-2222 22, rue Ramez Bourgi
Fax: +221 (33) 823-8032 B.P. 2085
Dakar Senegal
Principal Tax Contacts
Alexis Moutome
+221 (33) 849-2232
Email: alexis.moutome1@sn.ey.com
Olga Akakpovi +221 (33) 849-2213
olga.akakpovi@sn.ey.com
A. At a glance
Corporate Income Tax Rate (%) 30 (a)
Capital Gains Tax Rate (%) 30 (b)
Branch Tax Rate (%) 30 (a)
Withholding Tax (%)
Dividends and Nondeductible Expenses 10 (c)(d)
Directors’ Fees 16
Interest 6/8/13/16/20 (d)(e)
Royalties from Patents, Know-how, etc. 20
Payments to Nonresidents for Services 20 (d)(f)
Payments to Resident Individuals for Services 5
Branch Remittance Tax 10 (d)
Net Operating Losses (Years)
Carryback 0 Carryforward 3
(a) If the company does not derive a taxable profit in a given year, the minimum tax applies. The minimum tax equals 0.5% of the turnover for the preceding tax year. For example, the minimum tax payable in 2020 is determined based on the annual turnover of 2019. The minimum tax may not be more than XOF5 million. Under the 2020 Finance Law No. 2019-17 dated 20 December 2019, news companies not registered with the tax directorate for large-size companies are not subject to the payment of the minimum tax during their first three years of activities, while large-size companies are only exempted for one year.
(b) In certain circumstances the tax is deferred or reduced (see Section B). (c) See Section B for special rules applicable to certain dividends. See Section C for a list of nondeductible expenses. (d) This rate may be modified by a tax treaty. See Section B. (e) The 6% rate applies to interest on long-term (that is, a duration of at least five years) bonds. The 8% rate applies to bank interest. The 13% rate applies to interest on short-term bonds. The 20% rate applies to interest on deposit receipts. The 16% rate applies to other interest payments. (f) This tax applies to technical assistance fees and other types of remuneration paid to nonresident companies and nonresident individuals that do not have a permanent establishment in Senegal. The tax is calculated by applying a rate of 25% to a base of 80% of the remuneration that is paid.
B. Taxes on corporate income and gains
Corporate income tax. Senegalese companies are taxed on the basis of the territoriality principle. As a result, companies carry ing on a trade or business outside Senegal are not taxed in Senegal
on the related profits. Foreign companies developing activities in Senegal are subject to Senegalese corporate tax on Senegalesesource profits only.
Tax rates. The corporate income tax rate is 30%. The minimum tax (impôt minimum forfaitaire, or IMF) payable equals 0.5% of the turnover for the preceding tax year. The minimum tax cannot exceed XOF5 million.
Capital gains. Capital gains are generally taxed at the regular corporate tax rate. However, the tax can be deferred if the pro ceeds are used by a taxable company to acquire new fixed assets (other than financial immobilizations; this concept was intro duced in a tax law, dated 30 March 2018) for its companies based in Senegal within three years or in the event of a merger (or similar corporate restructurings, such as a transfer of a business unit or a demerger).
If the business is partially transferred or discontinued or if the company’s fixed assets are sold at the end of its operation, only one-half of the net capital gain is taxed if the event occurs less than five years after the startup or purchase of the business, and only one-third of the gain is taxed if the event occurs five years or more after the business was begun or purchased. This regime does not apply to a transfer of shares in an unlisted predominant real estate company. A company is considered a predominant real estate company if more than 50% of its assets consist of real estate.
Capital gains on sales or transfers of immovable property are also subject to land tax (see Section D). Rights relating to mining or hydrocarbon titles are considered immovable property. Such tax can be viewed as a corporate income tax prepayment because it can be claimed on the corporate income tax return as a deductible expense.
Administration. The tax year is the calendar year. Companies must file their tax returns by 30 April of the year following the tax year.
Corporate tax must be paid in two installments (each equal to onethird of the preceding year’s tax) by 15 February and 30 April. The 15 February installment may not be less than the amount of the minimum tax. The balance must be paid by 15 June.
Late payments are subject to interest at a rate of 5% of the tax due. Each additional month of delay results in additional interest of 0.5%.
Dividends paid. Dividends paid are subject to a 10% withholding tax.
Dividends distributed by a Senegalese parent company that consist of dividends received from a Senegalese subsidiary that is at least 10% owned are not subject to dividend withholding tax on the second distribution.
Unless otherwise stipulated in a double tax treaty, the profits realized in Senegal by branches of foreign companies that have not been reinvested in Senegal are deemed to be distributed and are accordingly subject to a 10% withholding tax.
Foreign tax relief. In general, foreign tax credits are not allowed; income subject to foreign tax that is not exempt from Senegalese tax under the territoriality principle is taxable net of the foreign tax. However, the tax treaty with France provides a tax credit for French tax paid on dividends.
C. Determination of taxable income
General. Taxable income is based on financial statements pre pared according to generally accepted accounting principles and the rules contained in the Accounting Plan of the Organization for the Harmonisation of Business Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires, or OHADA).
Business expenses are generally deductible unless specifically excluded by law. The following expenses are partially deductible or nondeductible:
• Foreign head-office expenses, based on the proportion of Senegal turnover to global turnover, of which the deduction is limited to 20% of Senegalese accounting profits before deduc tion of foreign head-office expenses (unless otherwise provided for by tax treaties).
• The following nondeductible amounts of interest:
— The amount of interest paid to shareholders in excess of three percentage points above a standard annual rate set by the central bank
— The amount of interest on loans in excess of 1.5 of the capi tal stock amount
— The amount of interest on loans in excess of 1.5 of the capi tal stock amount if it simultaneously exceeds 15% of the profits derived from ordinary activities increased by the interest, depreciation and accruals taken into consideration for the determination of such profits
The above provisions were introduced into the Senegalese tax code by Law No. 2018-10, dated 30 March 2018, and apply to the tax year beginning on 1 January 2018 and ending on 31 December 2018 and to future tax years.
• Certain specific charges over specified limits.
• Certain taxes, penalties and gifts.
Inventories. Inventory is normally valued at the lower of cost or market value.
Provisions. In determining accounting profit, companies must establish certain provisions, such as a provision for a risk of loss or for certain expenses. These provisions are normally deductible for tax purposes if they are related to clearly specified losses or to expenses that are probably going to be incurred and if they appear in the financial statements and in a specific statement in the tax return.
Participation exemption. A parent company may exclude from its tax base for corporate income tax purposes 95% of the gross dividends received from a subsidiary if all of the following condi tions are met:
• The parent company and the subsidiary are either joint stock companies or limited liability companies.
• The parent company has its registered office in Senegal and is subject to corporate income tax.
• The parent company holds at least 10% of the shares of the subsidiary.
• The shares of the subsidiary are subscribed to or allocated when the subsidiary is created, and they are registered in the name of the parent company or, alternatively, the parent company com mits to holding the shares for two consecutive years in registered form. The letter containing such commitment must be annexed to the corporate income tax return.
The above participation exemption regime is extended to Senegalese holding companies incorporated in the form of joint stock companies or limited liability companies meeting the conditions mentioned above.
Tax depreciation. Land and intangible assets, such as goodwill, are not depreciable for tax purposes. Other fixed assets may be depreciated. The straight-line method is generally allowed. The following are some of the applicable straight-line rates.
Asset Rate (%)
Commercial and industrial buildings 3 to 5 Office equipment 10 to 20 Motor vehicles 25 to 33
Plant and machinery 10 to 20
In certain circumstances, plant and machinery as well as other assets may be depreciated using the declining-balance method or an accelerated method.
Relief for tax losses. Losses may be carried forward three years; losses attributable to depreciation (deferred deemed amortization, which is amortization of assets reported during a loss year) may be carried forward indefinitely. Losses may not be carried back.
Groups of companies. No fiscal integration system equivalent to tax consolidation or fiscal unity exists in Senegal.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax; on goods sold and services used or rendered in Senegal
Standard rate 18 Rate for accommodation and catering services 10 Local Economic Contribution (LEC); replaces the former business license tax
LEC based on rental fees paid by the lessee 15 LEC based on the rental value of lands, installations, fittings and constructions included in the company’s assets; the rental value equals 7% of the gross value of such items 20
LEC based on the value added in the year preceding the tax year 1
Registration duties, on transfers of real property or businesses 1 to 5
Nature of tax Rate
Land tax, on capital gains resulting from sales or transfers of immovable properties
Payroll tax paid by the employer with respect to both Senegalese and foreign employees
Social security contributions
Paid monthly by the employer on each employee’s monthly gross salary, up to XOF63,000 1/3/5
Regular pension, paid monthly on each employee’s monthly gross salary, up to XOF432,000; paid by
Employer
Additional pension, paid monthly on an executive’s monthly gross salary, up to XOF1,296,000; paid by
Employer
E. Miscellaneous matters
Foreign-exchange controls. Exchange-control regulations exist in Senegal for financial transfers outside the West African Economic and Monetary Union (WAEMU). The exchange-control regula tions are contained in the WAEMU 09/2010 CM Act, together with its appendices and the Central Bank of West African States (La Banque Centrale des Etats de l’Afrique de l’Ouest, or BCEAO) application decrees.
Transfer pricing. The Senegalese tax law contains specific transferpricing documentation requirements. Transactions between asso ciated enterprises must be documented. Such documentation must include at a minimum a description of the terms of the transactions, the entities involved, a functional analysis and a detailed description of the chosen methodology to determine the applied transfer prices. The documentation must establish how transfer prices were determined and whether the terms of the in tercompany transactions would have been adopted if the parties were unrelated. If such information is not available on request in an audit or a litigation, the tax authorities may assess the taxable income based on information at their disposal. The concerned companies do not have to automatically file the transfer-pricing documentation. They must make it available to the National Directorate of Taxes and Domains (Direction Générale des Impôts et Domaines), which is empowered to request such docu mentation within the framework of an accounts examination procedure (field audit of the company). Failure to provide such documentation triggers a penalty of 0.5% of the value of transac tions for which supporting documentation has not been provided to the National Directorate of Taxes and Domains or completed on its request.
The 2018 tax reform implemented the following two new transfer-pricing reporting obligations:
• Transfer pricing annual report
• Country-by-Country Report (CbCR)
Transfer pricing annual report. Companies meeting the conditions listed below should file by 30 April of the year following the tax year a transfer-pricing report containing general and
specific information on the group of companies and the reporting entity, such as the following:
• Transaction values
• General description of the activities
• General description of the transfer-pricing policy of the group
• Information on loans, borrowings and other transactions real ized with related entities
The filing is mandatory for entities meeting one of the following conditions:
• Turnover, excluding taxes or gross assets, equal to XOF5 bil lion or more
• Holding, at the end of the tax year, directly or indirectly, more than half of the share capital or voting rights of a company, located in Senegal or abroad, that generates turnover, excluding taxes, or holds gross assets equal to XOF5 billion or more
• More than half of its share capital or voting rights is held by a company generating turnover, excluding taxes, or holds gross assets equal to XOF5 billion or more
Failure to submit the transfer-pricing report triggers a fiscal fine of XOF10 million.
CBCR. Multinational enterprises (MNEs) meeting the reporting conditions must electronically submit a CbCR. Under the regula tion, all Senegal tax resident constituent entities that are Ultimate Parent Entities (UPEs) of an MNE group with annual consoli dated group revenue equal to or exceeding XOF491 billion (ap proximately EUR750 million) must prepare a CbCR for tax years starting on or after 1 January 2018.
Any other constituent entity of the MNE group that is tax resi dent in Senegal must prepare and submit the CbCR if the UPE is not resident in Senegal and if any of the following conditions are met:
• The Senegalese tax resident company has been elected by the MNE group to file a CbCR and has informed the Senegalese tax administration.
• The Senegalese tax resident company fails to provide evidence that another company of the MNE group (based in Senegal, in a country that has implemented a similar CbCR requirement or in a jurisdiction that has concluded with Senegal a qualified exchange of information instrument) has been designated for purposes of filing the CbCR.
• Senegal has been notified regarding a systematic failure to exchange the information.
Notwithstanding the above, a consistent entity in Senegal is not required to file a CbCR if a Surrogate Parent Entity (SPE) is ap pointed in Senegal or in another jurisdiction that has entered into a qualifying information exchange instrument with Senegal for purposes of filing the CbCR.
A failure to comply with the CbCR rules is punishable by a fine of XOF25 million (approximately USD27,700).
As of now, the application of the above-mentioned CbCR re quirements remain uncertain due to the lack of publication of the ministerial decree that provides the list of countries that have
adopted similar CbCR regulations and have an active tax infor mation exchange agreement with Senegal.
F. Treaty withholding tax rates
Senegal has entered into a multilateral tax treaty with the other member states of the WAEMU, which are Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. The principal provisions of this tax treaty took effect on 1 January 2010. Senegal has entered into bilateral tax treaties with Belgium, Canada, France, Italy, Luxembourg, Mauritania, Morocco, Norway, Portugal, Qatar, Spain, Tunisia, the United Arab Emirates and the United Kingdom.
The Senegal-Mauritius double tax treaty has been denounced by the Senegalese government, and its provisions are no longer applicable.
The rates reflect the lower of the treaty rate and the rate under domestic tax law.
Dividends Interest Royalties
%
% %
Belgium 10 16 10
Benin 10 15 15
Bissau Guinea 10 15 15
Burkina Faso 10 15 15 Canada 10 16/20 (a) 15 Congo 10 16 0 Côte d’Ivoire 10 15 15
France 10 15 15
Gabon 10 16 0 Italy 10 15 15
Luxembourg 5/15 (b) 10 6/10 (c) Mali 10 15 15 Mauritania 10 16 0 Morocco 10 10 10
Niger 10 15 15 Norway 10 16 16 Portugal 5/10 (d) 10 10 Qatar 0 0 0
Spain 10 10 10 Togo 10 15 15 Tunisia 10 16 0
United Arab Emirates 5 5 5
United Kingdom 5/8/10 (d) 10 6/10 (c) Non-treaty jurisdictions 10 6/8/13/16/20 (e) 20
(a) The 20% rate applies to interest on deposit receipts. The 16% rate applies to other interest payments.
(b) The 5% rate applies if the beneficial owner of the dividends is a company that holds at least 20% of the share capital of the distributing company. The 10% rate applies to other dividends.
(c) The 6% rate applies to royalties paid for the use of industrial, commercial and scientific equipment. The 10% rate applies to other royalties.
(d) The 5% rate applies if the real beneficiary of the dividends is a company that holds at least 25% of the share capital of the distributing company. Under the United Kingdom treaty, the 8% rate applies if the beneficiary is a pension fund located in the other state. The 10% rate applies to other dividends.
(e) For details, see footnote (e) to Section A.
Senegal has signed tax treaties with China Mainland, Iran, Kuwait, Lebanon, Malaysia and Taiwan, but these treaties have not yet been ratified.