globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload | ||||||||||||||||||||||||||||
31 January 2018 Chad enacts 2018 Finance Law The 2018 Finance Law was adopted by the Chadian Parliament on 28 December 2017, and published by the President of the Republic on 30 December 2017. The Law is applicable as of 1 January 2018. This Alert summarizes the key changes in the Finance Law that may impact companies' daily operations. One of the main reforms introduced by the new Finance Law is related to personal income tax (PIT) on salaries paid by employers. The PIT on salary is levied under the Chadian tax system, by way of withholding. Thus, the employer has the responsibility to withhold the corresponding tax and to pay forth the same to the Public treasury by the 15th day of the month following the effective salary payment. The reform introduced by the new Finance Law is related to the withholding calculation base and rate. The new Finance Law has changed the calculation base of the PIT on salary. Indeed, in the former system, the PIT calculation base was the net salary, which corresponded to the gross salary paid to the relevant employee (including the benefits in kind not expressly exempted from tax), after deduction of: (i) the amount withheld in respect of employee share of social security contribution; (ii) 40% in respect of professional charges; and (iii) 4% in respect of the tax credit benefit. The matrimonial status of each employee, the annual net salary described above being determined per share, depending on the employee's family size (wives and children) also was taken into consideration. As from 1 January 2018, the net salary forming the PIT calculation base, corresponds to the gross salary after deduction of the amount withheld in respect of the employee's share of social security contribution. The 40% deduction in respect of professional charges, and 4% in respect of tax credit were eliminated and will no longer be applicable.
The 2018 Finance Law has introduced a new provision in the General Tax Code relating to expenses incurred for beneficiaries located in a non-cooperative tax jurisdiction. According to this provision, where the beneficiary of the amounts recorded as charges are located or established in a non-cooperative or privileged country or territory, the deduction of such sums shall not exceed 50% of their gross amount, without prejudice of other specific limitations. For the purposes of this limitation, non-cooperative countries or territories or with privileged taxation are: (i) the countries or territories included in the Organisation for Economic Co-operation and Development list of non-cooperative countries; and (ii) that have no agreement with the Republic of Chad providing for reciprocal exchange of information for tax purposes. It is important to note that there is no reference to non-cooperative tax jurisdictions in the former tax legislation. In the former tax legislation, intercompany loan interest paid to the head office (or parent company) located abroad was deductible taking into account these two requirements: (ii) The principal on which the interest is calculated should not be higher than half of the share capital of the company In the current system introduced by the new Finance Law, intercompany loan interest is integrated with the head office and technical assistance expenses. According to this new provision, the total of head office costs, technical assistance expenses, intercompany loan interest and related financial charges and other charges paid to the head office located abroad, are deductible within the limit of 10 % of the turnover. In the former tax system, there was no transfer pricing (TP) rule applicable in Chad. Only the anti-avoidance rule was applicable. The 2018 Finance Law has introduced a TP documentation requirement for companies under control, controlling or affiliated with companies located outside Chad. The required TP documentation should contain main information allowing the tax authority to understand the general structure as well as the full description of the transactions and the price. Failure to produce this documentation would be sanctioned by the related expenses being non-deductible. Before the amendment, the withholding rate ranged according to the amount of monthly rents as follows: According to the new provision introduced by the 2018 Finance Law for, the withholding tax on rental income is harmonized as follows: (i) 15% when the beneficiary of the rental income is a resident individual, regardless of the amount of the monthly rents (ii) 20% when the beneficiary of the rental income is a nonresident individual or entity, regardless of the amount of the monthly rents As a general rule, companies established in Chad are required to withhold tax on any payment they make to nonresident providers in respect of services received from them. The general withholding tax rate on foreign services is 25%. Under the former system, companies operating in the oil and gas sector were subject to a reduced withholding tax rate of 12.5% instead of the 25% general rate. The new Finance Law has eliminated this special rate and has aligned the oil and gas companies with the same withholding regime as other companies. By this change, the 12.5% special rate would remain applicable only for services provided by nonresident entities within the framework of public procurement or public contracts financed from abroad. However, this special rate would not be applicable when the beneficiary of the payment is located in a non-cooperative tax jurisdiction as defined above. In the Chadian tax system, when input Value Added Tax (VAT) is higher than output VAT, the difference of input not net off with the output VAT is carried forward without limitation. The 2018 Finance Law has limited the carryforward of the VAT credit to 24 months as from the date the relevant VAT credit originated. Recognition of the exclusive competence of the Minister of Finance in granting of tax and customs benefits The 2018 Finance Law reaffirms the exclusive competence of the Minister of Finance in granting tax and customs benefits. According to the new provision, any agreement, public procurement or contract having a tax implication, and not countersigned by the Minister in charge of Finance, shall not be enforceable against the tax authority. In addition, no tax or customs exemption certificate shall not be delivered in violation of this exclusive competence. In the former tax legislation, there was no regulation regarding the correction of tax returns. In practice however, the correction of tax returns was accepted by the tax authority and no deadline was provided for the same. The Finance law for 2018 provides that any tax return submitted to the tax authority can only be amended within two months following the date of initial submission.
Document ID: 2018-5212 | ||||||||||||||||||||||||||||
