Africa Tax In Brief

AFRICA: Africa Tax Administration Forum publishes technical note on Amount B Rule of Pillar One

On 19 February 2024, Amount B was incorporated into the OECD Transfer Pricing Guidelines, providing an optional simplified and streamlined approach that jurisdictions can choose to apply to the following qualifying transactions:

• buy-sell marketing and distribution transactions where the distributor purchases goods from one or more associated enterprises resident in other jurisdictions for wholesale distribution to unrelated parties; and
• sales agency and commissionaire transactions where the sales agent or commissionaire contributes to one or more associated enterprises' wholesale distribution of goods to unrelated parties.

In response, the Africa Tax Administration Forum ("ATAF") on 28 June 2024 published a technical note on the Amount B Rule of Pillar One designed to:

• provide ATAF members with an overview of the Amount B rule of Pillar One which was agreed upon in February 2024; and
• assist ATAF members in deciding whether to enact the optional simplified and streamlined approach.

The Note highlights the design features it considers most important if Amount B is to maximize benefits to African countries by increasing tax certainty for both African governments and multinational enterprises operating in Africa.

ANGOLA: Oil Tax reductions approved to boost production

The National Assembly has, in the Legal and Fiscal Regime for Incremental Production in Oil Concessions in the Maritime Zone (Regime Jurídico e Fiscal da Produção Incremental nas Concessões Petrolíferas da Zona Marítima), approved a reduction in the oil production tax rate from 20% to 15% and a decrease in the income tax rate on oil-producing activities from 65.75% to 55.75% for association and production sharing contracts.

The aim of the fiscal regime is to reverse the current decline in oil production. The date from which these measures are effective are yet to be announced.

BENIN: Prior approval for NGO VAT exemption required

To avoid the abuse or misuse of VAT exemptions, the Director General of Taxes has issued Circular No. 1155 of 27 June 2024, requiring prior approval from the tax administration for the VAT exemption granted to NGOs and assimilated associations.

Prior to any tax-free purchase of goods or services, NGOs must provide the Directorate General of Taxes with:

• an authorization request to the DGI for the attention of the Special Unit in charge of Incentive Regimes (MFRE);
• a copy of the main contract or main purchase order;
• a copy of the headquarters agreement (agreement between the State of Benin and the NGO) or proof of exemption; and
• a copy of the original pro forma invoice from the supplier.

BURKINA FASO: French Tax Authorities comment on termination of tax treaty

On 17 July 2024, the French tax authorities published updated guidelines on the Burkina Faso - France Income, Inheritance, Registration and Stamp Tax Treaty (1965), as amended by the 1971 protocol, following the denunciation of the treaty by Burkina Faso with effect from 8 November 2023.

In application of article 44 of the treaty, the treaty will be terminated with effect from 1 January 2025. The French tax authorities confirmed that the treaty provisions are suspended for the period between 8 November 2023 and 31 December 2024, pursuant to the reciprocity principle applicable to international treaties.

The updated guidelines provide the following clarifications regarding the end of the application of the treaty provisions with respect to income taxes:

• as a general rule, the treaty provisions apply to income earned until 7 November 2023 at the latest, even if the income was paid after this date;
• dividends are considered to be received before 8 November 2023 if the distribution decision was taken before this date;
• interest and royalties are considered to be received before 8 November 2023 if they relate to a period ending on 7 November 2023 at the latest;
• a capital gain is considered to be earned before 8 November 2023 if the alienation of the relevant asset occurred before this date;
• business profits benefit from the treaty provisions if they relate to fiscal years commencing before 8 November 2023, provided that the fiscal year does not exceed 12 months; and
• salaries and other income from non-dependent activities, as well as pensions and life annuities earned with respect to 2023 are deemed to be entirely covered by the treaty.

The updated guidelines emphasize that standard French domestic rules are applicable without limitation once the treaty provisions cease to apply.

Common Market for Eastern and Southern Africa (COMESA)-East African Community (EAC)-Southern African Development Community (SADC) treaty enters into force

On 25 June 2024, Angola deposited its instrument of ratification of the Tripartite Free Trade Agreement ("TFTA"), as the 14^th country to do so. As a result, the TFTA entered into force on 25 July 2024, meeting the criteria of the deposit of ratification instruments by 14 of the 29 member states. The TFTA is based on three pillars: market integration, infrastructure development and industrial development.

The following 13 countries had already deposited their instrument of ratification: Botswana, Burundi, Egypt, Eswatini, Kenya, Lesotho, Malawi, Namibia, Rwanda, South Africa, Uganda, Zambia and Zimbabwe.

Djibouti notified the COMESA Secretariat that it had ratified the agreement on 20 June 2024 while Tanzania is in the midst of ratifying the TFTA and South Sudan has initiated the process of signing and ratifying it.

DEMOCRATIC REPUBLIC OF THE CONGO: Draft Finance Bill 2025 to be presented to the National Assembly by 15 September 2024

The Budget Minister has announced that:

• after the Budget seminaries to be held between 29 July and 10 August 2024, the Budget Minister will submit the Adjusted Finance Bill, 2024 and the Draft Finance Bill, 2025 to the government for approval; and
• the draft Finance Bill, 2025 will be submitted to the National Assembly by 15 September 2024 following approval.

IVORY COAST: France publishes French synthesized text of France-Ivory Coast treaty

On 6 August 2024, the French government published the French synthesized text of France - Ivory Coast Income, Capital, Inheritance, Registration and Stamp Tax Treaty (1966), as amended by the 1985 and 1993 protocols, incorporating the modifications made to the treaty by the Multilateral Instrument (MLI).

Unless stated otherwise in the synthesized text, the provisions of the MLI will generally have effect with respect to the treaty in France and the Ivory Coast:

• with respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 January 2024; and
• with respect to all other taxes, for taxes levied with respect to taxable periods beginning on or after 1 July 2024.

KENYA: Court of Appeal upholds High Court decision declaring Finance Act, 2023 unconstitutional

Despite the withdrawal of the Finance Bill, 2024 by the President on 26 June 2024, protests have continued in Kenya by dissatisfied Kenyans and the death toll has risen to more than 30 people. Disgruntled youthful protestors are pushing for a better economy and governance and have vowed not to stop the protests until the government listens to them and until their arrested colleagues are released. In addition, the protesters have called for the resignation of the President.

In further developments regarding Finance Bills, the Kenyan Court of Appeal, in a civil appeal case of the National Assembly & the Speaker of the National Assembly v. Okiya Omtatah Okoiti & 55 Others (No. E003 of 2023), has issued a judgment on 31 July 2024 upholding a High Court decision and declaring that the Finance Act, 2023 was unconstitutional.

The Court of Appeal held inter alia that:

• the Bill was a money bill as it met the threshold set out for money bills and satisfied the pith and substance test, however, it contained matters which did not fall within the ambit of a money bill and therefore affirmed the trial court's finding that sections 76, 78 and 87 of the Act are unconstitutional for containing matters that ought not to have been in a money bill;
• amending the Bill post-public participation to include 18 totally new provisions which were not subjected to public participation is unconstitutional and the ensuing enactment being a product of a flawed constitutional process is a nullity, therefore the 18 provisions were declared to be unconstitutional, null and void;
• while there was public participation, the National Assembly failed to give reasons why some proposals by stakeholders were accepted while others were rejected, the failure to provide reasons rendered the entire Act unconstitutional and flawed; and
• the enactment of the Act violated the budget-making process as prescribed by the Constitution and the Public Finance Management Act thereby rendering the ensuing Act fundamentally flawed, void and consequently unconstitutional.

KENYA: High Court rules technical fees are not taxable unless permanent establishment in the source country

The High Court has recently upheld the decision of the Tax Appeals Tribunal ("TAT") that, based on the Kenya-France double tax agreement ("DTA"), technical fees are subject to income tax in the country of residence of the recipient unless they operate through a permanent establishment in the other state.

In the case at hand, Total Kenya Ltd ("TKL") did not account for withholding tax on technical fees paid to Total Outre-Mer ("TOM"), its parent company resident in France, on the basis that, under the Business Profits article of the Kenya-France DTA, withholding tax was not applicable to technical fees paid to TOM as TOM did not have a permanent establishment in Kenya.

The Court confirmed that technical fees fell under the category of business profits, were thus taxable under the "Business Profits" article, and, therefore, not subject to withholding tax as TOM did not have a permanent establishment in Kenya.

KENYA: Interest expressed in expediting negotiations for revision of tax treaties

In a recent update published by the Kenyan government, Kenya expressed interest in accelerating negotiations for revisions to the income and capital tax treaties entered into with Germany, Iran and Zambia in order to bring it in line with the latest international standards, following the OECD/G20 Base Erosion and Profit Shifting (BEPS) recommendations.

KENYA: Belgium adds Kenya to Common Reporting Standard list

The Belgian government, by the Royal Decree of 1 July 2024 published in Official Gazette No. 2024006278 of 8 July 2024, has gazetted an updated list of jurisdictions with which the Belgian Tax Authorities will exchange reports under the Common Reporting Standard (CRS). The Decree adds Kenya to the list for 2023.

KENYA: Income Tax (Charitable Organizations and Exemption of Donations) Rules, 2024 issued

The government of Kenya has issued the Income Tax (Charitable Organisations and Exemption of Donations) Rules 2024 through Legal Notice No. 105 published in the Kenya Gazette on 28 June 2024. The Rules are effective from 28 June 2024 and revoke the Income Tax (Charitable Donations) Regulations, 2007.

The objective of the Rules is to:

• prescribe a procedure for determining the allowability of donations under the Income Tax Act; and
• prescribe the procedure for the application, processing, granting and retention of an exemption from income tax.

MAURITIUS: The Indian Court rules that the Mauritian investment fund is eligible for treaty benefit for capital gains on the sale of shares of Indian companies

The Delhi Income Tax Appellate Tribunal ("ITAT") ruled on 18 July 2024 in the case of India Property (Mauritius) Company-II vs. ACIT (ITA 1020 of 2023), that the long-term capital gains earned by a taxpayer holding a valid tax residency certificate and Global Business Licence-I from Mauritius were exempt under the India / Mauritius Income tax treaty.

In the case at hand, the taxpayer, a Mauritius tax resident holding a valid tax residency certificate and Global Business License-I from Mauritius, was engaged in investment activities. During the relevant tax year, the taxpayer earned capital gains from the transfer of shares of Indian companies, which it claimed as exempt under Article 13(4) of the treaty. The Indian tax authorities denied the treaty benefits, questioning the genuineness of the taxpayer's activities and its status as a conduit entity without economic substance.

The ITAT ruled in favour of the taxpayer on the basis that:

• The taxpayer had validly outsourced its administrative activities and made payments for these services. The assessing officer's questioning of the genuineness based on the absence of operational expenditure and directors' remuneration was not justified.
• The taxpayer's model of investment and subsequent transfer of consideration was consistent with its business purpose and not indicative of a tax avoidance scheme. The investments were held for a significant period and had commercial expediency.
• The tax residency certificate should be accepted as sufficient evidence for claiming treaty benefits unless proven otherwise. The tax authorities had no substantial evidence to rebut the presumption of genuineness provided by the certificate.

NIGERIA: Increase in windfall tax on foreign exchange gains proposed

The Nigerian Senate has approved the proposal in the Finance Act (Amendment) Bill, 2024 to increase the windfall tax on profits realised from all foreign exchange transactions by banks in the 2023 financial year from 50% to 70% effective from the commencement of the new foreign exchange rate policy, which is 1 January 2025 until the end of 2025.

The proposed windfall tax will be collected by the Federal Inland Revenue Service ("FIRS"). Any bank that fails to withhold the windfall tax or enter into a deferred payment agreement with FIRS shall be liable for a penalty of 10% of the tax payable plus interest and imprisonment upon conviction. The Bill allows banks to enter a deferred payment arrangement with the Federal Inland Revenue Service before 31 December 2024.

NIGERIA: Import taxes on certain food commodities suspended

In a press release, the federal government has announced that, as part of the President's Accelerated Stabilization and Advancement Plan to ensure economic stability and food security in Nigeria, certain food commodities imported through land and sea borders will be free from charges, levies or taxes for a duration of 150 days only effective from 8 July 2024.

The relevant commodities include maize, husked brown rice, wheat and cowpeas, etc. Additionally, the Minister stated that these selected food commodities will be subjected to recommended retail ceiling prices.

NIGERIA: Cryptocurrency firm to collect VAT on transaction fees in Nigeria

KuCoin, a cryptocurrency firm operating in Nigeria, has started collecting VAT at the standard rate of 7.5% on transaction fees charged on cryptocurrency transactions from its users of the platform resident in Nigeria with effect from 8 July 2024.

NIGERIA: New withholding tax regime approved

On 2 July 2024, the President approved a simplified and business-friendly withholding tax regime as part of the ongoing fiscal policy and tax reforms. Significant amendments to the current regime include:

• exempting small businesses from withholding tax compliance;
• introducing reduced rates for businesses with low margins;
• excluding manufacturers and producers such as farmers from withholding taxes;
• introducing measures to curb evasion and minimize tax avoidance;
• providing for ease of obtaining credit and utilization of tax deducted at source;
• reflecting pressing challenges and aligning to global best practices; and
• clarifying the timing of deduction and definition of key terms within the regulation.

The approved regulation is to be published in the official gazette.

RWANDA: New minerals tax law gazetted

The government of Rwanda has gazetted Law No. 056/2024 of 26 June 2024 on 5 July 2024, which introduces a tax on minerals. The Law takes effect from 5 July 2024 and repeals Law No. 55/2013 of 2 August 2013 on minerals tax.

The Law introduces a mining royalty at rates of between 0.5% and 3%, depending on the type of minerals, as well as an export tax at rates of between 1% and 3% on minerals exported in raw form. at the following rates.

A local mineral processing facility or a person exporting minerals from Rwanda is required to withhold mining royalty tax, declare and remit it to the Commissioner General of the Rwanda Revenue Authority within 15 days following the month in which the tax was withheld.

RWANDA: Tax treaty with Luxembourg enters into force

The Luxembourg - Rwanda Income and Capital Tax Treaty (2021) entered into force on 14 February 2024 and generally applies from 1 January 2025 for withholding and other taxes.

SENEGAL: Limitation of incentives under the Investment Code clarified

The Finance Minister of Senegal has adopted Circular No. 025/MFB defining the practical procedures for applying for tax benefits under the Investment Code. The circular came into force on 2 July 2024 and repealed ministerial Circular No. 153/MEF of 11 May 2004.

The Investment Code and its implementation decree of 2004 provide the following incentives for licensed companies:

• exemption from customs duties on imports of equipment and materials intended for the investment phase of the approved programme;
• the suspension of VAT on goods, services and works necessary to complete the investment phase of the approved programme; and
• a tax credit that consists of a deduction of a portion of investments from the corporate income tax.

The Circular clarifies inter alia that:

• the customs duty exemption does not include the statistical levy, VAT, the Senegalese Shippers' Council levy (COSEC), the West African Economic and Monetary Union (WAEMU) and Economic Community of West African States (ECOWAS) community levies and other specific taxes;
• the customs duty exemption does not apply to materials produced in Senegal, materials eligible for specific regimes and activities under the Mining Code, the Petroleum Code, the Free Export Company and the Special Economic Zone regulations;
• the VAT suspension regime is not an exemption or a debt waiver. It is a deferral of the payment of VAT during the investment phase;
• the VAT suspension regime applies to local purchase and importation but does not apply to activities eligible for specific codes or goods eligible for specific regimes;
• the company benefitting from the VAT suspension regime on imported goods must inform the customs authorities at the time of the accreditation and must commit to inform them at the end of the investment phase and to pay the suspended VAT;
• the suspended VAT must be paid within 12 months. The first payment report is available within a month following the end of the investment phase. The beneficiary must reach out to the competent authorities to make the payment;
• the cost, insurance, and freight value of spare parts benefiting from customs exemption and VAT suspension should not exceed 10% of the approved investment amount;

UGANDA: Amendments to Tax Laws enacted

The government of Uganda has enacted a series of amendments to various tax laws with effect from 1 July 2024, following the President of the Republic of Uganda assenting to the amendments on 15 July 2024. Significant amendments include:

Corporate income tax

• expanding the list of tax-exempt income to include income derived from:
  • private equity or venture capital funds regulated under the Capital Markets Authority Act;
  • the disposal of government securities on the secondary market;
  • the manufacture of electric vehicles, electric batteries or electric vehicle charging equipment or fabrication of the frame and body of an electric vehicle by an investor operating in or outside an industrial park or free zone; and
  • the operation of a specialized hospital facility by an investor in or outside an industrial park or free zone;
• expanding the list of exempted institutions to include:
  • the African Reinsurance Corporation (Africa Re);
  • the Independent Regulatory Board of the East African Power Pool; and
  • the Islamic Cooperation for the Development of the Private Sector.
• introducing and clarifying the meaning and taxation of a permanent establishment to include a place of management, branch, office, factory, workshop or warehouse in relation to the provision of storage facilities, among others;
• classifying a branch as being part of permanent establishment and replacing the word "branch" in the Act with the words "permanent establishment";
• taxing the income of a non-resident person attributable to activities of permanent establishment in Uganda, including:
  • income derived from the sale of goods or other business activities carried out in Uganda that are the same or similar to those sold through a permanent establishment; or
  • income of other business activities carried on in Uganda that are of the same or similar kind as those carried out through the permanent establishment;
• expanding the scope of income sourced from Uganda to include:
  • annuity paid by a non-resident person as expenditure of a business carried on by a non-resident person through a permanent establishment in Uganda; and
  • income derived from the payment of insurance premium, if the premium relates to the insurance or reinsurance of a risk in Uganda; and
• imposition of WHT on commission paid to payment service providers;

Value added tax

• Imposing VAT on goods or services supplied by a taxable employer to an employee at no consideration;
• Increasing the threshold for refund in case of overpaid tax from UGX5-million to UGX10-million;
• Expanding the list of VAT-exempt institutions to include:
  • the African Reinsurance Corporation;
  • the International Regulatory Board of the East African Power Pool; and
  • the Islamic Cooperation for Development of the Private Sector;
• Designating the recipient of proceeds of the auction as the supplier of goods and person liable to pay VAT in the case of supply of goods through auctioning; and
• Expanding the list of VAT-exempt supplies to include:
  • supply of electric vehicle or its body and frame locally manufactured or fabricated;
  • electric vehicle charging equipment or charging services;
  • pesticides other than pesticides packaged for personal or domestic use; and
  • cooking stoves which use ethanol, assembled in Uganda up to 30 June 2028;

Tax administration

• waiving interests and penalties, outstanding as of 30 June 2023, owed by taxpayers that pay their principal outstanding tax by 31 December 2024.

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.