Corporate Tax 2021

Last Updated March 15, 2021

Benin

Law and Practice

Authors



DHP Avocats is a law firm founded by Hélène Paty Kounake, attorney at law and compliance officer. Its practice covers banking and finance law, public finance and taxation, digital law, corporate law, corporate social responsibility (CSR) and intellectual property law. The team is composed of attorneys at law, counsels and partners, with a compliance and financial specialist, Gail Gibson CFP (RSA). DHP Avocats assists its clients in identifying and complying with the laws and regulations in force, and acts as national and international adviser in the context of investment services.

In accordance with the OHADA Uniform Act on the Law of Commercial Companies and Economic Interest Groupings, businesses generally adopt a corporate form.

The alternative forms of corporate structures are as follows:

  • Entrepreneurial status: Sole Proprietor (Statut de l’Entreprenant);
  • SARL – Limited Liability Company (Société A Responsabilité Limitée)
  • SARL U – Single Person Limited Liability Company (Société A Responsabilité Limitée Unipersonnelle);
  • SA – Joint Stock Company (Société Anonyme);
  • SA U – Single Person Joint Stock Company (Société Anonyme Unipersonnelle);
  • GIE – Economic Interest Grouping (Groupement d’Intérêt Economique);
  • SP – Joint Venture Company (Société de Projet);
  • SNC – Société en Nom Collectif;
  • Association – Cooperative Society (Société Coopérative);
  • SAS – Société par Action Simplifiée; and
  • Civil Companies (Sociétés Civiles).

The key differences between the above structures relate to the following:

  • the number of partners required;
  • the minimum amount of share capital;
  • the quality of the company's manager;
  • the scope of the partners' liability;
  • the scope of directors' liability;
  • the method of taxation of profits;
  • the deductibility of executive compensation;
  • the tax regime of the manager;
  • the partners' social regime;
  • the decision-making body;
  • the representative body;
  • whether or not an auditor must be appointed; and
  • the mode of transmission of the company.

The entities are taxed as separate legal entities.

Transparent entities commonly used are the SNC, the SP, the GIE, theSole Proprietorship Limited Liability Company and the Civil Company.

The principle of individual taxation applies for these entities.

However, these companies can opt for the corporate tax system.

In the main business sectors, such as telecommunications, banking, insurance, transport and logistics, and for investment groups, the entity commonly used is the SA.

The criteria for determining the residence of incorporated businesses (subject to the application of double taxation treaties) are related to the "permanent establishment" – ie, the fixed place of business through which the company carries on all or part of its activities.

This includes any entity operating in Benin, any entity whose taxation is attributed to Benin by an international convention (treaty) for the elimination of double taxation, and foreign companies that have a permanent establishment in Benin.

According to Article 147 bis of the General Tax Code, permanent establishments are constituted by companies that have the following in Benin:

  • a management or operating headquarters;
  • a branch;
  • a warehouse;
  • an office;
  • a factory;
  • a workshop;
  • a mine, oil or gas well, quarry or other place where natural resources are extracted; or
  • a facility or structure used for the exploration or exploitation of natural resources.

The following are deemed to be permanent establishments:

  • a building site;
  • an erection or installation project or surveillance activities carried out on it, when this site, project or activities last more than three months; and
  • the provision of services, including the services of consultants, by a company acting through employees or other personnel engaged for this purpose, but only if such activities of this nature continue for the same or a related project in the territory of Benin for a period or periods totalling more than 183 days within any 12-month period.

For transparent entities, the term "fiscal domicile" is used for the members who are individuals (natural persons).

Corporate Income Tax

The commonly applied rates are 25% for industries and 30% for other companies, except deposit mining companies.

Beside these rates, profits from research and the operation, production and sale of natural hydrocarbons – including transport operations in the Republic of Benin – are subject to tax on the companies at a rate of between 35% and 45%, according to the clauses of the research and exploitation agreements.

The minimum rates are as follows:

  • 0.75% of the turnover for industrial activities, without being less than XOF250,000;
  • 1% of turnover for other activities, but not less than XOF250,000; and
  • XOF0.6 per litre for petrol stations, but not less than XOF250,000.

In any case, the tax cannot be less than XOF250,000.

It is important to specify that discounts are granted to newly established companies for the first three years of operation (25% in the first year, 25% in the second year and 50% in the third year).

Source Deductions

At the customs cordon, 1% of the customs value of imports is deducted for low-risk companies and 3% for others.

Within Benin, the deduction is 1% with the Identifiant Fiscal Unique (IFU –Tax ID), 5% without IFU and 3% for the liberal professions.

Private companies pay the tax on the benefit according to the following progressive rates, either directly or through transparent entities:

  • XOF0 to XOF10 million: 30%;
  • XOF10 million to XOF20 million: 35%; and
  • more than XOF20 million: 40%.

However, the tax may not be lower than 1% of collectible products or XOF0.6 per litre on the volume of petroleum products sold. This amount may in no case be lower than XOF250,000.

Taxable profits are calculated on the basis of the accounting result, which is subject to tax restatement.

In accordance with the provisions of Article 20 of the General Tax Code, the tax is established each year on the profits made the previous year.

Article 167 of the General Tax Code states that taxpayers are required to close their accounts on 31 December each year, except in the event of the disposal or cessation of activities during the year.

New companies created prior to 30 June are required to end their first financial year on 31 December of the same year. Companies created after 30 June may end their first financial year on 31 December of the same year or 31 December of the following year. The applicable tax is levied on profits made during this period.

The taxable profit is the net profit, determined on the basis of the result of all transactions of any kind carried out by taxpayers, including the disposal of any assets, either in progress or at the end of operations.

Substantial Adjustments

Substantial adjustments are made in terms of reinstatements (fines and penalties, excess gifts and donations, excess associated current account interest, excess depreciation on passenger cars, excess technical assistance costs and head office expenses) and deductions (provisions for paid holidays, provisions for losses, etc).

Profits Tax Basis

Profits are taxed on an accrual basis for companies other than the liberal professions (whose profits are taxed on a receipts basis).

The same rule applies for liberal professionals in the form of a company (société civile professionnelle).

Generally, the corporate income tax payable by new companies duly created is reduced by:

  • 25% for the first year of activities;
  • 25% for the second year of activities; and
  • 50% for the third year of activities.

The tax reductions do not apply in the event of a recall of rights following a tax audit procedure. Businesses created within the framework of a total or partial takeover of pre-existing activities are also excluded from the benefit of the reductions.

Specifically, the creation of the Cité Internationale de l'Innovation et du Savoir (International City of Innovation and Knowledge) gave rise to the idea of tax exemption for training, research and innovation activities. All the companies in this field that set up within the perimeter of this international city will benefit from these advantages as soon as this measure is effectively implemented.

According to the investment code in force, there are three privileged regimes in Benin:

  • Regime "A", intended for small and medium national or foreign companies whose effective investment is between XOF20 million and XOF500 million;
  • Regime "B", for large companies justifying an effective investment of between XOF500 million and XOF3 billion; and
  • the Fiscal Stabilisation Regime "C", for very large companies whose effective investment must exceed XOF3 billion.

The eligible limiting conditions for each regime are provided for by the investment code.

According to Article 25 of the General Tax Code, a deficit incurred during a financial year is considered as an expense for the following financial year and deducted from the profit made during said financial year.

If this profit is not sufficient for the deduction to be made in full, the excess of the deficit is carried forward successively to the profits of the following financial years until the fifth financial year following the financial year in which the deficit occurred.

Article 149 of the General Tax Code states that the following are deductible from the interest paid to members or that recorded for the benefit of affiliated undertakings, in remuneration of the sums which they leave or make available to the company in addition to their share of the capital within the following limits.

  • The total amount of the sums left at the disposal of the company by all these persons may not exceed the amount of its share capital. This limit is not applicable, however, to the members or shareholders of the holdings as mentioned in Article 22 of the General Tax Code – the total amount of this interest may not exceed 30% of the profit before tax, interest, depreciation expenses and provisions.
  • The rate of interest paid may not exceed the average rate of advances of the Central Bank of West African States, applied for the current year, increased by three points.
  • The repayment of the sums must be made within five years following their availability, and the company must not be liquidated during this period. Otherwise, the interest deducted in respect of such sums shall be added to the result of the sixth year or the year of liquidation.
  • Interest paid to such persons is only deductible, whatever the amount, if the share capital of the borrowing company has been fully paid up.

The subsidiaries composing the group must present separate financial statements according to the tax and accounting regulations of the country (in Benin according to the revised SYSCOHADA Act). The group, for its part, must consolidate these accounts according to the Accounting System of Combined and Consolidated Accounts. The General Tax Code does not impose any formal duty to file consolidated financial statements. However, transfer prices must be reported by subsidiaries controlled by a parent company.

When the subsidiary is established in the Republic of Benin, the tax is due on the basis of the profit made in Benin.

When the parent company is located in Benin and if there is a treaty between Benin and the country of establishment of the subsidiary, the tax is due according to the provisions of this treaty.

In the absence of an agreement, double taxation is possible.

Article 23 of the General Tax Code provides that capital gains arising from the disposal of fixed assets in the course of operations are not included in the taxable profit for the financial year in which they are realised if, in the declaration of the results of said financial year, the taxpayer undertakes to reinvest a sum equal to the amount of these capital gains added to the cost price of the items sold in fixed assets in his companies in Benin before the expiry of a period of three years from the end of the financial year.

For the application of these provisions, the values constituting the portfolio are considered as part of the fixed assets when they have entered into the company's assets five years before the date of disposal.

On the other hand, the acquisition of shares or units that give the operator full ownership of at least 30% of the capital of a third company located in the same country is treated as fixed assets in Benin.

If the reuse is made within the period provided for above, the capital gains deducted from the taxable profit are deducted from the cost price of the new fixed assets, either for the calculation of depreciation in the case of depreciable assets, or for the calculation of capital gains realised subsequently. Otherwise, they are included in the taxable profit for the financial year in which the above-mentioned period expires.

If the taxpayer ceases his activities or disposes of his business during the above-mentioned period, the capital gains to be reinvested will be taxed immediately.

Other taxes that may be payable by an incorporated business on a transaction include the following:

  • the registration fee;
  • the Advance Income Tax (AIB), the rate of which varies between 1% and 5%. It is in fact the prepayment of tax on profits; and
  • Value Added Tax (VAT) at the rate of 18% of the pre-tax value of the transaction.

It should be noted that, depending on the sector of activity, companies are subject to specific taxes.

Incorporated businesses are subject to the following other significant taxes:

  • the Employer's Salary Payment (VPS); and
  • Personal Income Tax (IRPP: Impôt sur le Revenu des Personnes Physiques) or corporate tax (IS: Impôt sur les Sociétés).

This section is not applicable in Benin.

According to Article 145 of the General Tax Code, individual professionals can choose either the individual taxation system or the companies taxation system.

The closely held corporation legal system does not exist in Benin.

For the structures commonly used in business, there are no rules preventing any limited liability company or joint stock company from accumulating profits for investment purposes. However, proof of investment must be reported to the tax administration.

The term "closely held corporation" is not applicable in Benin.

However, in accordance with Article 88 of the General Tax Code, the rate is 7% for capital gains generated on the sale of shares received by private individuals.

Individual dividends from and gain on the sale of shares are taxable at source in the case of a West African Economic and Monetary Union (WAEMU) member country and exempt in Benin.

Withholding taxes are charged as follows:

  • Interest – Personal Income Tax on Income from Receivables, Deposits and Guarantees (IRPP RCDC) category: 15%.
  • Dividends/royalties – Personal Income Tax on Income from Movable Capital (IRPP RCM) category.

The withholding tax is levied at source by applying a 15% rate to the tax base. This rate is reduced as follows:

  • to 10% for the proceeds of regularly distributed shares;
  • to 5% for the proceeds of shares regularly distributed to shareholders not resident in Benin, unless a treaty for the elimination of double taxation between Benin and the country of said shareholders provides for a more favourable tax rate;
  • to 5% for income from shares regularly distributed by companies listed on a stock exchange approved by the Regional Council for Public Savings and Financial Markets within the WAEMU; and
  • to 7% for capital gains generated on the sale of shares and received by private individuals.

Exemptions

IRPP RCM

Income from bonds received by residents outside the WAEMU as well as the products described in Articles 62 to 73 of the General Tax Code are exempt from personal income tax.

For example, Article 64 of the General Tax Code provides that distributions of reserves made in the form of capital increases are exempt from personal income tax; profits incorporated directly into the capital are also exempt from this tax. However, when these distributions are the result of a reduction of capital not motivated by social losses or of any operation involving the direct or indirect reimbursement of income tax-free for less than ten years, they may only benefit from the exemption provided for above if and to the extent that the resulting increase in capital exceeds the capital reimbursed.

IRPP RCDC

The proceeds of loans not represented by negotiable securities, as well as the proceeds referred to in Article 90 of the General Tax Code, are exempt from income tax when they are collected by and on behalf of bankers or banking institutions, investment or securities management companies, and companies authorised by the Government to carry out land credit operations.

However, this exemption does not apply to the proceeds of transactions carried out by the above-mentioned persons or institutions using their own funds.

Other exemptions are listed in the General Tax Code, in particular with regard to holding companies.

The main tax treaties are with France, Norway and Morocco.

Regulation No 08/2008/CM/UEMOA (WAEMU) adopts rules for the avoidance of double taxation within the WAEMU and rules on assistance in tax matters.

Local tax authorities contest the use of treaty country entities by residents of non-treaty countries.

An annual transfer pricing declaration must be submitted.

Profits indirectly transferred to the parent company or to other companies in the scope of consolidation by increasing or decreasing the purchase and selling prices must be included in the income statement for tax purposes

Amounts paid for purposes other than the reimbursement of costs incurred (royalties, fees, use of patents or other fees, etc) are subject to the particular attention of the tax administration.

The effectiveness of the services or transactions must be proven to the tax authorities.

Local tax authorities challenge the use of limited risk distribution agreements between related parties for the sale of goods or the provision of services at the local level if the agreement is discriminatory.

There is no significant aspect of local transfer pricing rules and/or their application that differs from OECD standards in Benin.

For example, the treaty signed with Morocco relies essentially on OECD standards.

Article 1102 of the General Tax Code makes it possible to counter transfer pricing.

This Article states that any transaction concluded in the form of a contract or any legal act whatsoever that conceals the realisation or transfer of profits or income carried out directly or through an intermediary is not opposable to the tax authorities, which have the right to restore the true nature of the transaction and to determine the basis for income tax accordingly.

International transfer pricing provisions (changes) have been internalised since 2020.

Compensatory adjustments are allowed and made by the tax services.

Local branches of non-local companies and local subsidiaries of non-local companies have the same tax regime in Benin.

Capital gains of non-residents on the sale of stock in local corporations are subject to income tax for natural persons, at the following rates under Article 136 of the General Tax Code:

  • XOF0 to XOF10 million: 30%;
  • XOF10,000,001 to XOF20 million: 35%; and
  • more than XOF20 million: 40%.

If it is a legal entity, the unique rate is 30%.

Article 1018 of the General Tax Code states that all changes that affect the life of the company must be declared to the tax administration within 30 days. The capital gain must also be taxed at this level is the change of control modifies the company’s statutory provisions.

The tax system in Benin is declarative. The income of foreign-owned local affiliates selling goods or providing services must be reported through the financial statements.

Failing that, the tax administration can find out through cross-checks and proceed to taxation with penalties and fines.

Corporate income tax is due on profits made by companies operating in Benin as well as those whose taxation is attributed to Benin by an international treaty for the elimination of double taxation.

Article 21 of the General Tax Code expressly states that research costs, royalties, intermediary remuneration and fees are deductible when they meet the general conditions for deductibility.

However, the costs of technical, accounting and financial assistance, study costs, head office costs and other assimilated costs, and commissions to purchase offices, paid by companies operating in Benin to natural or legal persons not established in Benin are only allowed as a deduction from taxable profit on the additional condition that they are not excessive and have the character of an indirect transfer of profit.

In any case, they are only deductible up to a limit of 5% of the taxable profit before deduction of the expenses in question.

The constraints on related-party borrowing by foreign-owned local affiliates paid to non-local affiliates are listed in Article 149 of the General Tax Code.

The following are deductible from the outcome.

  • Interest paid to members or interest recorded for the benefit of related companies, in remuneration of the sums they leave or make available to the company in addition to their share of the capital within the following limits:
    1. the total amount of the sums left at the disposal of the company by all these persons may not exceed the amount of its share capital, although this limit is not applicable to the members or shareholders of the holding companies referred to in Article 22 of the General Tax Code; the total amount of this interest may not exceed 30% of the profit before tax, interest, depreciation and provisions;
    2. the rate of the interest paid may not exceed the average rate of advances from the Central Bank of West African States, applied for the current year, increased by three points;
    3. the repayment of the sums must be made within five years following their availability and the company must not be liquidated during this period, in which case the interest deducted in respect of such sums shall be applied to the result of the sixth year or the year of liquidation; and
    4. interest paid to such persons shall be deductible, whatever the amount, only if the share capital of the borrowing company has been fully paid up;
  • Donations, membership fees and other gifts up to a limit of 1‰ of the turnover.
  • By way of derogation from the above provision, donations and gifts in the fields of education, health or collective infrastructures granted to the State, its members and sports federations recognised by the Ministry in charge of sports and designated by joint order of the Minister of sports and the Minister of finance, within the limit of XOF25 million, in addition to the deduction granted in the second bullet.
  • Proof of receipt of donations and gifts shall be joined to the declaration for tax.

The foreign income of local companies is not exempt from corporate tax. It is taxed at the 30% rate of corporate income tax according to the provisions of Article 156 of the General Tax Code.

If a treaty is signed between Benin and the foreign country, the provisions of the treaty are applicable.

The general principle is that foreign income is not exempt.

A withholding tax at the rate of 15% applies. This rate is reduced as follows:

  • to 10% for the proceeds of regularly distributed shares;
  • to 5% for the proceeds of shares regularly distributed to shareholders not resident in Benin, unless a convention for the elimination of double taxation between Benin and the country of said shareholders provides for a more favourable tax rate;
  • to 5% for income from shares regularly distributed by companies listed on a stock exchange approved by the Regional Council for Public Savings and Financial Markets within the WAEMU; and
  • to 7% for capital gains generated on the sale of shares and received by private individuals.

Intangible assets developed by local companies and used by non-local subsidiaries in the course of their activities are subject to local corporate tax.

If these intangible assets give rise to the receipt of income (management fees, for instance) by local companies, tax will be due on said income.

International tax rules are being internalised in Benin.

Rules related to the substance of non-local affiliates apply, and are called the anti-abuse clauses in the treaties.

In accordance with Article 23 of the General Tax Code, capital gains arising from the disposal of fixed assets in the course of operations are not included in the taxable profit for the financial year in which they are realised if they are reported in the statement of income for that year, and if the taxpayer undertakes to reinvest in fixed assets in his companies in Benin before the expiry of a period of three years from the end of the financial year a sum equal to the amount of these capital gains added to the cost price of the items sold.

On the other hand, acquisitions of shares or holdings that have the effect of giving the operator full ownership of at least 30% of the capital of a third company based in Benin are considered as fixed assets.

If the reuse is carried out within the period provided for above, the capital gains deducted from the taxable profit are deducted from the cost price of the new fixed assets, either for the calculation of depreciation or for the calculation of the capital gains realised subsequently. Otherwise, they are reported in the taxable profit of the financial year during which the above-mentioned period expired.

The 2020 Finance Law has strengthened and modernised the legal framework on transfer pricing.       

It includes measures to combat evasion of the tax base and the transfer of profits, with the corollary of restoring tax justice and reducing unfair competition from multinationals on local enterprises.

Notably, the rules for the establishment of income tax or company tax apply to companies that are dependent on or control companies located outside Benin, and to legal persons carrying out their activities both in Benin and abroad.

The obligations of declaration and representation of documentation on transfer pricing provided for in Articles 34 and 1085 of the General Tax Code are only incumbent on the persons referred to above whose gross assets or annual turnover before tax is equal or superior to XOF1 billion.

Failure to comply with transfer pricing reporting and documentation obligations is punishable by the fines provided for in the General Tax Code.

Based on the basic limitation period of three years, the tax administration is supposed to audit companies at least every three years.

For the moment, the BEPS recommendations that have been implemented relate to changes in transfer pricing.

The government is taking the measures into account progressively.

The rules of international taxation apply, according to the treaties to which Benin is a party.

The tax policy objective is to comply with international tax standards.

By the end of 2021, Benin will have a new General Tax Code.

There are no key features of Benin's competitive tax system that could be more vulnerable than others because the tax reforms undertaken are for the improvement of the business climate and for a developmental tax system.

There are not yet any anti-hybrid tax rules in the General Tax Code.

There is a territorial tax regime in Benin and there are restrictions on the deductibility of interest in Article 149 of the General Tax Code.

This is not applicable in Benin.

The proposed DTC anti-avoidance rules are not likely to have an impact on inbound or outbound investors.

In Benin, the transfer pricing changes were adopted in 2020, with application from the 2020 benefit onwards. Therefore, it is too early to assess whether the changes have made any radical difference.

The proposals for transparency and country-by-country reporting have already been transposed into legislation, in Article 37 of the General Tax Code.

The changes are under discussion at the African Tax Administration Forum.

No proposals have yet been brought forward in relation to digital taxation based on BEPS provisions.

Revenue earned by offshore companies from intangible property will be subject to income tax.

DHP Avocats

Lot 472 SEDAMI-Porte 2177
10 BP 521 Cotonou
Benin

+229 95 627 833

contact@dhpavocats.com www.dhpavocats.com
Author Business Card

Law and Practice

Authors



DHP Avocats is a law firm founded by Hélène Paty Kounake, attorney at law and compliance officer. Its practice covers banking and finance law, public finance and taxation, digital law, corporate law, corporate social responsibility (CSR) and intellectual property law. The team is composed of attorneys at law, counsels and partners, with a compliance and financial specialist, Gail Gibson CFP (RSA). DHP Avocats assists its clients in identifying and complying with the laws and regulations in force, and acts as national and international adviser in the context of investment services.

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