Taxation in Equatorial Guinea
This summary outlines everything you need to know or consider when thinking about doing business in Equatorial Guinea and dealing with tax issues. I can answer on specific questions that you have with regards to the tax laws of the country.
Because individual circumstances vary widely and because the laws are always changing, it is always a good idea to speak with a local legal counsel about any unique situation.
While every effort was made to ensure completeness and accuracy, the reader should be aware that the applicable law, statutes and rules may change from time to time. This summary is not intended as a substitute for legal advice.
Foreign Exchange Control: Transfers within the Communaute Economique et Monetaire de l’Afrique Centrale (CEMAC) zone are not restricted. Prior declaration is required for inward direct investments, which are capital investments in an entity to acquire control ( excluding, however the purchase of less than 10% ( or XAF 100 Million of the share capital of unquoted company). Loans obtained by EG companies from foreign share holders or from a foreign enterprise within the same group also require prior authorization. The reinvestments of undistributed profits is not subject to prior declaration. Transfers of at least XAF 1 million outside the CEMAC zone require prior authorisation. Expatriates employee’s may repatriate part of their earnings on a regular basis and transfers to cover family and dependent expenses outside the CEMAC zone may be made without limit.
Accounting principles/ financial statements: The Uniform Acts relating to the Organisation and Harmonisation of Accounting System applies.
Principle business entities: These are the public limited liability company, private limited liability company, partnership and a branch of a foreign corporation. Since 2004, 35% of the share capital of any company created in Equatorial Guinea must be held by EG citizens or companies belonging to EG citizens. At least 3 EG citizen partners also are required and 1/3 of the board of directors must be EG citizens, with EG citizens involved in the management of the company.
Residence – a commercial entity operating in Equatorial Guinea for more than 3 months in the 1 calendar year or for 6 months within a 2 year period considered resident. In the oil and gas sector, companies operating in Equatorial Guinea for more than 3 months in 1 calendar year are considered resident. Absences of less than 30 days are not taken into account when computing the period of residence.
Basis – Resident entities are assessed on their worldwide income. Non resident entities are subject to 10% withholding tax on gross income derived from sources in Equatorial Guinea.
Taxable Income – Taxable income is a company’s income, less allowable deductions and losses. Income of a capital nature is not included in taxable income.
Taxation of dividends – All dividends received by a residents company are subject to corporate income tax. However, a recipient company may offset any domestic tax withheld from dividends against its company tax liability. A participation exemption applies so that only 10% of net dividends received by a corporate share holder is subject to tax provided such share holder holds at least 25 % of the shares in the payer and the shares remained register in the name of the share holder for at least 2 consecutive years. Dividends received by foreign share holders are subject to a 25% tax.
Capital gains: Capital gains are treated as ordinary business income and taxed at the standard corporate income tax rate. However, capital gains realised on the disposal of fixed assets in the course of trading are excluded from income for a 3 period if the tax payer reinvests the gain in new fixed assets for the business. Capital gains arising from a gratuitous allocation of shares, founders’ shares or debentures on the merger of limited liability companies or limited partnerships with share capital are also excluded, provided the company resulting from the merger has its registered office in Equatorial Guinea. Net capital gains arising on the assignment, transfer or cessation of a company within 5 years following its creation or purchase will be assessed at only half their value. If such an event takes place more than 5 years after the company is formed or purchased, net capital gains will be assessed at 1/3 of their value.
Losses – Losses may be carried forward for up to 3 years (5 years for companies in the oil and gas industry) but may not be carried back. Losses of one entity may not be transferred to another entity in the case of a corporate reorganization. After 3 consecutive years of losses, companies will be deregistered from the Tax Registry (except new companies).
Rate – 35%
Surtax – No
Alternative minimum tax – The minimum company tax is 1 % of the previous years turnover. The AMT is payable when the operations of the company result in a taxable loss or a minimum tax is more than 35% of the taxable profits.
Foreign tax credit – No
Participation exemption – A partial tax exemptions on dividends applies to CEMAC groups. See also under “Taxation of dividends’.
Holding company regime – No
Incentives – No
Dividends – Dividends paid to non resident entities are subject to 25% withholding tax.
Interest – Interest paid to non resident entities is subject to 10% withholding tax on the gross amount.
Royalties – Royalties paid to non resident entities are subject to a 10% withholding tax on the gross amount.
Branch Remittance tax – No
Other taxes on corporations:
Capital Duty – No
Payroll tax – There is no payroll tax. Salaries are only subject to the Work Protection fund and INSESO contribution ( see under “ Social Security “).
Real Property tax – Rural property tax of XAF 100 is levied for each hectare or fraction thereof of the surface are of the property. An urban property tax is imposed equal to 1% of 40% of the sum of the value of the land and the buildings constructed on it.
Social Security – Employer contribute monthly to the National Social Security Fund (INSESO) and the work Protection Fund. Employers contribute is 1% of the gross salary to the Work Protection Fund and 21.5% to INSESO.
Stamp Duty – Stamp duty is payable on a variety of instruments and transactions such as the creation or increase of capital, stock, transfers or unquoted companies, property transfer etc.
Transfer tax – Rates are 3% for the transfer of goods and chattels for valuable consideration (between residents and non residents), 5% on transfers of real estate for valuable consideration between residents and 25% between residents and non residents and 5% on transfers for valuable consideration of goods and chattels and livestock, credits and rights not expressly specified.
Other – All payments made by companies in the oil and gas sector are subject to withholding tax at the following rates:10% on EG gross income of non residents obtained from commercial or industrial activities or services ( 6.25% of EG residents), 5% of mobilization, demobilization and transportation services in Equatorial Guinea. Other potential taxes include property taxes; the tax on vehicle and boat ownership and use; and the tax on the screening and distribution of image and auto recordings.
Anti Avoidance rules:
Transfer pricing – No
Thin capitalization – No
Controlled Foreign companies – Controlled foreign company provisions apply where at least 35% of the share capital is held by nationals.
Other – No
Disclosure Requirements – No
Tax Administration and compliance:
Tax year – Calendar year. A Company’s financial year must correspond to the tax year. A return showing the company’s results for the fiscal year must be filed by the following
Consolidate Returns – No
Filing Requirements – A minimum company tax equal to 1% of the previous year’s
turnover is payable annually before 31 March. The final installment is paid on 30 April.
Penalties – A fine of XAF 200,000 per month is payable for late filing, capped at 75% of the tax due. The penalty for understatement of tax liability ranges from 50% (when the amount is 10% higher than the tax payer’s profits) to 100% bad faith). The authorities also may impose a “best judgment” assessment from 50% to 100% (bad faith). A 50% penalty is imposed to failure to pay the minimum income.
Ruling – No
Personal Taxation :
Basis – Resident individuals are assessed on their worldwide income and non residents on transaction carried out in Equatorial Guinea, from the first day of work performed in country.
Residence – Any person operating in Equatorial Guinea and staying more than 3 months in 1 calendar year or 6 months in 2 years is considered resident. In the oil and gas sector, individuals operating in Equatorial Guinea and staying in more than 3 months in 1 calendar year are considered resident. Absences of less than 30 days are not taken into account for the purpose of computing the period of residence.
Filing Status – The head of a family is subject to personal income tax both on his/her own income and on the income of his/her dependent children and spouse, subject to the individual’s right to elect to be assessed separately. A married woman is assessed separately if she is separated from her husband of if her husband is not subject to tax in Equatorial Guinea.
Taxable Income – Income from salaries, wages, pensions, annuities and per diems for attending meetings or board of directors is taxable, excluding special allowances to cover expenses relating to the position to the extent that expenses are effectively used for their objective and not excessive. Benefits in kind and cash allowances are taxable at specific rates.
Capital Gains – Capital gains include proceed from the sale of stock and options, income from securities, bonds, loans, deposits or from the sale of real estate assets. Capital gains accruing to individuals as a result of company mergers are not subject to personal income tax if the new company has its registered office in Equatorial Guinea or another CEMAC state. The standard tax rate on such income is the same as for the other categories. Capital gains are subject to the general tax rate, excepts for non residents who are subject to 25% withholding tax.
Deductions and Allowances – The extent to which a deduction from income will be allowed depends on the category of income. Allowable deduction include business expenses, contributions to pensions funds ( under specific conditions ), interest on loans taken out to build or repair the tax payer’s first house in Equatorial Guinea, alimony and payments made to the welfare fund on behalf of domestics employees. For salaries, wages, pensions, annuities, allowable deductions for business expenses amount to 20% of income but cannot exceed XAF 1 million.
Rates – Rates are progressive to 35%. Additionally, benefits in kind and cash allowances are taxable at the following rates on gross salary: housing- 15%; water, electricity, housekeeping and service or office car- 5%, food- 20% ( again imposed on gross salary with a maximum XAF 150,000).
Other taxes on Individual:
Capital duty – No
Stamp duty – Stamp duty is levied on the execution of various documents at rates ranging from 1% to 10%.
Inheritance/estate tax – A tax on “mortis causa” applies for all kinds of hereditary successions (10%), donations, (5%) and life insurance (10%).
Net wealth/net worth tax – No
Social Security – Employee’s contribute monthly to the National Security Fund (INSESO) and the Work Protection Fund and 4.5% of gross salary to INSESO.
Administration and compliance:
Tax year – Calendar year
About the Author
NJ is the Managing Partner of ECEG Legal with experience providing service to corporate entities in the Gulf of Guinea especially in the oil and gas sector.
NJ obtained a BA from the University of Maryland College Park and a Juris Doctor from WM College of Law in the United States. He further holds an MBA from the New York Institute of Technology. As Managing Partner of ECEG Legal, he focuses on representing clients in energy, oil and gas, banking, public institutions, regulatory compliance, mergers and acquisitions, starting businesses in Equatorial Guinea, business transactions as well as Taxation and arbitration. NJ provides legal and strategic advice on negotiation for the structuring of oil and gas projects in Equatorial Guinea and the Gulf of Guinea.
NJ is a frequent speaker/trainer/advisor on local content and negotiations in the oil and gas industry in Africa.
NJ began his legal career with Houston based Baker Botts, LLP’s Washington office where he gained entrée into the oil and gas sector, international business transaction and litigation.