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6.5. Deduction of Cross-Border Payments and Non-Deductible Expenses

Business expenses are deductible if meeting standard general rules. Moreover, the deductibility of certain expenses may be limited or disallowed by specific tax law provisions. Under the standard general rules, a business expense is deductible for tax purposes only if the expense:

  • was incurred for the direct interest of the business and is related to the business of the enterprise;
  • corresponds to an effective outlay and is supported by proper documentary proof;
  • results in the reduction of the net assets of the enterprise;
  • is included in the results of the tax year during which it was incurred; and
  • its deductibility is not excluded or limited by a specific tax law provision.

Specific limitations apply to the deductibility of payments to non-residents. Hence, head office overhead charged to a branch or PE in DRC is generally not deductible. Interest on indebtedness to certain non-residents is deductible only if meeting certain conditions (see Sec. 13.2.). Further, pursuant to Finance Law 2017, interest, royalties and payments for services of any kind paid by a resident or a non-resident with a branch or PE in DRC to a non-resident established in a low-tax country or in a non-cooperative jurisdiction, are deductible only if the payer proves that the payment is in remuneration of a genuine service or transaction and is not excessive. This limitation also applies to payments made to a bank account opened in a low-tax or non-cooperative jurisdiction, regardless of the place of residence of the account holder. A person is deemed to be established in a low-tax jurisdiction if not taxed therein, or if subject to a tax on profits therein but such tax is less than 50% (less than 70% with respect to mining companies) of the tax that would have been due in DRC in similar circumstances. A jurisdiction is classified as non-cooperative if not committed to international tax transparency and exchange of tax information standards.

With respect to the mining industry, the new Mining Code prescribes that service payments to non-resident persons which are directly or indirectly related to the payer, are deductible only if the following 4 conditions are cumulatively met:

  • The “quality” of the service rendered is clearly established;
  • The service cannot be rendered in DRC;
  • The service fee is commensurate with services rendered; and
  • The recipient is not established in a low-tax jurisdiction (see above for definition).

Furthermore, the following expenses are not deductible or have limited deductibility for DRC tax purposes:

  • Income tax
  • Legal or administrative fines of any nature
  • Charitable contributions or donations
  • Personal expenses (i.e. expenses incurred for private purposes), such as accommodation, school fees, leave indemnities, etc.
  • Interest on loans provided by the shareholder of private limited company (see Sec. 13.2.)
  • Director’s fees provided as per Corporations Act to members of the General Council
  • Expenses incurred on leased property including depreciation on the property
  • All judicial or administrative fines, and fees and charges relating to breaches by income beneficiaries
  • Benefits or aids granted to third parties without equivalent consideration are disallowed as a deduction