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