Business expenses are deductible, including when paid to non-residents, if incurred for the purposes of the business, are supported by proper records, are not excessive, are not in the nature of capital expenditure and are not expressly disallowed by tax law provisions.
The Finance Law 2018 introduced new specific limitations regarding the tax deduction of payments to residents of countries with preferential tax regimes and non-cooperative jurisdictions. Payments to persons established in countries with preferential tax regimes are deductible only if the payer proves that the payment is in remuneration of a genuine service and is not excessive. Payments to persons established in non-cooperative jurisdictions are not deductible for tax purposes. A person is deemed to be established in a country with a preferential tax regime if not taxable therein or if the tax due on profits is more than 50% lower than the tax that would have been due in CAR in the same circumstances. Non-cooperative jurisdictions are defined as jurisdictions not meeting international transparency standards as listed by OECD, the UN, and CEMAC (the Central African Economic and Monetary Community) as may be completed by the Minister in charge of Finance.
The following expenses are not deductible or have limited deductibility for CAR tax purposes:
- Personal expenses are not deductible;
- Interest paid to shareholders in excess of the Central Bank annual rate plus two points is not deductible;
- Corporate income tax, fines, and penalties are not deductible;
- Gifts and donations are not deductible;
- Premiums paid for self-insurance are not deductible;
- Commission or brokerage fees paid to non-CEMAC residents in respect of goods purchased are non-deductible for the excess over 5% of the value of imports and exports.;
- Expenses over XAF 200,000 paid in cash are not deductible;
- Rent for movable equipment paid to a shareholder holding more than 10% of the capital is not deductible; Non-arm’s length expenses incurred for services and payments made for certain purchases to non-resident natural or legal persons that are established in territories or states considered to be tax havens or subject to a preferential tax regime are not deductible; and
- The deduction of head office overhead charges is capped at 20% of income before the deduction of such charges.