DEMOCRATIC REPUBLIC OF CONGO Law and Practice Contributed by: Salvatrice Bahindwa, Concorde Akonkwa and David Djunga, LegalterLaw
Although the DRC does not possess a formal fiscal consolidation regime, an adequate structuring of flows within groups can achieve similar objectives. The uti - lisation of regional holding companies in treaty juris - dictions likewise optimises the taxation of dividends. Specific arrangements such as special economic zones and sectoral incentives complement the avail - able optimisation arsenal. However, these strategies must form part of a rigorous compliance approach, as the Congolese tax authorities have considerably strengthened their controls in recent years. 9.4 Tax on Sale or Other Dispositions of FDI In the Democratic Republic of Congo, capital gains realised by foreign investors upon disposal of foreign direct investments are taxable. These capital gains are incorporated into the standard taxable base and subject to the corporate tax rate of 30%, following the territoriality principle which gov - erns the Congolese tax system. The mining legislation has, however, introduced par - ticular provisions concerning the transfer of shares by non-resident entities. Pursuant to the mining regula - tions, capital gains realised by foreign legal persons on the sale of shares held, directly or indirectly, in a company holding mining rights situated in the DRC are deemed to be of Congolese origin insofar as the transfer of said shares equates to the transfer of a fraction or the totality of tangible and intangible assets and mining reserves constituting the assets of the legal person established in the DRC. The Mining Regulations further provide that any trans - fer of shares in a legal person holding mining rights is subject to the payment of proportional duties for the benefit of the Public Treasury at a rate of 1% calcu - lated on the nominal value of the transferred shares. For foreign investors seeking to optimise their tax position, several options exist. The Investment Code offers fiscal advantages to investments approved under the Investment Code regime.
Special economic zones, the first of which was launched in 2020, offer temporary tax exemptions of five to ten years. 9.5 Anti-Evasion Regimes Transfer Pricing Rules The Congolese tax legislation requires that transac - tions between associated enterprises respect the arm’s length principle. This principle mandates that the commercial and financial conditions of intragroup transactions be comparable to those that would be practised between independent enterprises. Multinational enterprises operating in the DRC must prepare and maintain detailed documentation justify - ing their transfer pricing policy. This documentation must notably include: • a functional analysis of the entities involved; • the chosen price determination method; and • comparability analyses justifying the prices used. The Congolese tax administration possesses the power to make adjustments when it deems that the prices used deviate from the arm’s length principle, resulting in the reintegration of profits unduly trans - ferred abroad into the Congolese taxable base. Control of Payments to Foreign Entities Payments of interest, royalties and service fees to foreign entities are subject to enhanced scrutiny and are subject to withholding taxes. The tax administra - tion may challenge the deductibility of these expenses when they appear excessive or do not correspond to services actually rendered. The DRC applies thin capitalisation rules which limit the deductibility of interest paid to related enterprises when the indebtedness of the Congolese enterprise exceeds certain thresholds. These provisions aim to prevent the erosion of the taxable base through exces - sive indebtedness to entities within the same group. The Congolese tax administration may challenge operations devoid of real economic substance and which are primarily motivated by tax considerations.
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