CAMEROON LAW AND PRACTICE Contributed by: Serges Martin Zangue, Brandon Ntahdui, Joel Noussie, Julienne Happi, Mathias Choudjem, Maeva Pokem, Winy Felifack and Synthia Pamela Dounking Amfouo, Zangue & Partners
Earnings stripping with intercompany debt The use of intercompany debt is possible, but there are strict regulations concerning deductible interest and thin capitalisation. In Cameroon, companies must comply with transfer pricing rules and avoid structural abuses to artificially reduce the tax base. The tax authority controls intra-group transactions to ensure that interest paid is at market rates and does not allow excessive profit transfer to entities based in low-tax jurisdictions. In addition, Cameroon imposes limits on interest deductibility if a company is deemed undercapitalised. For example, the ratio of debt to equity is subject to restrictions. Cross-licensing or similar arrangements Cross-licensing agreements, which may include roy - alty payments or transfers of intellectual property (IP) between companies in the same group, are author - ised but must be properly documented and justified to avoid any form of transfer price manipulation. In addition, payments of royalties by Cameroonian com - panies must meet certain conditions in order to be fully or partially deductible. Use of net operating losses to shelter future income In Cameroon, tax losses can be carried forward to subsequent tax years to reduce tax on future profits, although this measure is subject to specific conditions. A loss incurred during a given year is considered as an expense for the following year and deducted from the profit for that year. However, the carry-forward of this deficit is authorised, subject to restrictions such as a maximum period after which the deficit can no longer be carried forward. Companies must ensure that the loss carry-forward is properly documented and complies with tax rules. Benefits of tax consolidation by companies and their controlled subsidiaries Tax consolidation is not explicitly provided for under Cameroonian Law. However, there may be scope for offsetting profits and losses between group compa - nies under certain conditions.
Companies must ensure that all tax strategies used are legal and transparent. Any attempt at tax evasion or abusive manipulation of tax mechanisms can result in severe penalties, including fines and tax reassess - ments. 9.4 Tax on Sale or Other Dispositions of FDI In Cameroon, a sale or other deposition of FDI realised by foreign investors is subject to capital gains tax. However, a sale or other deposition realised by foreign investors on FDI may be exempt from capital gains tax, but this depends on the specific circumstances and tax regimes in force. Example cases of exemp - tion include: • small capital gains on shares or bonds that do not exceed XAF500,000; • innovative start-ups in the field of information and communication technologies grouped within man - agement structures set up as approved manage - ment centres – these benefit from a five-year tax exemption during the incubation phase; • capital gains on the sale of start-ups – these are subject to a reduced rate during their first five years of operation (after the incubation phase); • legal entities or individuals operating under the free zone regime – these benefit from total exemption, for the first ten years of their operation, from direct taxes and duties in force or to be created, as well as from registration and stamp duties of any kind whatsoever; • FDI in economically affected areas – this may quali - fy for special relief; and • FDI in the agriculture, tourism or infrastructure sec - tors – this may also benefit from temporary exemp - tions from tax. Cameroon’s tax legislation does not specifically pro - vide for tax benefits for foreign investors using a blocker corporation or other tax-preferred vehicle. Investments structured through jurisdictions with favourable tax treaties may reduce or exempt capital gains tax. However, Cameroon has tightened anti-tax haven measures by increasing tax rates on payments to beneficiaries established in tax havens.
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