A Quick Guide To Taxation In Liberia - PwC

Presumptive tax payersLimitation of DeductionsWhere a legal entity or natural personis expected to earn a gross incomeof less than LIB 3,000,000 (USD40,816.3) for a tax year, the personqualifies as a small taxpayer and has anobligation to pay corporate income taxat a rate of 4% of annual turnover inlieu of the income tax.Limitations to tax deductible expensesfrom gross income include personalexpenses, capital expenditure andLiberian or foreign income tax amongothers.Tax YearForeign exchange gains or loss will onlybe recognized when they are actuallyrealized (i.e. when payment is made.)The tax year is the calendar year unlessotherwise granted by the Minister ofFinance.The Minister may on a writtenapplication by a legal person (otherthan a trust for example) grantpermission to use some other 12-monthperiod as the tax year (fiscal year).Deductions allowedA taxpayer is permitted a deductionfor the ordinary expenses of producingincome during the tax year. Suchexpenses include among others;depreciation expense or amortizationof capital, losses incurred in abusiness and sustained during the taxyear, business interest on businessindebtedness etc.12Charting tax trendsForeign Exchange Gainsand LossesDepreciation andAmortizationAn annual allowance for depreciationand amortization of capitalexpenditures may be deducted inaccordance with physical and nonphysical depreciation of depreciableproperty.

The table below shows the various classes of assets and their annual tax depreciationrate:ClassAssetsDescriptionAssets includedRate1Heavy Machinery(based on pools)Tractors,Communicationtowers, powersupport towers,buses for at least20 passengers, airplanes, ships, heavytrucks (at least 5tons and similarequipment30%Light Machinery(based on pools)Passengerautomobiles,office furniture,computers, printers,telephones,passenger vansor buses for fewerthan 20 passengers,light trucks (lessthan 5 tons emptyweight) and similarequipment.40%Other (includingpetroleumexpenditure outsidea project area)To be depreciated15 years periodon an asset by asset SLMbasis by the straightline method (SLM)Used in agricultureBased on pools20%Used in miningand petroleumexplorationUsing SLM20% per ngible FixedPropertyCharting tax trends13

3OtherPatents, copyrights, and otherintangible property,including goodwillare depreciated onan asset by assetbasis15 years period atSLMUsed in miningUsing SLM20% per year orexpected period ofproduction if shorterIntangiblePropertySpecial IncentiveDeductiona) Incentives for New investmentsThere are special incentivesfor qualifying new investors inspecified sectors such as tourism,manufacturing, energy, health, low andmedium income housing, transport,communication, banking, agriculture,export and waste management.To qualify, the capital invested mustbe at least US 1 million for foreignowned business and for enterpriseswith 100% Liberian ownership, aminimum capital investment of US 300,000. For hospitals or health clinic,the minimum capital investment is US 50,000.The special tax incentive runs for5 years from the commencementof investment as per the investor’scertificate.14Charting tax trendsb) Incentive for Agricultural andRenewable resource contractorsA special incentive deduction isavailable in the first year in which anagricultural asset is placed into servicein an economically deprived zone. Theamount of deduction ranges between12.5%, 7.5% and 5% depending on thezone where the asset is put into use.Carry Over of tax lossesNet operating loss incurred in anyparticular year can be carried forwardto a maximum of five years. The earlierlosses will be relieved before thelater losses. Carry forward of lossesis permitted up to 5 years for generalcompanies and 7 years for mining,petroleum and renewable resourcesentities.

Limitation to carry overlossesIf within a period of three years thereis a change of at least 50% in theunderlying ownership or control of acompany, no carry forward is allowedof any losses from prior periods as wellas any concessions made as investmentincentives.DividendsDividend received by a residentcorporation from another residentcorporation is exempt from tax.This will however not apply wherethe dividend received is by virtue ofownership of redeemable shares inthe corporation paying the dividendor if the dividend is paid in a dividendstripping arrangement.Gains from the Disposition ofpropertyA gain or loss from the disposition ofproperty is includible in taxable incomeand taxed at the corporate income taxrate of 25%.Calculation of capital gainThe amount of gain or loss isdetermined by subtracting thetransferors adjusted tax cost for theproperty from the amount derivedfrom the disposition.Where payments for the transferredproperty include noncash property, thetransferor’s amount derived is equatedto the fair market value of the noncashproperty plus any cash equivalent thetransferor receives or is entitled toreceive as a result of the transfer.Lease transactionsIncome splittingIf a lessor leases tangible property toa lessee under finance lease contract,for the purpose of taxation, the lesseeis treated as the owner of the propertyand lease payments are treated aspayments made on a loan to the lessee.Where a person attempts to splitincome with another person, theMinister of Finance may adjustamounts to be included or deductedin calculating income. The RevenueCole of Liberia of 2000 (RCL) definesincome splitting to include transfersof income or property (includingmoney) to an associate with the resultthat the transferee receives or enjoysthe income from that property and areason for the transfers is to reduce thecombined tax liability of the transferorand transferee.Property TransferGain or loss on the disposition ofproperty is included in taxable income.Charting tax trends15

Property taxProperty tax is imposed on every owner of real property, except exempt realproperty. The tax is imposed on both improved and unimproved land. The ratesimposed vary depending on the description and location of the real property.16Charting tax trends

International transactionsGeographic source ofincomeIncome is from a source in Liberia ifit is derived from an activity whichoccurs in Liberia. It includes incomederived from an activity in Liberia,performance of services or employmentexercised in Liberia and incomederived from the disposal of theinterest of a shareholder of a residententity:Income derived from the sale,operation, rental or chartering of avessel is not from a source in Liberiaexcept to the extent such income isderived from transportation or useexclusively within Liberia.Income of a permanentestablishment (“PE”)Thin capitalisationDeduction for interest payable to anyperson other than a resident bankis limited to the amount of interestincome received plus 50% of taxableincome excluding interest income. Thisalso applies to mining and petroleumoperators except that the interestcarried forward does not expire.Relief from doubletaxationWhere an international agreementratified by Legislature has entered intoforce and establishes rules inconsistentwith those provided in the RevenueCode, the international agreementsupersedes the Revenue Code to theextent of the inconsistency.A PE of a non resident person in Liberiais treated as a resident legal personwith respect to the business carried outby that PE in Liberia.Transfer pricingThere is no specific regulation ontransfer pricing in the RCL. However,the Minister of Finance has the powerto adjust non arm’s length transactionsbetween related parties to reflect theactual tax payable had the transactionsbetween them been at arm’s length.Charting tax trends17

Witholding TaxThe following are currently the applicable rates of withholding taxesIncomeRate %RemarksResident personsInterest, royalties, Licensefees and similar payments15%Dividend (excludingresident corporations)Rent where the aggregateannual rental incomeexceeds LIB 70,00010%Payers of gamblingearnings20%Payments by mining,petroleum and renewableresource projectsInterest5%Dividends5%Services6%Payment for theacquisition of aninvestment asset in Liberia10%Payment to high risksuppliers20%Other payments, otherthan for employmentservices (LIB 100,000 ormore) for services10%Payment by a Governmentagency (other thanthe above mentionedpayments)4%Non-Resident persons18Charting tax trendsA high risk supplier is oneidentified as presenting ahigh risk of tax avoidance

Interest, royalties, Licensefees, dividend and similarpayments15%Final TaxRent15%Final TaxGambling winnings20%Final taxPayments by mining,petroleum and renewableresource projects Interest5% Dividends5% Services6%Other payments for15%services including paymentfor employment servicesrendered in LiberiaFinal taxPayment for theacquisition of aninvestment asset in LiberiaFinal tax15%Charting tax trends19

Administrative proceduresFurnishing of returns ofincomeA return on income should be filedwith the Bureau of Internal Revenue(BIR) within 3 months after the end ofthe person’s tax year. The return shouldinclude a separate statement of incomeand expenditure and a statement ofassets and liabilities for each businessundertaking carried on within thatbusiness by that person.Cases where a return isnot requiredIn the following cases, a return shallnot be filed by: A natural person with incomesubject to withholding and derives90% or more of gross income fromemployment income; A resident natural person whofor a tax period is a presumptivetaxpayer. However, this is subject tocertain conditions including filing apresumptive tax return and wearinga badge or displaying the badge.20Charting tax trendsAssessmentAn assessment of tax payable is madein one of the following ways: By self assessment in the form oftax payers statements of tax due onreturn for a tax year; By act of withholding; or By notice of determination.Payment of tax under assessment isdue on or before the due date specifiedin the notice of the assessment.Payment of Advance taxAdvance instalment taxes are due bythe 15th day following the end of eachquarter of the tax payer’s tax year.Offences and penaltiesThere are penalties and in some casescriminal liability applies for noncompliance with the tax law.

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Goods and Services TaxImposition of Goods andServices Tax (GST)A tax to be known as Goods taxand Services tax is imposed on thefollowing:Goods and Services tax payable by aregistered manufacturer and serviceprovider is recoverable by them fromthe recipient. Every taxable supply of goods by aregistered manufacturer;Persons required toregister Every taxable importation of goods;andAny person who carries on anybusiness of manufacture or businessof providing taxable services has anobligation to register as follows: Every supply of taxable servicesin Liberia by a registered servicesprovider.Person Liable for GST Goods Tax payable on taxable supplyof goods is to be accounted for by theregistered manufacturer; Goods tax payable on taxableimportation of goods is to be paidby the importer, unless the importeris a registered manufacturer andthe import is used to produce theregistered person’s manufacturedgoods; and Service Tax payable on a supply oftaxable services is to be accountedfor by the registered service providermaking the supply.22Recoverability of GSTCharting tax trends At the end of any twelve monthperiod where taxable supplies orservices totaling LIB 3,000,000 ormore was made; or At the beginning of any twelvemonths period where there arereasonable grounds to expect thattaxable supplies or services totalingLIB 3,000,000 or more will bemade.Any person having an obligation toregister per the above qualificationshall apply to be registered within 21days.

Definition of taxablesupply The term taxable supply of goodsmeans any supply (other than anexempt supply) of goods by themanufacturer thereof where themanufacturer of goods is in Liberiaand of services by the registeredservice provider in connection withthe carrying on of a business. The term taxable supply of servicesmeans any supply of services(other than an exempt supply) inconnection with the carrying on abusiness including; the supply ofelectricity, telecommunications,services supplied in carrying on abusiness of a hotel and other servicesin the sectors of air travel, vehiclerental, communications, automotiverepair services, professional services(other than medical) and portrelated service.A supply is made in connectionwith the carrying on of a businessof a person where the supply ismade as part of or incidental to, anyindependent economic activity of theperson whatever the purpose or resultsof that activity.Applicable GST RateThe rates of goods and service tax payable on the various taxable supplies are asbelow:Type of supplyRate (%)Goods and services7%Alcoholic beverages10%Export of goods0%Imported goods7%, 10% or 0% depending on the typeof imported goods;Other services including :10% Hotel services Gambling services Sale of tickets for international travel Travel agency sporting or game arranger servicesTelecommunications services15%Charting tax trends23

ReturnsEvery registered manufacturer and service provider shall file GST returns for eachtax period (calendar month) within 21 days after the end of the period, whetheror not any goods or service tax is due for such period.24Charting tax trends

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companies An entity is resident for tax purposes if that company: is incorporated or formed under the laws of Liberia and either: has its management and control in Liberia; or undertakes the majority of its operations in Liberia; Is a corporation, registered business company, limited liability company, foundation, trust, limited