TAXABLE PROFITS IN CAMEROON

Profits liable to the company tax shall be determined with sole regard to profits earned by businesses carried on or transactions effected in Cameroon, subject to the provisions of international conventions.

The following shall be deemed to be operating in Cameroon;

• Undertakings headquartered in Cameroon or with effective management office in Cameroon
• Undertakings that have a permanent establishment in Cameroon;
• Undertakings that have a dependent representative in Cameroon.

The profits of the undertakings that do not fulfil the conditions referred to in paragraph (1) above shall be taxable in Cameroon where they carry out activities that form a full business cycle in Cameroon.

The taxable profits shall be the net profits determined according to the results of all transactions of any kind effected by the undertaking during the period of assessment including, in particular, the transfer of any assets in the course of or on the completion of trading.

The net profit shall consist of the difference between the value of the net assets at the closing and opening of the period whose results will serve as a basis for assessment, reduced by the additional assets brought in and increased by the drawings effected by members during this period. By net assets is meant the surplus of the value of assets over the total liabilities made up by third-party claims, depreciation and justified provisions.

Stocks shall be valued at cost price; if the market price is lower than the cost price, the undertaking shall make provisions for depreciation of stock. Work in hand shall be valued at cost.

Net taxable profit shall be established after deduction of all charges directly entailed by the exercise of activities subject to assessment in Cameroon, in particular:

1. Overhead expenses

All types of overheads, expenses on staff, labour, offices, equipment and furniture, sundry and exceptional expenditure, insurance premiums, acts of liberality, gifts and subsidies.

However, the following expenses shall be treated thus:

(1) Sundry remunerations and provision of services:

1. The remuneration granted to salary and wage-earners shall be deductible from the results in so far as they are not excessive in comparison to the service rendered, correspond to effective work, and are in conformity with conventional norms.

This provision shall apply to all direct and indirect remuneration, including compensations, allowances, benefits in kind and reimbursement of expenses.

Nevertheless, a deduction to the tune of 15% shall be made on the basic salary excluding other social welfare contributions representing only employers’ dues paid abroad for the compulsory constitution of the pension of an expatriate.

2. The attendance fees granted to the members of the board of directors shall be deductible only in so far as they represent remuneration for work done.
3. The fixed allowances which a company grants to its managerial or senior staff as entertainment and travelling expenses shall be excluded from such deductible expenses in the assessment of tax, when they include the usual type of expenses reimbursed to the persons concerned.

The sums paid to the managerial or senior staff of a company as employment or service expenses allowance which do not correspond to a real expense on the duty performed shall be reinstated in the operating results. For the implementation of this provision, managers shall mean active partners and members of partnerships and joint-ventures.

All expenses relating to hunting, angling, the use of pleasure boats, tourist planes and pleasure homes shall equally be excluded from the deductible expenses whether they be in the form of fixed allowances or reimbursement expenses.

4. Subject to international agreements, the following shall be regarded as expenses on condition that they are not exaggerated:

• Head office overheads for operations carried put in Cameroon and the remuneration of certain effective services (studies; technical, financial or accounting assistance) provided to Cameroonian firms by foreign or Cameroonian natural persons or corporate bodies.

On no account shall there be accepted on this basis any sum exceeding 2.5% of the taxable profit before deducting the expenses concerned.

In case of a deficit, this provision shall apply to the results of the last financial year not prescribed.

The ceiling stipulated above shall be fixed at 1% of the turnover for the firms specialized in public works and 5% of the turnover for design firms operating in accordance with the regulations relating to design firms and consulting engineers.

• Commission or brokerage on goods purchased by enterprises situated in Cameroon, shall be to the benefit of these enterprises within the limit of 5% of the purchase price. This commission should be billed and the receipt attached to that of the suppliers.
• The amounts paid for the use of valid patents, brands, designs and models within the overall limit of 2.5% taxable profit before the deduction of expenses claimed. This ceiling shall not apply to the amounts paid to firms not participating directly or indirectly in the management or capital of a Cameroonian firm.

Nevertheless, when these amounts are profitable to a firm located outside the Central Africa Economic and Monetary Community (CEMAC) and participating in the management of a Cameroonian firm in which it hold shares, they shall be considered as sums accrued from the distribution of profits.

When their partners on the payroll of the firm are on leave, companies shall be authorized  to  deduct from  their  profits,  on  condition that  the  journey  was  made,  the transport expenses to and fro of the said  partners,  their  spouses and dependent children.

Under no circumstances shall such expenses give rise to a depreciation allowance account.

2. Rental Expenditure

The amount for rentals granted to a company shall be regarded as part of the expenses on condition that it is not exaggerated in comparison with the rentals usually paid for similar property or facilities.

Nevertheless, when a partner has at least 10% of the holdings or shares of a company, the proceeds from the rentals other than those from the property granted to such company shall not be considered as expenses of the firm.

For the implementation of this provision, the holdings or shares held as property or as usufruct by the spouse, relatives in the ascending or descending line of the partner, shall be deemed to belong to the partner.

3. Taxes, charges and fines

Only the professional taxes issued for collection during the financial year and which are to be borne by the firm in relation to the operations carried out in Cameroon shall be subject to deduction.

Company tax and personal income tax shall not be considered as deductible expenses for the levying of taxes.

Rebates granted on the deductible taxes shall fall under the revenue of the financial year during which the company shall be notified of the authorization of payment thereof.

Compounding fees, fines, confiscations, any penalty concerning persons who violate the legal, economic and fiscal provisions shall not be deducted from the profits subject to taxation.

(4) Insurance Premiums

The following shall be deducted from the taxable profits and specifically relating to the share of operations carried out in Cameroon:

• insurance premiums contracted for the company where the very risk covered leads directly to a net reduction of assets;
• insurance premiums which, themselves, represent operating costs;
• sickness insurance premiums paid to local insurance companies for members of staff and their spouses and dependent children, where the reimbursement of expenses to the very persons fails to appear under deductible charges;

But, the sums raised by the company with a view to taking out its own insurance policy shall not be deductible from taxable profits.

• Premiums paid by firms to local insurance companies under contracts relating to career wind-down allowances.

(5) Acts of liberality, gifts and subsidies

Acts of liberality, gifts and subsidies shall not represent the charges deductible from profits.

However, payments made to research and development bodies and to collective philanthropic, educational, sports, scientific, social and family institutions and bodies, on condition that the latter are situated in Cameroon, shall be deductible as soon as there is proof of payment and as long as they do not exceed 0.5% of the turnover for the financial year.

Donations, grants and subsidies awarded to clubs participating in elite national competitions, or to recognized organizations responsible for the organization of official sports competitions are deductible when they are justified and within the limit of 5% of the annual turnover.

However, shall be totally deductible when justified, the sums granted to:

• The State or Decentralized Territorial Collectivities for the fight against HIV/AIDS;
• Authorize research and development bodies located in Cameroon and exercising in the health, agriculture and animal husbandry domains.

Similarly, gifts made on the occasion of a disaster, shall be deducted in the form and conditions determined by order of the Minister of Finance.

B – Financial Costs

Interest on sums of money left or placed at the disposal of the company by partners in addition to their capital shares, irrespective of the form of the company, within the limit of those calculated at the rate of Central Bank advances increased by two percentage points and subject to the following conditions:

• Existence of a written and duly registered loan agreement;
• Subscribed share capital fully paid up.

However, such deduction shall possible with respect to partners who directly or indirectly own at least 25% of the share capital or corporate voting rights only if:

• The sums of money made available by all the partners do not exceed one and a half times the amount of equity. Otherwise, interest on the excess amount shall not be deductible;
• The interest paid to the said partners does not exceed 25% of profit before corporate tax and before deduction of the said interest and amortizations taken into account in determining such profit. Otherwise, the excess amount of interest shall not be deductible.

C – Actual losses

The following shall be deductible from profits:

• Losses on items of fixed or realizable assets, except losses resulting from misappropriation by a partner or a manager of the enterprise, or where misappropriation is as a result of negligence on the part of managers.
• Losses due to bad debts for which all ways and means of amicable or forced recovery provided for by the OHADA Uniform Act Organizing Simplified Recovery Procedures and Enforcement Measures have been exhausted.

However, losses due to bad debts of an amount less than CFAF 500 000 which has been provisioned over a minimum period of five (5) years shall be deducted automatically, without having to justify the exhaustion of the amicable or forced recovery procedures provided for by the regulations in force.

• Losses due to damage duly established and validated in the presence of a taxation officer with at least the rank of an inspector, under the conditions specified in the Tax Procedures Manual.

However, for damages and breakages incurred by companies in the brewing sector, the related losses shall be deducted at a flat rate of 1% of the total production volume.

4. – Depreciation

Depreciation actually computed in consideration of the probable period of usage according to the norms of each operation, including those which might have already been deferred in times of deficit without using rates which may not exceed those fixed below.

Depreciation rates specific to certain sectors of activity may be fixed by a separate joint instrument of the ministers in charge of finance and the sector concerned.

Depreciation deferred regularly during a deficit period must be charged from the first surplus financial year. In   any case their deduction may not be allowed beyond a period of ten year.

Small equipment and tolls.

The threshold for small equipment and tools which should be recorded under assets shall be fixed at five hundred thousand (500, 000) CFAF.

5. – Provisions

Provisions constituted to meet clearly specified losses or charges rendered probable by the course of events, provided that they are actually shown in the annual accounts and appear in the statement of provisions specified in Section 18 hereafter.

Besides the general conditions for deduction of the provisions provided for above, the provisions for doubtful debts must:

– Consist of receivables recorded on the assets side of the balance sheet and not covered by real guarantees;

– Have given rise, against the debtor, to the implementation of the amicable or forced recovery procedures and means provided for by the OHADA Uniform Act on the organization of simplified recovery and enforcement procedures.

For the specific case of credit establishments, with the exception of provisions for bad debts whose allocation is optional, the deduction of provisions for bad debts and doubtful commitments shall be effected as follows:

• Over a two years period, for bad debts and doubtful commitments whose risks are not covered either by collateral securities or State guarantee. In this case, deduction may not exceed 50% of bad debts and commitments per annum;
• Over a three years period, for bad debts and doubtful commitments whose risks are not covered by collateral securities. In this case, deductions may not exceed:

• 25% for the first year,
• 50% for the second year,
• 25% for the third year.

The situation of these provisions must be definitely determined at the end of the third year of their constitution, with the exception of those which concern bad debts and doubtful commitments brought before law courts.

In no event shall any provision be constituted for charges accountable, by their nature, in the year in which they are incurred.

F – Claims and debts expressed in foreign currency

Losses incurred during exchange transactions may not require the accumulation of deductible provisions.

However, currency conversion margins, claims and debts expressed in foreign currencies, as opposed to the amounts initially entered into the accounts, shall be assessed at the end of each financial year, taking into account exchange rates which are used to determine the taxable turnover for the financial year.

Currency conversion margins concerning less than one year old debts expressed in foreign currencies shall be deductible in determining the taxable turnover for the same financial year.

But currency conversion margins concerning long-term debts expressed in foreign currencies shall be deductible at the rate of actual reimbursements. The same shall be true for short- and medium-term claims.

The expenses referred to in Section 7 above equal to or greater than CFAF 500 000 (five hundred thousand) shall not be deductible when paid in cash.

(2) The following taxes shall also be non-deductible:

• Expenses supported by invoices not bearing a single Identification number on the tax payers’ card, to the exclusion of invoices submitted by foreign suppliers;
• Expenses relating to remunerations of all kinds paid to liberal professionals exercising in violation of the regulations governing their respective profession.

The cost and remunerations of all types posted in the accounts records by a natural persons or legal entity resident or established in Cameroon and linked to transactions with natural persons or legal entities resident or established in a territory or state considered to be a tax haven, shall not be deductible in determining the company tax or income tax of individuals in Cameroon.

2. However, property and merchandise required for production purchased in their country of production and which have been cleared at the customs, as well as remuneration for services rendered in relation thereto shall be deductible.
3. Any state or territory wherein the tax on income of a natural person or legal entity is less than a third of that paid in Cameroon, or any state or territory considered not to be cooperative in matters of transparency or exchange of information required for fiscal purposes by international financial organizations shall be considered a tax haven.

Capital gains, other than those realized on merchandise, resulting from the gratuitous allocation of shares, founders’ shares, partnership shares or debentures on the merger of companies and limited liability companies, even where they operate as sole proprietorships, shall be exempt from tax levied on company profits provided that the company taking over or the new company has its registered office in Cameroon or another CEMAC State.

The same rule shall apply where a company or a limited liability company transfers the whole of its assets to two or more companies formed for the purpose (split) or assigns part of its assets to another company constituted in any of the said forms (partial contribution of assets) on condition that:

• The assignee companies have their registered office in Cameroon or in another CEMAC country;
• The contributions resulting from these conventions shall take effect on the same date for the various assignee companies and shall thus entail the immediate dissolution of the assignor company in the event of merger or split.

However, the application of the provisions of this Section shall be subject to the obligation established in the instrument of merger or contribution, to calculate in respect of assets other than merchandise included in the contribution, the annual depreciation to be set against profits and the subsequent capital gains resulting from the realization of such assets on the basis of their cost to the merging or contributing companies, less any depreciation already shown by them.

This obligation shall bind the new company or the company taking over in the case mentioned above, and either respectively the assignee companies proportional to the value of the assets assigned or the company benefiting by the contribution, in the case mentioned in the tax code.

Notwithstanding the provisions of Section 6 (1) of the tax Code and in the case of total or partial sale, transfer or termination of the activity, the net capital gains, i.e. those obtained after the deduction, if any, of realized losses, sustained in the transfer of fixed assets, and allowances in exchange or as compensation for the cessation of the practice of the profession (activity) or transfer of the clientele, are taxed as follows:

• For half of their value when the cessation, transfer or termination takes place less than five years after the creation, purchase of the business or clientele;
• For a third of their value otherwise.

In the case of cooperative societies, bonuses realized from transactions with members and shared among them proportionately to their order shall be deductible from profits.

(1) Any loss sustained in a given year shall be considered a charge on the following year and deductible from profits made in that year. Should this profit be inadequate for the deduction to be made in its entirety, the loss still outstanding shall be carried forward to subsequent years up to the fourth year after initial loss.

(2) For credit institutions and State portfolio companies undergoing restructuring, the deficit surplus may be carried forward until the end of the sixth year following the deficit year.

Where a joint stock company or a limited liability company owns either registered stock in a joint-stock company or shares in a limited liability company, the net proceeds of the shares in the second company paid to the first during the financial year shall be deducted from the total net profit of the latter, less a percentage for costs and charges.

This percentage shall be fixed at 10% of the total amount of the said proceeds.

However, this provision shall apply only:

• When the stocks or shares owned by the parent establishment represents at least 25% of the capital of the subsidiary firm.
• When the parent and subsidiary firms have their registered office in a CEMAC State.
• When the stocks or shares allotted at the time of issue are still registered in the name of the participating company which undertakes to retain them for two consecutive years at least in registered form.

Any breach of this undertaking shall result in the assessment of the improperly exempted income, without prejudice to the penalties enforceable for inadequate returns.

Concerning banking and credit establishments, firms engaged in the investment or management of transferable securities, all arrears, and interest of other proceeds exempt from the tax on income from securities shall be excluded from the deduction above.