Income Tax & VAT (Part 2)

Guide to the Income and Value Added Tax Act, 2012

A Practical Guide for Businesses and Investors in The Gambia

This guide explains the principal provisions of the Income and Value Added Tax Act, 2012 that affect business operations, investment planning, corporate structuring and tax compliance in The Gambia.

CHAPTER I – PRELIMINARY

Tax Residency Rules

Resident Individuals

Section 5(1)

An individual is resident if he or she:

• Resides in The Gambia;

• Is present in The Gambia for 183 days or more in a tax year; or

• Is a Government of The Gambia employee or official posted abroad.

Resident Companies

Section 6

A company is resident if:

• It is incorporated or formed in The Gambia; or

• Its control and management are exercised in The Gambia.

Investor Implication

Residence determines whether worldwide income or only Gambian-source income is taxable. Sections 6, 15(3).

CHAPTER II – INCOME TAX

PART I – IMPOSITION OF INCOME TAX

Tax on Chargeable Income

Section 10(1)

Income tax is imposed on a person who has chargeable income for a tax year at the rates prescribed in the First Schedule.

Computation of Income Tax

Section 10(2)

Income tax is calculated by applying the applicable tax rates to chargeable income and deducting any allowable tax credits.

Tax on Non-Resident Investors

Dividends, Interest, Royalties and Technical Service Fees

Section 11(1)

A non-resident person receiving Gambian-source:

• Dividends;

• Interest;

• Royalties; or

• Technical service fees

is liable to tax.

Tax Rate

Section 11(2)

The tax is 15% of the gross amount received.

Investor Consideration

Foreign investors should review withholding tax consequences before:

• Repatriating profits;

• Licensing intellectual property;

• Charging management fees;

• Structuring financing arrangements.

Shipping and Air Transport Income

Non-Resident Operators

Section 12(1)-(2)

A non-resident ship or aircraft operator is subject to tax equal to 3% of gross receipts relating to passengers, livestock, mail or goods embarked in The Gambia.

Final Taxes

Final Tax Treatment

Section 13

Tax imposed under Sections 11 and 12 is generally a final tax:

• The income is not included in gross income.

• No deductions are allowed.

• Losses cannot reduce the taxable amount.

• Tax credits cannot be claimed against that liability.

PART II – CHARGEABLE INCOME

Chargeable Income

Definition

Section 14

Chargeable income equals:

Gross Income – Allowable Deductions.

PART III – COMPUTATION OF CHARGEABLE INCOME

Gross Income

Components of Gross Income

Section 15(1)

Gross income includes:

• Business income;

• Employment income;

• Property income; and

• Other taxable income.

Worldwide Taxation of Residents

Section 15(3)(a)

Resident persons are taxed on income from all geographical sources.

Non-Resident Taxation

Section 15(3)(b)

Non-residents are taxed only on Gambian-source income.

Business Income

Definition

Section 16

Business income means any profit or gain arising from business.

Business Implication

Revenue generated from trade, commerce, professional activities and other business undertakings generally falls within taxable business income. Section 16.

Property Income

Definition

Section 19(a)-(b)

Property income includes:

• Dividends;

• Interest;

• Royalties;

• Rent;

• Natural resource payments;

• Pensions and annuities,

provided such amounts are not business income or employment income.

Investor Relevance

Investment returns are often taxed under the property income provisions. Section 19.

EXEMPT INCOME

Non-Profit Organisations

Exemption

Section 25(1)

Income of a non-profit organisation is exempt, except business income derived from carrying on a business.

Qualifying Organisations

Section 25(2)(a)-(e)

These include:

• Religious institutions;

• Charitable institutions;

• Educational institutions;

• Trade unions;

• Cooperatives; and

• Registered political parties.

Retirement Funds and Pensions

Approved Retirement Funds

Section 27(1)-(2)

• Property income of an approved retirement fund is exempt.

• Certain retirement lump-sum benefits are exempt.

Pensions

Section 28

Specified categories of pensions receive exemption from income tax.

DEDUCTIONS

General Deduction Rule

Deductible Expenditure

Section 34(1)

A taxpayer may deduct expenditure incurred in deriving gross income.

Mixed-Purpose Expenditure

Section 34(2)

Only the portion relating to income generation is deductible.

Non-Deductible Expenditure

Deductions Prohibited

Section 35(1)(a)-(j)

No deduction is allowed for:

• Private or domestic expenditure;

• Capital withdrawals;

• Certain capital expenditure;

• Income taxes;

• Fines and penalties;

• Bribes and kickbacks.

Capital Allowances

Annual Allowance for Depreciable Assets

Section 36(1)-(2)

Businesses may claim annual wear-and-tear deductions on depreciable assets.

Depreciable Assets

Section 36(12)

Include:

• Tangible movable property;

• Structural improvements to immovable property used in business.

Investment Significance

Capital-intensive projects can benefit substantially from annual allowance deductions. Sections 36(1)-(12).

Initial Allowance

New Assets

Section 37(1)-(2)

A person placing an eligible asset into service in The Gambia for the first time may claim:

• 20% initial allowance for plant and machinery; or

• 10% for buildings, structures and permanent works.

Intangible Assets

Amortisation

Section 38(1)-(2)

Businesses may claim amortisation deductions for:

• Patents;

• Copyrights;

• Trademarks;

• Contractual rights;

• Long-term business advantages.

Investor Relevance

Important for technology, telecommunications, licensing and intellectual property investments. Section 38(9).

Interest Deductions

Interest Expense

Section 41(1)

Interest is deductible where borrowed funds are used in deriving gross income.

Limitation

Section 41(2)-(4)

Certain limits apply to interest deductions and excess amounts may be carried forward, subject to statutory conditions.

Carry Forward of Business Losses

Loss Relief

Section 45(1)-(2)

Business losses may be carried forward and deducted against future income.

Limitation Period

Section 45(2)

Losses cannot be carried forward for more than six tax years.

Investor Due Diligence Point

Historic tax losses can represent valuable tax assets, subject to statutory restrictions. Section 45.

PART IV – RULES REGARDING PERSONS

Taxation of Companies

Separate Taxpayer Status

Section 67(1)

A company is taxed separately from its shareholders.

Dividend Taxation

Section 67(2)

Shareholders are taxed on dividends received from companies in accordance with the Act.

Change of Control Rules

Loss Restriction

Section 68(1)

Where there is a change of 50% or more in ownership, carried-forward losses may be denied unless statutory conditions are satisfied.

Investment Consideration

This provision should be reviewed carefully during mergers, acquisitions and corporate restructuring transactions. Section 68(1)(a)-(b).

PART VI – INTERNATIONAL TAXATION

Gambian-Source Income

Source Rules

Section 70

The Act contains detailed rules governing the source of:

• Employment income;

• Business income;

• Dividends;

• Interest;

• Royalties;

• Rent;

• Technical service fees;

• Capital gains.

Foreign Investors

The source provisions are fundamental in determining whether The Gambia may tax particular transactions. Sections 70(2)-(16).

Foreign Tax Credits

Relief from Double Taxation

Section 72(1)

Residents paying foreign tax on foreign-source income may claim a foreign tax credit.

Credit Limitation

Section 72(1)(a)-(b)

The credit is limited to the lesser of:

• Foreign tax paid; or

• Gambian income tax attributable to that income.

Tax Treaties

Treaty Priority

Section 76(3)

Where a valid tax treaty conflicts with the Act, the treaty generally prevails.

ANTI-AVOIDANCE PROVISIONS

Associated Persons

Transfer Pricing Adjustments

Section 77(1)

The Commissioner-General may adjust transactions between associates to reflect arm's-length results.

Tax Avoidance Schemes

Re-characterisation Power

Section 78(1)(a)-(c)

The Commissioner-General may:

• Re-characterise transactions;

• Ignore transactions lacking economic substance; or

• Adjust transactions whose legal form differs from economic reality.

MINIMUM INCOME TAX

Businesses Subject to Minimum Tax

Imposition

Section 79(1)

Businesses are subject to minimum income tax in addition to normal income tax.

Rate

Section 79(3)

• 2% of turnover for businesses with audited accounts.

• 3% of turnover for businesses without audited accounts.

VALUE ADDED TAX (VAT)

VAT Imposition

VAT Charged

Section 142

VAT is imposed in accordance with Chapter VI of the Act.

Taxable Supplies

Taxable Supplies

Section 152

VAT applies to taxable supplies of goods and services.

Exempt Supplies

Section 154

Certain supplies are exempt from VAT.

Exempt Imports

Section 156

Certain imported goods are exempt from VAT.

VAT Registration

Registration Requirement

Section 172

Businesses meeting the statutory registration requirements must register for VAT.

Voluntary Registration

Section 173

Businesses may apply for voluntary registration where eligible.

Input Tax Credits

Recovery of Input VAT

Section 176

Registered persons may claim input tax credits subject to the Act.

VAT Returns

Return Filing

Section 184

Registered persons must furnish VAT returns.

Payment of VAT

Section 186

VAT is payable by the statutory due date.

COMPLIANCE CHECKLIST FOR BUSINESSES AND INVESTORS

Requirement

Relevant Section

Determine residency status

ss. 5-9

Compute chargeable income

ss. 14-19

Claim deductions properly

ss. 34-45

Review capital allowance opportunities

ss. 36-38

Assess business loss utilisation

s. 45

Understand source of income rules

s. 70

Claim foreign tax credits where available

s. 72

Evaluate treaty protection

s. 76

Review related-party transactions

s. 77

Monitor minimum income tax exposure

s. 79

File income tax returns

s. 80

Register for VAT where required

s. 172

File VAT returns and pay VAT

ss. 184-186

Key Takeaway: For investors, the most important provisions are Sections 11, 67, 68, 70, 72, 76, 77 and 79. For operating businesses, Sections 14-45 and 142-186 form the core compliance framework governing income tax, deductions, capital allowances, VAT registration and VAT reporting.