Corporate tax in Madagascar

Summary

Corporate Income Tax Rate (%) 20
Capital Gains Tax Rate (%) 20
Branch Tax Rate (%) 20
Withholding Tax (%)
Dividends
0 (a)
Interest 20 (b)
Royalties 10 (c)
Other Non-salary Payments 5/10 (d)
Net Operating Losses (Years)  
Carryback 0
Carryforward 5
    a) The withholding tax on dividends was repealed in 2008. A parent-subsidiary regime exists (see Section B).
    b) This withholding tax applies to resident and nonresident corporations and individuals.
    c) This withholding tax applies to nonresident corporations.
    d) The 5% withholding tax applies to residents, and the 10% withholding tax applies to nonresident corporations and individuals.

Taxes on corporate income and gains

Corporate income tax. Resident companies deriving taxable in­come from activities carried out in Madagascar are subject to corporate income tax. Resident companies are companies incor­porated in Madagascar, which include subsidiaries, permanent establishments and branches of foreign companies.

Tax rates. The standard corporate income tax rate is 20%.

In general, the minimum tax is MGA100,000 plus 0.5% of annu al turnover (including capital gains) for companies carrying out the following activities:

  • Agricultural
  • Craft
  • Mining
  • Industrial
  • Tourism
  • Transport

This minimum tax equals 0.1% of annual turnover for fuel station filling companies. For companies engaged in other activities, the minimum tax is MGA320,000 plus 0.5% of annual turnover.

The minimum tax applies if the company incurs a loss or if the corporate income tax calculated using the 20% rate is less than the minimum tax to be paid as stated above.

Individuals or companies performing exclusively public market activities are exempt from minimum tax.

New entities performing industrial, handmade, agricultural, min­ing, transport, tourism and hotel activities are exempt from cor­porate income tax and minimum tax for their first two financial years.

Free zones’ companies. Free zones’ companies are exempt from corporate income tax for the first five years of their activities and are subject to corporate income tax at a rate of 10% for subse­quent years.

Large mining investments. Mining companies making invest­ments over USD25 million can benefit from legal and tax incen­tives if they are eligible under a special law called Loi sur les Grands Investissments Miniers (LGIM). They are ex empt from minimum tax for five years from the beginning of exploitation. The corporate income tax rates are 10% for owners of mining permits and 25% for the transformation entities.

Capital gains. Capital gains are included in taxable income and subject to the corporate income tax rate of 20%.

Administration. The standard tax year is the calendar year. How­ever, companies may select a tax year running from 1 July to 30 June or another tax year.

Companies using the standard tax year must file financial state­ments and the corporate income tax return with the Malagasy tax authorities by 15 May of the year following the tax year. For com­panies choosing a tax year-end other than the standard tax year­end, the filing must be made by the 15th day of the fourth month following the year-end. Companies must make six installments of corporate income tax for each tax year. Each payment must equal one-sixth of the preceding year’s tax amount. The installments are payable by 15 February, 15 April, 15 June, 15 August, 15 October and 15 December.

Before engaging in activities in Madagascar, an entity must apply for tax registration by completing a specified form during the company creation procedure. The tax registration for wholesalers requires the filing of a specific declaration. A tax identi fication card is issued to a new taxpayer on the completion of registration.

The tax identification card must be renewed every year at the time of submission of the corporate income tax return.

Taxpayers that compute taxable income under the actual or sim­plified actual regime must open a bank account in their name.

Financial statements provided to private or public entities require the visa or certification of the tax administration.

Nonresident entities must file a declaration that details all goods and services purchased during a financial year (annual third-party declaration).

Shareholders’ current-account transactions (loans granted by shareholders to the company) must be evidenced by registered-loan agreements and be regularly recorded.

In the case of a tax audit, the tax authority may require any docu­ments and information about the nature of the business relation­ships between a resident company and foreign company, the companies’ transfer-pricing methods, and the activities and tax regimes of the companies. A failure to provide documents and information to the tax authority is subject to a fine of MGA5 mil­lion (approximately USD2,300).

Industrialists and commercial enterprises under the value-added tax regime are required to have an analytical accounting and a stock card. A failure to comply with this obligation is subject to a fine of 1% of annual turnover. Analytical accounting is a system that is primarily intended to track expense and revenue accounts by categories in order to determine profit and loss for each activ­ity. A stock card is a statement of goods kept regularly on hand for use or sale.

Tax litigation claims may be made only if prior payment of accepted tax is made. The relevant receipt must be attached to the claim.

Tax may be collected through various legal means, including the seizure of assets. However, sales of seized objects are subject to prior written authorization of the Head of Tax Office.

Dividends. Special withholding tax on dividends was repealed in 2008. Companies are subject to corporate income tax on divi­dends received. Individuals are exempt from income tax on divi­dends received.

A special local parent-subsidiary regime exists. Under this re­gime, only 5% of the dividends received by parent companies from their subsidiaries is subject to corporate income tax. To benefit from this regime, the company receiving the dividends must satisfy the following requirements:

  • It must submit an application for the parent-subsidiary regime to the tax authorities before the end of the financial year.
  • It must be resident in Madagascar.
  • It must hold at least 75% of the share capital of the subsidiary.
  • It must be a public limited company or a private limited com­pany.
  • It must be subject to corporate income tax.
  • It must have a consolidated annual turnover of more than MGA200 million.
  • It must not have subsidiaries and branches located in jurisdic­tions that have lower tax rates than Madagascar.
  • It must not be subject to another preferential regime.

Withholding income tax. All payments made to nonresident service suppliers are subject to withholding income tax at a rate of 10%, regardless of whether the service is rendered inside or outside Madagascar. This is a final tax. The tax is withheld and paid by the recipient of the service to the competent tax authority before the 15th of the month following the month of payment.

Unregistered resident individuals and companies that import and export goods and/or provide services and goods to registered in­dividuals and companies are subject to income tax at a rate of 5%. This income tax is withheld by the following:

  • Custom agents for imported and exported goods
  • Purchasers for resident suppliers of goods and services

Determination of trading income

General. Taxable income is based on financial statements pre­pared according to the Chart of Account or the Plan Comptable Géneral (PCG 2005), which conforms to the International Finan­cial Reporting Standards (IFRS’ 2003 version) and International Accounting Standards (IAS).

Business operating expenses are generally deductible unless specifically excluded by law. The following expenses are not deductible:

  • Interest paid on shareholder loans in excess of the interest rate determined for the interest applicant by the central bank plus two percentage points on an amount not exceeding two times the authorized capital. None of the interest on shareholder loans is deductible if the capital is not fully paid up.
  • Certain specified charges and subsidies.
  • Taxes, penalties and most liberalities (payments that do not pro­duce a compensatory benefit to the company).
  • Interest, arrears, income from bonds, loans, deposits, royalties on operating licenses, patents, trademarks, manufacturing pro­cesses or formulas, or other similar rights and remuneration for services paid by residents to nonresident individuals or compa­nies, unless it is established that these payments are in line with the resident’s business, regularly evidenced and not exaggerated.

Expenses incurred on transactions with unregistered individuals or companies that have been subject to withholding tax of 5% are deductible if the correct tax has been paid to the tax authority.

Turnover and charges relating to public market are not included in the corporate income tax base. However, losses incurred in pub­lic-market activities are not deductible.

The 2014 Finance Act confirmed the arm’s-length principle for payments made between affiliated entities.

Inventories. Inventory is normally valued at the lower of cost or market value. For goods that are not identifiable, cost must be determined through the use of the weighted average cost-price method or the first-in, first-out method.

Provisions. Provisions are generally deductible for tax purposes if they are established for clearly specified losses or expenses that are probably going to occur and if they appear in the financial statements and in a specific statement in the tax return.

Depreciation. Land is not depreciable for tax purposes. Other fixed assets may be depreciated using the straight-line method at rates generally used in the industry. The following are some of the applicable straight-line rates.

Asset Rate (%)
Commercial and industrial buildings 5
Office equipment 10
Motor vehicles 15
Plant and machinery 10

In certain circumstances, plant and machinery and other assets may be depreciated using the declining-balance method or an accelerated method.

Tax credit. The 2012 Finance Act introduced a tax credit equal to 50% of the amount invested by entities engaged in renewable energy production and distribution activities. The 2013 Finance Act extends this incentive to other specified investments by enti­ties in the tourism, industrial or construction sectors. The credit is annually capped to 50% of the amount of corporate income tax. The excess amount may be carried forward without time limita­tion, subject to the above limit of 50%.

Relief for losses. Losses may be carried forward for five years. Losses attributable to depreciation may be carried forward indef­initely. Losses may not be carried back.

Groups of companies. Malagasy law does not provide for consoli­dated tax filings.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT); on goods sold and
services rendered in Madagascar; also
imposed on public and private companies
engaged in telecommunications activities,
redistribution of broadcasting and television
programs or the providing of services
electronically; entities that have annual
turnover of less than MGA200 million
(approximately USD100,000) are not
liable to VAT unless they voluntarily
apply for the VAT regime; materials and
equipment for the production of renewable
energy are exempt from VAT; cash payments
made between entities liable to VAT are
forbidden; only payments by bank check,
wire transfer, credit card, non-endorsed bill
of exchange and mobile banking are allowed
General rate 20
Special VAT on public market; discharges
entities from corporate income tax and VAT;
VAT is withheld by the public accountant at the
moment of payment (advances or balance) and
paid by the public accountant to the competent
tax authority by the 15th day of the following
month; the tax base is the amount of the
transaction; operator must file VAT returns with
the competent tax authority by the 15th day
of the month following the month of the withholding made by the public accountant; details of operations linked to the public market must be attached to the financial statements submitted to the tax authority at the end of
a financial year
8
Urban tax; annual tax on the rental value
of property that is part of business assets
Various
Registration duties on transfers of real
property, businesses or movable property,
and free inter vivos transfers
5
(The occupying or use of movable or
immovable property must be supported
by a lease agreement. This implies that
registration fees at a rate of 2% are
imposed on the total amount of rent
during the lease agreement period.)
Social security contributions
For family allowances; on gross monthly
remuneration; amount of remuneration
subject to contributions is limited based
on the minimum salary provided by decree
Employer 13
Employee 1
For illness and pregnancy; on gross monthly
remuneration, which is not limited; payable
by employer
5

Foreign-exchange controls

The currency in Madagascar is the ariary (MGA).

Exchange-control regulations exist in Madagascar. For foreign-exchange control purposes, the two kinds of operations are cur­rent operations and capital operations.

Current operations include transfers abroad of profits after pay­ments of taxes, dividends, earned income, expatriate allowances and savings. Current operations require only a transfer declaration to a local bank.

Capital operations include operations relating to stock transfers, shares of liquidation bonuses, sales of businesses or assets and compensation for expropriations. Capital operations involving transfers abroad require an authorization from the Ministry of Finance.

Madagascar is a member of the South African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA).

Treaty withholding tax rates

Dividends (%) Interest (%) Royalties (%)
France 0 15 10/15/17
Mauritius 0 10 5
Non-treaty countries 0 10 10*

* This withholding tax applies to nonresident companies.