VAT, GST and Sales Tax in Madagascar

Summary

Name of the tax Value-added tax (VAT)
Date introduced 1962
Trading bloc membership Common Market for Eastern and Southern Africa (COMESA); Tarif Préférentiel Spécial with China (TPS); Système Generalisé de Préférences (SGP); Commission de l`Océan Indien (COI); Accord de Partenariat Economique (APE); Southern African Development Community (SADC)
Administered by Ministry of Finance and Budget (www.mefb.gov.mg)
VAT rates
Standard 20%
Reduced 0%
Other treatment Exempt; exempt with credit; special procurement contracts
VAT number format Not applicable
Thresholds
Registration MGA200 million (annual turnover exclusive of taxes)
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to legal persons carrying out economic activities habitually or occasionally in Madagascar, including such activi­ties as:

  • Trade
  • Commercial, industrial, agricultural, handmade, mining, hotel activities
  • Games exploitation
  • Service delivery
  • Liberal profession
  • Import
  • Supply of goods and services
  • Construction
  • Miscellaneous, except express exemption

The following are outside the scope of VAT and should not be included in the computation of taxable operations:

  • Cash discounts and rebates mentioned in the invoice
  • Compensation for damages
  • Disbursements to service providers in repayment of expendi­tures paid on behalf of the client

Who is liable

Persons with an annual turnover equal to or more than MGA200 million are required to register for VAT; a person may apply for voluntary registration.

Registration procedures. There is no specific VAT registration procedure provided by the General Tax Code, but the tax author­ity does maintain a roster of VAT-registered taxpayers.

From the administrative perspective, registrations occur two ways:

  • The person reaches the registration threshold and is automati­cally subject to VAT.
  • The person voluntarily registers, whether turnover is lower or higher than the threshold.

In either case, the procedure is that the person submits a letter to the tax authority applying for VAT registration. The tax authority will update the Standard Tax Identification Card with the men­tion of VAT registration. The tax authority does not assign the registrant a specific VAT identification number; the general tax identification number serves for VAT as well.

Exemption from registration. Persons with a total annual turnover less than MGA200 million are exempted from VAT.

Group registration. Group registration is not applicable in Madagascar.

Non-established businesses. Persons with no fixed place of busi­ness in Madagascar but who perform taxable services in Madagascar may appoint a legal resident representative who is authorized to act for the nonresident service provider in comply­ing with the VAT obligations.

In practice, the recipient of the service is in charge of the pay­ment of the tax as well as the filing of the return. This does not have any impact if the Madagascar person is able to recover the VAT. It does not imply that the recipient will become the legal representative of the nonresident supplier without any official appointment. However, in case of compliance failure by the non­resident supplier, the VAT liabilities fall to the recipient of the service.

Reverse charge. Reverse charge is applicable to services per­formed in Madagascar by a nonresident service provider who does not have a fixed place of business in Madagascar.

The VAT is paid by the local recipient of the service to the tax authority before the 15th of the month following the month of payment for the service if the nonresident service provider does not have a legal representative in Madagascar.

Tax representatives. As described above, nonresident service sup­pliers with no fixed place of business in Madagascar may appoint a legal resident representative that acts on behalf of the taxpayer to comply with VAT obligations.

The appointment consists of sending an official letter to the Ministry of Finances and Budget appointing the tax representa­tive to obtain a tax identification number for compliance obliga­tions. This representative would be responsible for filing returns and paying the tax due. However, in practice, it is most com­monly the recipient of supplies from a nonresident service pro­vider who ensures VAT compliance and will be liable to tax assessment in case of noncompliance.

Deregistration. From 8 January 2016, companies registered for VAT whose turnover falls below the VAT registration threshold may automatically be exempted from VAT. However, upon request to the tax authority, these companies may remain regis­tered and charge VAT.

Late-registration penalties. Penalties in case of late registration are the following:

  • Fine for default of submission of the return: MGA100,000
  • Delay interest penalty: 1% of the tax due per month

In case of deficiency, inaccuracy, omission, reduction or falsity in the VAT return, the fine would be 40% of the additional tax due. In the case of fraudulent practice or intentional noncompli­ance, the penalty is computed at 80% of the additional tax due.

Digital economy. There is not yet a special VAT treatment appli­cable to digital economy.

VAT on public procurement contracts. A specific tax applies to the activities of companies undertaking public procurement contracts that have an annual turnover of less that MGA200 million (Contractors). It covers corporate income taxes (CIT) and taxes on turnover and it is deducted directly from the Contractor’s payments.

The tax is calculated at a rate of 8% of the total remuneration for the procurement contract, including taxes. The tax amount is withheld by the public accountant in charge of paying the Contractor who must pay it directly to the tax authorities by the 15th day of the month following the month of deduction. The Contractor is also required to declare the tax within the same time frame.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to a rate of VAT, including the zero rate. Madagascar’s VAT rates are as follows:

  • Standard rate: 20%
  • Zero rate (0%)

The standard rate of VAT applies to all supplies of goods or ser­vices, unless a specific measure provides for the zero rate or an exemption (see below).

Input tax is the VAT paid on goods and services supplied to the person for the purpose of making taxable supplies. This input tax paid may be recovered by a taxable person, whether those sup­plies are taxed at the standard rate or the zero rate. All exports of goods or services are taxed at the zero rate, and those are the only zero-rated supplies.

The term “exempt supplies” refers to supplies of goods and ser­vices that are not liable to any rate of VAT. Suppliers of exempt supplies are generally not permitted to recover input tax, although some exempt supplies are designated as exempt with credit, meaning that input tax is recoverable (see Section F).

Examples of exempt supplies of goods and services

  • School fees relating to general, technical and professional edu­cation
  • Interest paid by the Public Treasury
  • Certain operations linked to shares, bonds and other securities
  • Interest from receivables, deposits and guarantees of banks hav­ing their headquarters in Madagascar, interest charged by credit on financing; interest received from deposits and loans granted to members of microfinance institutions
  • Subscription of mixed popular insurance or insurance group

linked to supplement retirement with an insurance company having its headquarters in Madagascar; reinsurance premiums granted by local insurance companies to insurance companies that do not have permanent establishment in Madagascar

  • Consumption of water and electricity by individuals for their domestic use up to 10m3 for water and 100kWh for electricity
  • Services provided regarding health profession
  • Import and sales of drugs; material and inputs used for drugs manufacturing and packages involved
  • Import and sales of newspapers and periodicals, excluding revenue from advertising
  • Import and sales of stamps and legal currency
  • Import and sales of books, brochures and educational and aca­demic nature
  • Import and sales of corrective lenses
  • Import and sales of inputs exclusively used for agriculture
  • Import and sales of potato seed and corn
  • Import and sales of breeding stock, equipment and farm equip­ment, materials and sports facilities for public use, materials and equipment for the production of renewable energy
  • Subject to reciprocity, goods or services earned by diplomatic agent and consular officers from taxable individuals
  • Import and sales of mosquito nets and mosquitos
  • Air and sea transport of people and goods to and from abroad
  • Membership fees and contributions of members of manage­ment centers during their three first years; products of shares for training or information provided to members of the manage­ment centers
  • Import and sales of kerosene
  • Import and sales of rice and paddy

Option to tax for exempt supplies. Not applicable.

Time of supply

The moment when VAT becomes due is called the “time of sup­ply,” which in Madagascar depends on the good or service being supplied. For imports, the time of supply is the moment of clear­ance from customs. For operations subject to a special customs regime (warehouse, temporary admission, transit, transshipment, customs deposit), the time of supply is upon release for consump­tion. For general sales of goods, the time of supply is upon deliv­ery of the goods. For both construction and service delivery, the time of supply is upon receipt of payment.

Deposits and prepayments. Deposits and prepayments are not subject to VAT because they do not consist of remuneration for services or the price of goods. However, when the supply of goods or services is acquired and not returned, deposits and pre­payments are liable to VAT as if the additional payment had been made.

VAT is due on prepayment within the month of its receipt for supply of services and upon delivery for supply of goods.

Imported goods. VAT on imported goods is due upon customs clearance. The tax is paid directly to the customs office.

Goods sent on approval or for sale or return. VAT would apply only when the “goods sent on approval or for sale or return” are booked and recorded as delivered.

Continuous supplies of services. VAT on services is due on pay­ment. However, the service provider can account for the tax on an accrual basis with the prior authorization of the tax authority.

Cash accounting. Cash accounting is only permitted for persons that satisfy two criteria:

  • They have an annual turnover less than MGA20 million.
  • They have not voluntarily registered for VAT.

Leased assets. In the case of leasing, the lessor is able to deduct input VAT applied on the acquisition of any kind of assets dedi­cated to leasing. In principle, input VAT is deductible for the lessee if the assets are used for the normal business of the lessee.

In general, for all types of leased assets, input VAT on the follow­ing is not deductible:

  • Building not dedicated to industrial, commercial, hotel, restau­rant, agricultural or mining activities
  • Passenger vehicles (except those whose exclusive use is leasing)
  • Furniture (except hotel and restaurant furniture)

Recovery of VAT by taxable persons

Input VAT may be recovered in the usual way by deducting it from output VAT due, or in limited cases, by refund.

When offsetting input VAT against output VAT, the following requirements should be respected:

  • Input VAT must be clearly labeled on the invoices and linked to the company business
  • Input VAT paid on imported goods linked to the company busi­ness
  • Input VAT relating to the acquisition of goods in respect of leas­ing clearly identified
  • Input VAT linked to goods held in stock and the portion of the tax paid clearly corresponding to the depreciated value of prop­erty, machinery and equipment for newly registered individu­als/entities

The tax can only be deducted when the chargeability occurs at the supplier side and when the supplier is legally allowed to col­lect VAT.

For VAT repayment, only the companies listed below can receive a VAT refund:

  • Free-zone companies
  • Companies performing exclusive export activities
  • Companies making investments that comply with the following conditions:
    • Being registered for VAT
    • Having VAT credit higher than MGA100 million in a month and in which VAT involved must not be less than MGA20 million
    • Concerned investments related to tangible capital assets necessary to the normal company business

Nondeductible input tax. Nondeductible tax is the tax that does not have a link with normal business of the company.

Examples of items for which input tax is nondeductible

  • VAT on construction or acquisition of buildings, or on related services (not applicable to industrial, commercial, mining, craft, hotel and agricultural buildings)
  • VAT on purchase of vehicles not used for rental or related ser­vices
  • VAT on purchase of furniture or related services (not applicable to hotels and restaurants)
  • VAT on purchase of energy unnecessary for the operation of the company
  • VAT on purchase of food intended for consumption of the com­pany
  • VAT on purchase of oil products such as gasoline used for tour­ism, super fuel, gas-oil and fuel-oil (not applicable to compa­nies in charge of processing and distribution of oil products, industrial companies, aquaculture farms, cargo and hydrocar­bons carriers)

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • VAT documented in an invoice (with the tax identification number of the provider) relating to nonexempt products and services that have a link with the normal business of the company
  • VAT on import of goods that have a link with the normal busi­ness of the company
  • VAT on goods representing intangible assets
  • VAT on goods and services allocated to deductible operations
  • VAT on goods relating to the acquisition of leased assets by the lessor; and VAT on rent paid by the lessee to the lessor
  • VAT on import of oil products carried out by companies in charge of processing and distribution of oil products; VAT on purchase of oil products made by industrial companies for fixed motors used in their production operations; VAT on oil products used in aquaculture farms; VAT on purchase of oil products performed by professional carriers of hydrocarbon cargo
  • VAT on goods held in stock and non-amortized machines and materials for newly taxable persons

Partial exemption. Where input VAT is attributable to both tax­able and exempt supplies, only the portion of input tax attribut­able to taxable supplies is recoverable. The taxpayer must calculate and document taxable supplies as a percentage of total supplies.

Examples of partially exempt items

  • Operations linked to shares, bonds and other securities are exempt, but operations relating to stock and management of shares, bonds and securities are taxable, as are securities repre­senting goods and shares giving the holder de jure or de facto rights of possession of property or enjoyment of an immovable property.
  • Consumption of water and electricity by individuals for their domestic use up to 10m3 for water and 100kWh for electricity is exempt, while consumption above those levels is taxable.
  • Import and sales of newspapers and periodicals are exempt, but income from insertion of advertising is taxable.

Capital goods. Input VAT on capital goods dedicated to normal business of the company is accepted as deductible.

Refunds. Free-zone companies, companies performing export activities and companies making a specified amount of invest­ment are allowed to apply for a VAT refund.

For free-zone and export companies, the amount subject to refund is determined by the proportion between the amount of the annual turnover on export and the amount of the total taxable annual turnover of the previous year.

The application for the refund is made at the time the VAT return is submitted.

The refunds should be done within 60 days from the receipt of the application by the tax authority.

Preregistration costs. Not applicable.

Write-off of bad debts. Although the VAT laws do not expressly deal with the VAT treatment of bad debts, the tax authority gener­ally agrees that output tax written off on a bad debt is allowable.

This does not arise for supply of services. Since the tax point is the time payment is received, relief for bad debt is automatic.

Noneconomic activities. Noneconomic activities are considered to be activities performed by a taxable person that are not part of a profit-making enterprise. Individuals and entities performing noneconomic activities are not subject to VAT.

Recovery of VAT by non-established businesses A non-established business is not allowed to recover VAT.

Invoicing

VAT invoices and credit notes. There is no special VAT invoice in Madagascar. The word VAT must appear clearly and distinctly on the invoice. The same rule applies to credit notes.

Electronic invoicing. Electronic invoicing should comply with the same requirements as non-electronic invoices:

  • Two copies
  • Dated and signed by the provider
  • Chronologically numbered and mentioning for both provider and customer:
    • The commercial name
    • The statistical number
    • The tax identification number
  • Quantity and price of the delivered goods or services
  • Settlement date
  • Payment method

Proof of exports. Supplies of services and goods are treated as exports if the ultimate beneficiary is located outside Madagascar and the payment is made to a foreign bank in a foreign currency. Customs documents are also required for export of goods.

Foreign-currency invoices. Foreign-currency invoices are only allowed for the export of goods or services or supplies made to local free-zone companies. Otherwise, invoices should be in local currency, MGA.

VAT returns and payment

VAT returns. VAT returns and payment are due on a monthly basis: the due date is the 15th of the month following the taxable month.

The monthly return is mandatory even if there is no payment due in the taxable month. In case of omission of input VAT, the regis­tered person is allowed to make an adjustment in any of the VAT returns in the subsequent six months.

Payments on account. A payment on account creates a tax point for a supply of services only. In connection with supply of goods, the tax point is always the time the goods are delivered.

Special schemes. None.

Electronic filing and archiving. Electronic filing is allowed for certain companies that have reached the prescribed annual turn­over.

Taxpayers with annual turnover between MGA200 million and MGA4 billion are assigned to the Services Régionaux des Impôts. Taxpayers with annual turnover more than MGA4 billion are assigned to the Direction des Grandes Entreprises. These two tax offices have discretion to allow electronic filing according to rules they establish.

Taxpayers with annual turnover lower than MGA200 million are assigned to the Centre fiscal where no electronic filing is permit­ted.

Archiving requirements involve storing and making available the financial statements, ledgers, invoices and all supporting docu­ments (agreements, etc.) relating to each transaction for 10 years after the transaction.

Annual returns. Not applicable.

Penalties

In case of late payment, the following penalties apply:

  • Fine for default of submission of the return: MGA100,000
  • Delay penalty interest: 1% of the tax due per month

The above-mentioned fixed fine only applies for cases outside of any tax audit period, where a voluntary disclosure is made. Once the tax audit is started, though the tax assessment notice is not yet issued or definitive, penalties range from 40% to 80% of the additional due tax. Where the taxpayer makes a voluntary disclo­sure, a fixed fine of MGA100,000 applies.