Tax Guide for US Expats Living and Working in Equatorial New Guinea
Who Is Liable For Income Taxes in Equatorial New Guinea
Territoriality. Individuals are subject to income tax based on residence. Taxpayers are categorized as residents or nonresidents.
In principle, residents are subject to general income tax on worldwide income. However, recent tax audits have shown that the government auditors tax only income derived from Equatorial Guinean sources.
Nonresidents are taxed on income derived from Equatorial Guinea.
Definition of resident. A person may be considered resident in Equatorial Guinea for tax purposes under a facts and circumstances test or under an arbitrary test, which is based on the number of days of presence in Equatorial Guinea.
Under the fact and circumstances test, an individual is considered to be a tax resident of Equatorial Guinea if he or she satisfies either of the following conditions:
- He or she has a dwelling in Equatorial Guinea in the capacity of owner, equitable owner or tenant, regardless of whether he or she is part of a family unit.
- He or she has his or her principal residence in Equatorial Guinea. Under the arbitrary test, an individual is considered to be a tax resident of Equatorial Guinea, if he or she satisfies both of the following conditions:
- He or she stays in Equatorial Guinea for more than three months in a calendar year or for more than six months within two consecutive calendar years.
- He or she carries on operations or provides remunerated services in Equatorial Guinea.
For individuals in the hydrocarbon sector, an individual needs to stay in Equatorial Guinea for more than three months in a calendar year to meet the arbitrary test mentioned above.
Individuals who are not considered to be tax residents under the facts and circumstances or arbitrary tests are classified as tax nonresidents.
Income subject to tax
Employment income. Taxable income includes all remuneration, fringe benefits, allowances, overtime and bonuses.
The amount of income arising from fringe benefits equals specified percentages of gross wages.
Investment income. Dividends received by resident individuals are included in taxable income and subject to income tax at the progressive tax rates.
A final withholding tax at a rate of 25% is imposed on dividends paid to nonresidents.
Self-employment income. Individuals are subject to income tax on their self-employment income from real estate assets, as well as from commercial, noncommercial, agricultural and professional activities.
The taxable income or profit from self-employment activities equals the difference between the total income derived from and the total expenses incurred in such activities.
Capital gains. Capital gains derived from the sale of real estate assets are subject to income tax.
Exempt income. The following types of income are exempt from tax:
- Special payments intended to cover expenses inherent to the nature of the employment, such as travel allowances, to the extent that the allowance corresponds to the length of the travel and does not exceed the additional expense borne by the employee
- Family allowances
- Student scholarships
- Temporary payments to victims of accidents at work
- Damages paid under a judicial order to an individual who has suffered permanent damage
Deductions. In addition to the deductions claimed with respect to various categories of income, individuals may deduct certain items, including the following:
- Interest on loans and debt that are incurred for the construction, purchase or major repairs of real estate located in Equatorial Guinea that the individual maintains as his or her principal residence
- Alimony and child support paid in compliance with a judicial ruling
- Payments made for the purpose of setting up retirement funds in accordance with the rules of the Ministry of Labor
- Payments made to the Institute of Social Security on behalf of domestic employees
- Payments of allowances or pensions that are delayed
If a loss is recorded in an income category, such loss may be carried forward to offset income in the following three years. However, losses arising from recreational real estate or real estate that is used for summer holidays may not be used in such a manner.
B. Other taxes
Inheritance and gift taxes. Inheritance and gift taxes are imposed on acquisitions by individuals of the following:
- Goods located in Equatorial Guinea.
- Rights, shares and obligations that have arisen, can be exercised or fulfilled in Equatorial Guinea.
- Goods and chattels located outside of Equatorial Guinea if the decedent or successor, or the donor or beneficiary, are citizens of Equatorial Guinea. This category includes benefits from life insurance contracts.
The following items are included in the tax base for inheritance and gift tax purposes:
- Acquisitions as a result of death (mortis causa): the actual value of the goods and rights acquired by each successor reduced by the burdens and debts that may be deductible
- Donations and other inter vivos acquisitions as gifts: the value of the goods and rights acquired, reduced by the burdens or debts that are deductible
- Life insurance: the amounts received by the beneficiary The following are the inheritance and gift tax rates:
- All hereditary successions over XAF 100,000: 10%
- Donations: 5%
- Life insurance: 10%
Tax on Individuals. The Tax on Individuals is imposed annually on all individuals residing or domiciled in Equatorial Guinea that are 18 years or older. The tax is imposed regardless of the individual’s nationality or origin. The Tax on Individuals amounts to XAF 5,000 and must be paid within the first quarter of each fiscal year. In practice, this tax is paid by employers on behalf of their employees.
Property tax. All owners of and certain other individuals holding rights in urban real estate are subject to urban property tax. The tax base equals 40% of the sum of the value of the land and buildings. The tax rate is 1%. If the tax base for properties held by a taxpayer totals less than XAF 1 million, the taxpayer is exempt from tax. In addition, certain properties are not subject to the tax.
C. Social contributions
Social security. Employees subject to individual income tax are also subject to social security contributions. The social security contributions are based on gross salary including, but not limited to, base salary and other fixed and periodic income derived in Equatorial Guinea.
The rate of the employer contribution is 21.5%, while the rate of the employee contribution is 4.5%. Social security covers pension, death, temporary incapacity, maternity and medical assistance.
Worker Protection Fund. Employers and employees must make contributions to the Worker Protection Fund (WPF). The employer contribution is based on gross salary, while the employee contribution is based on net salary. Gross salary includes base salary, fringe benefits, allowances, overtime pay and bonuses. To calculate net salary, social security payments made to local social security systems for the employee and professional expenses are subtracted from gross salary.
The contribution rates for the WPF are 1% for employers and 0.5% for employees. For expatriates working in the oil and gas sector, only employers make contributions to the WPF.
The rate is 0.15% of gross salary.
Professional training contribution. The professional training contribution applies only to the employees in the hydrocarbon sector. The rates of the contribution are applied to gross salary. The rates are 0.15% for employers and 0.1% for employees.
To learn more about the history, culture, economy and other information about Equatorial New Guinea
We have been preparing US income tax returns for US Citizens and permanent residents living in Equatorial Guinea for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Equatorial Guinea and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Equatorial Guinea tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Equatorial Guinea Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Equatorial Guinea, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Equatorial Guinea.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email