Tax Guide for US Expats Living and Working in Senegal
Who Is Liable For Income Taxes in Senegal
Residents of Senegal are taxed on worldwide income. Nonresidents are taxed on their Senegalese-source income only.
Senegalese and foreign individuals are considered residents for tax purposes if they meet any of the following criteria:
- They maintain a home in Senegal.
- They reside primarily in Senegal.
- They perform a professional activity in Senegal, unless the activity performed is accessory (not the principal source of income).
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable compensation consists of salary, bonuses and fringe benefits valued according to the tax rules. Taxable salary reported by the taxpayer may not be lower than the amount calculated by the tax administration based on the taxpayer’s standard of living. The factors contributing to the taxpayer’s standard of living are valued according to a rate table established by decree.
The following income is exempt from tax:
- Family or state allowances
- Specific allowances to compensate for professional expenses if they are not excessive
- Reimbursement for employment-related expenses, up to either XOF 400,000 if annual turnover does not exceed XOF 2 billion or XOF 800,000 if annual turnover exceeds XOF 2 billion
- Legal severance payments and legal retirement benefits
- Death benefits
- Legal increase in salary due to currency devaluation
A nonresident individual is taxable on income derived from services performed in Senegal.
In the absence of an applicable tax treaty, 20% withholding tax is levied on remuneration paid by a resident to a nonresident for any services provided or used in Senegal. This tax must be remitted by the Senegalese payer within 15 days following the payment of remuneration to the nonresident. The withholding tax is a final tax for nonresidents.
Self-employment and business income. Self-employment activities are divided into commercial activities, agricultural activities and professional activities. Taxable income realized from each category is subject to proportional tax and general income tax.
Individuals are taxed on commercial income if they derive profits from activities in industry, commerce or skilled trades. Tax able commercial income consists of the net profit derived from all business activities carried on by the taxpayer, computed on an accrual basis.
Individuals are taxed on professional income from professional services, from noncommercial activities and from other occupations and business activities not subject to special tax. Taxable professional income is the difference between income received for, and expenses incurred in, the performance of a qualifying activity. The cash basis of accounting is used.
Agricultural income includes profits realized by farmers, stock-breeders, fishermen and forestry operators. Taxable agricultural income is determined in the same manner as taxable commercial income, as are capital gains derived by agricultural businesses.
In the absence of an applicable tax treaty, a 20% final withholding tax is levied on remuneration paid by a resident to a nonresident for professional services or for any services provided or used in Senegal. This tax must be remitted by the Senegalese payer within 15 days after the payment of remuneration to the nonresident.
Investment income. Investment income, which includes dividends and interest from bonds and debentures as well as directors’ fees, is subject to withholding of proportional tax. Directors’ fees are taxed, however, only if the payer company is established in Senegal.
Gross investment income (except dividends) is added to other taxable income, and the proportional tax paid constitutes a tax credit deductible from general income tax liability.
The rate of withholding tax is 10% for dividends, 13% for interest derived from bonds, and 16% for interest on debentures and other payments. The withholding tax on dividends is a final tax for individuals.
Certain types of investment income are exempt from taxation, including income from negotiable securities issued by the state or certain Senegalese banks. Interest derived from long-term bonds (five or more years) is subject to a final withholding tax at a rate of 6%.
Withholding tax at a rate of 20% applies to royalties paid to non-residents. This tax must be remitted by the Senegalese payer within 15 days following the payment of royalties to the nonresident. Withholding tax is imposed on dividends and interest paid to nonresidents at the same rates as those for residents. The withholding taxes are final taxes for nonresidents.
Taxation of employer-provided stock options. No specific rules apply to the taxation of employer-provided stock options.
Capital gains. Capital gains realized in the performance of professional, commercial and agricultural activities are taxed as ordinary income, with certain relief available. Capital gains realized on the transfer of commercial business assets are tax-free if the proceeds are reinvested during the following three years in the business assets of an enterprise situated in Senegal and owned by the taxpayer. Otherwise, capital gains derived from sales of real estate are subject to tax at a rate of 15%. In addition, one-third of the gain realized on sales of shares is taxed if, during the previous five years, the seller, together with his or her ascendants, descendents and spouse, held more than 25% of the capital stock of the company and if any of those individuals served as directors in the company at any time during the five-year period. Other capital gains on sales of shares are not subject to tax.
Deductions
Deductible expenses. The following expenses are deductible:
- A fixed deduction of 10% of gross remuneration for employment-related expenses not reimbursed through specific allowances (if these expenses exceed 10% of gross remuneration, the excess is deductible only if justified)
- Mileage expenses, up to the limit allowed by the Finance Ministry
Personal deductions. The following expenses are deductible:
- Overdue alimony or child support payments, up to the higher of 5% of net taxable income or XOF 300,000 (this limit does not apply to arrears paid under court order)
- Voluntary premiums for retirement pensions, up to 10% of salary, allowances and benefits in kind
- Life insurance premiums of up to 5% of net taxable income, with a maximum of XOF 200,000 plus XOF 20,000 for each dependent child
- Interest paid on loans to acquire, maintain or repair the taxpayer’s principal residence in Senegal
Business deductions. For each of the three categories of income, the following expenses are deductible:
- General expenses incurred for business purposes. These include personnel and social security contribution expenses, rental and leasing expenses, finance charges and certain professional taxes, including business tax, license fees and tax on wages.
- Depreciation expenses computed using the rates established by the tax administration.
Rates. Employees in Senegal are subject to proportional tax and general income tax. Proportional tax on employment income is levied at a rate of 11%, and general income tax is levied at progressive rates, up to a maximum of 50%.
Family coefficient rules reduce the progressive general income tax rates for taxpayers. Under the family coefficient system, the applicable progressive tax rates are determined by dividing taxable income by the number of allowances available to the taxpayer. The final progressive tax liability is calculated by multiplying the tax computed for one allowance by the number of allowances claimed. The number of family allowances depends on the taxpayer’s status.
Relief for losses. Losses may not be deducted from income from other categories, but may be carried forward for three years to offset income in the same category.
B. Inheritance and gift taxes
The worldwide net assets of a Senegalese resident are subject to inheritance and gift tax. Nonresidents are subject to inheritance and gift tax only on assets located in Senegal.
Gifts and inheritances are subject to tax at progressive rates, depending on the value of the assets transferred and the relationship between the donor or deceased and the recipients. The tax rates range from 3% to 50%, with a minimum of XOF25,000 levied in all cases. Certain deductions are also granted.
Under Senegalese succession law, parents must leave two-thirds of their estates to their direct lineal descendents.
C. Social security
Contributions. Individuals’ social security contributions are withheld monthly by employers and are computed on the basis of gross remuneration paid, including fringe benefits and bonuses.
Totalization agreement. To prevent double social security taxes and to assure benefit coverage, Senegal has entered into a totalization agreement with France, which applies for a maximum period of three years.
Double tax relief and tax treaties
Foreign taxes paid may be deducted as an expense from taxable income.
Senegal has entered into double tax treaties with Belgium, Canada, France, Italy, Mauritania, Morocco, Norway, Qatar and Tunisia.
Senegal is a member of the West African Economic and Monetary Union (WAEMU) together with Benin, Burkina Faso, Bissau Guinea, Côte d’Ivoire, Mali, Niger and Togo. Regulation No. 08/CM/UEMOA provides a tax treaty, which is effective from January 2009. The WAEMU tax treaty has abrogated the West African Economic and Customs Community (CEAO) tax treaty and the Common African and Mauritian Organization (OCAM) tax treaty.
The treaties generally provide the following relief:
- Commercial profits are taxable in the treaty country where a foreign firm performs its activities through a permanent establishment.
- Interest is taxable in the state of residence of the beneficiary, but the state of source may withhold tax at source if its internal law allows.
- Employment income is taxed in the treaty country where the activity is performed, except in the case of a short assignment.
The treaties with Belgium and France provide that royalties and remuneration paid to a nonresident for services rendered in Senegal are taxable in the state of residence of the beneficiary, but the state of source may withhold tax at source if its internal law allows.
Under the WAEMU treaty, dividends are taxable in the treaty country where the beneficiary is resident, but are subject to withholding tax in the treaty country where the payer is resident.
To learn more about the history, culture, economy and other information about Senegal
We have been preparing US income tax returns for US Citizens and permanent residents living in Senegal 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 Senegal 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 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 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, 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 Senegal.
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 consultation by phone, skype or email