Tax Guide for US Expats Living and Working in the Democratic Republic of Congo
Who Is Liable For Income Taxes in the Democratic Republic of Congo
Individual income tax (impôt sur les bénéfices et profits , or IBP) is imposed on any remuneration paid to an individual by a third party if such individual is not engaged under a service agreement with the third party. IBP is imposed on Democratic Republic of Congo (DRC)-source income only.
Income subject to tax. The taxation of various categories of income is described below. For a table outlining the taxability of income items.
Employment income. Individuals are subject to IBP at progressive rates on employment income, including payments to administrators and managers. The tax base for IBP includes the following:
- Salary and wages.
- Allowances that do not correspond to the reimbursement of professional expenses.
- Bonuses and other indemnities.
Payments made by the employer in the case of breach of contract (notice allowance), excluding damages.
Benefits in kind at their real value, except for the following:
- Legal family allowances (only extra-legal amount is taxable).
- Housing, provided the amount of the housing allowance is limited to 30% of gross salary.
- Transport, provided that the amount of the transport allowance does not exceed the limit imposed per day.
- Medical care, provided that the amount of medical care is not overstated.
Reimbursements of professional expenses (for example, entertainment allowance or assignment allowance) are exempt from IBP if all of the following conditions are satisfied:
- They are used in accordance with their nature. The tax administration may require evidence of such use.
- They are not overstated in terms of the employee concerned.
- They relate to the activity of the company.
Investment income. Investment income consists of dividends and other income derived from shares, stock options, debentures or bonds issued by companies resident in the DRC. Investment income is subject to the tax on movable assets at a rate of 20%.
Business and self-employment income. Under Article 27 4° of the DRC Tax Code, business and self-employment income is subject to IBP at the progressive rates.
Directors’ fees. Under Article 14.2 of the DRC Tax Code, directors’ fees paid by public limited liability companies registered in the DRC are subject to a flat tax at a rate of 40%.
Taxation of employer-provided stock options. The DRC tax law does not contain any specific measures relating to the taxation of the allocation of stock options to employees. Such operation may generate taxation if the related cost is borne by the local entity.
Capital gains and losses. Under the DRC tax law, only capital gains and losses realized by persons subject to corporate tax are taxable or deductible. However, the tax administration has taken the position that capital gains derived from the sale of some assets by individuals are subject to the 20% tax on movable assets.
Exempt income. The following types of income are not taxable to individuals in the DRC:
- Pension contributions by law
- Hypothetical tax withholdings
- Host housing, for a value not exceeding 30% of the taxable salary
- Housing setup
- Home housing charges
- Telephone allowance
- Home leave for assignee and family
- Host utilities
- Business and mentor trips
- Automobile allowance, up to US$600 per month or host automobile costs
- Language and cultural training for assignee and family
- Insurance premiums
- Tax compliance and administration
- Healthcare
Deductions.
Expenses incurred by an individual for medical care for the individual and his or her family are deductible.
Individuals may deduct the following contributions effectively paid to pension funds:
- Contributions by the taxpayer under a pension scheme that are mandatory as a result of an engagement of the employer or a requirement in the work agreement
- Direct contributions to obtain a pension or insurance
Individuals may not claim any other deductions.
B. Other taxes
Property tax. Property tax is imposed on real property such as buildings and grounds. The owner of the property is liable for the tax.
The property tax rate varies depending on the nature of the item and the rank of the locality. The owner must sign an annual declaration, which must state all taxable items, to the tax authorities.
Inheritance, estate and gift taxes. The DRC does not impose inheritance, estate or gift taxes.
Tax on vehicles. The tax on vehicles is imposed on all types of vehicles used in the DRC. Owners of vehicles are liable for the tax.
The rate of the tax on vehicles varies depending on the nature of vehicle and the province. The owners of the vehicles must buy road tax discs (annual license tags) when the tax authorities sell them.
C. Social security
Contributions. Employers and employees must make monthly contributions to the Social Security National Institute (Institutnational de sécurité social, or INSS). The following are the rates of the contributions, which are applied to employee wages:
- Employers in Katanga area: 9%
- Other employers: 5%
- Employees: 3.5%
Companies are required to register all employees with the INSS and remit both employer and employee contributions.
Employers are also subject to monthly contributions to the National Institute for Professional Preparation (Institut national de préparation professionnelle, or INPP). The following are the contribution rates:
- Private companies with 1 to 50 employees: 3%
- Private companies with 51 to 300 employees: 2%
- Private companies with more than 300 employees: 1%
Totalization agreements. The DRC has not entered into any totalization agreements.
We have been preparing US income tax returns for US Citizens and permanent residents living in the Democratic Republic of Congo 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 the Democratic Republic of Congo 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 Indian 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 Indian 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 India, 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 the Democratic Republic of Congo.
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