Clarification of the Territoriality of Vat on Services by the 2021 Financial Law of Cameroon
Before the 2021 financial law, the trend for tax Authorities was to collect VAT no matter the location of the beneficiary. Such an approach was based on weak technical grounds, as it was not consistent with one of the essential features of VAT, notably the “territoriality rule”, which implied that Cameroonian VAT was only due when the transaction was carried out in Cameroon. This inconsistency had obviously resulted in significant tax adjustments. As a result, there had been numerous objections to that practice viewed by many as an attack on fortune and some sorts of bottlenecks to the progressive construction of a state governed by the rule of law. The tax legislator could not, therefore, remain silent. Based on Section 130(1) of the GTC which states that “VAT is assessed at the place of supply or use of the service”, the financial law for 2021, especially the new article 130a of the General Tax Code has distinctly pointed out services (included exported ones) subject to VAT in or outside of Cameroon.
- Taxation in Cameroon of services located tangibly in Cameroon.
Whenever the services are physically located in Cameroon, they are taxable in Cameroon irrespective of the place of establishment of the customer. A service is physically locatable in Cameroon when it is performed on Cameroonian territory and relates to tangible property. This is the case for the hiring of means of transport; the supply of services relating to immovable property; port services carried out on the port area and national territorial waters; the supply of intra-community transport of movable tangible property by road or rail; ancillary services to the intra-community of movable tangible property; cultural, artistic, sporting, scientific, educational and recreative services; accommodation and sales for consumption on the premises of taxable products; work and opinions of experts on movable tangible property; the services of intermediaries acting in the name and on behalf of others.
It is worth mentioning that the circular outlining the implementation modalities of the new tax provision of the 2021 financial law states as that:
The above list is not exhaustive. Therefore, other types of materials services not listed may be subject to this regime when they are provided by a service provider established on Cameroonian territory
Considering the above, it can be noted that the nature of the service now plays a major role in the VAT territoriality rule and determines whether VAT is due in Cameroon or not.
- Taxation of intangible services at the place of residence or establishment of the customer
The VAT territorial system for intangible services is based on a principle which, however, has an exception. As far as the rule is concerned, the place of taxation of intangible services is that of the establishment or residence of the customer. Intangible services are those which cannot be linked in Cameroon to tangible property. They include assignments and concessions of copyrights, patents, licensing rights, trademarks and other similar rights, leases of tangible property other than means of transport, advertising services; services of consultants, engineers and design offices in all fields including the organisation of research and development; services of accountants and tax consultants; data processing and information supply; banking, financial and insurance operations, except the rental of safes; provisional of personnel; the services of intermediaries who act in the name and on behalf of others in the provision of the above-mentioned services; telecommunication services; radio and television broadcasting services; services supply by electronic means; assess to and supply and supply of electricity or natural gas transmission and distribution networks and all other directly related services. These services are outside the scope of VAT.
As for the exception, Article 130a(4) provides that
(…) intangible services shall be taxable in Cameroon (…) where the lessee is not liable to VAT
The circular specifies that Cameroonian VAT applies to all intangible services supplied by a Cameroonian company to non-taxable persons located in the CEMAC zone. It is up to the supplier to provide by any means the evidence of the VAT liability of his client in his country of residence. Simply put, the exception does not concern non CEMAC residents.
In conclusion, the new VAT provisions are a significant step forward. Now that the law is clear, abuses by Tax Authorities are no longer conceivable and the injustices of the past will be a distant memory. We hope that the tax legislator continues in the same vein.
Credit: Albert Desire Zang, Associate, Centurion Law Group
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