In accordance with the OHADA Uniform Act on the Law of Commercial Companies and Economic Interest Groupings, businesses in Benin generally adopt a corporate form.

The alternative forms of corporate structures are as follows:

• Entrepreneurial status: Sole Proprietor (Statut de l’Entreprenant);
• SARL – Limited Liability Company (Société A Responsabilité Limitée);
• SARL U – Single Person Limited Liability Company (Société A Responsabilité Limitée Unipersonnelle);
• SA – Joint Stock Company (Société Anonyme);
• SA U – Single Person Joint Stock Company (Société Anonyme Unipersonnelle);
• GIE – Economic Interest Grouping (Groupement d’Intérêt Economique);
• SP – Joint Venture Company (Société de Projet);
• SNC – Société en Nom Collectif;
• Association – Co-operative Society (Société Coopérative);
• SAS – Société par Action Simplifiée; and
• Civil Companies (Sociétés Civiles).

The key differences between the above structures relate to the following:

• the number of partners required;
• the minimum amount of share capital;
• the quality of the company's manager;
• the scope of the partners' liability;
• the scope of the directors' liability;
• the method of the taxation of profits;
• the deductibility of executive compensation;
• the tax regime of the manager;
• the partners' social regime;
• the decision-making body;
• the representative body;
• whether or not an auditor must be appointed; and
• the mode of transmission of the company.

The entities are taxed as separate legal entities.

Transparent entities commonly used are the SNC, the SP, the GIE, the Sole Proprietorship Limited Liability Company and the Civil Company.

The principle of individual taxation applies for these entities.

However, these companies can opt for the corporate tax system.

In accordance with the provisions of the new General Tax Code, the option is irrevocable.

In the main business sectors, such as telecommunications, banking, insurance, transport and logistics, and for investment groups, the entity commonly used is the SA.

The criteria for determining the residence of incorporated businesses (subject to the application of double taxation treaties) are related to the "permanent establishment" – ie, the fixed place of business through which the company carries on all or part of its activities.

This includes any entity operating in Benin, any entity whose taxation is attributed to Benin by an international convention (treaty) for the elimination of double taxation, and foreign companies that have a permanent establishment in Benin.

Permanent establishments are constituted by companies that have the following in Benin:

• a management or operating headquarters;
• a branch;
• a warehouse;
• an office;
• a factory;
• a workshop;
• a mine, oil or gas well, quarry or other place where natural resources are extracted; or
• a facility or structure used for the exploration or exploitation of natural resources.

The following are deemed to be permanent establishments:

• a building site;
• an erection or installation project or surveillance activities carried out on it, when this site, project or activities last more than three months; and
• the provision of services, including the services of consultants, by a company acting through employees or other personnel engaged for this purpose, but only if such activities continue for the same or a related project in the territory of Benin for a period or periods totalling more than 183 days within any 12-month period.

For transparent entities, the term "fiscal domicile" is used for the members who are individuals (natural persons).

Corporate Income Tax

Companies are subject to corporate income tax (IS) or business profit tax (IBA), depending on their professional category.

The tax rate is set at 25% for public schools, universities, technical schools and legal entities with an industrial activity, except in the extractive industries; for other companies, the rate is 30%. For companies benefiting from a mining or petroleum agreement, the tax rate is determined by said agreement, although the rate cannot be lower than the standard rate of 30%.

Businesses that are owned by individuals directly or through transparent entities and that have a turnover of less than XOF50 million will pay the synthetic professional tax (TPS) at the rate of 5% of their turnover. However, these businesses can opt for IS instead.

Minimum Rates

The minimum rates are as follows:

• 1% of cashable income for IS;
• 1.5% of cashable income for IBA;
• 10% of cashable income for companies with a preponderance of real estate;
• 3% of cashable income for companies in the construction sector; and
• XOF0.60 per litre on the volume of petroleum products sold for station services.

The minimum flat-rate tax (IS and IBA) is XOF500,000 as a general rule, and XOF250,000 for station services.

Tax is assessed each year on the profits made the previous year.

The taxable profit is the net profit, determined on the basis of the overall result of the operations carried out by the taxpayers, including in particular disposals of any assets, either during or at the end of the operation.

The net profit is the difference between the values of the net assets at the end of the period and the beginning of the period; these results are to be used as a basis for the tax, reduced by the additional contributions and increased by the withdrawals made during this same period by the operator or the partners.

Net assets are defined as the excess of asset values over the total of third party claims, depreciation and justified provisions.

Substantial Adjustments

Substantial adjustments are made in terms of reinstatements (fines and penalties, excess gifts and donations, excess associated current account interest, excess depreciation on passenger cars, excess technical assistance costs and head office expenses) and deductions (provisions for paid holidays, provisions for losses, etc).

Profits Tax Basis

Profits are taxed on an accrual basis for companies other than the liberal professions, whose profits are taxed on a receipts basis.

The same rule applies for liberal professionals in the form of a company (société civile professionnelle).

Generally, the corporate income tax payable by new companies duly created is reduced by:

• 25% for the first year of activities;
• 25% for the second year of activities; and
• 50% for the third year of activities.

These tax reductions do not apply in the event of a recall of rights following a tax audit procedure. Businesses created within the framework of a total or partial takeover of pre-existing activities are also excluded from the benefit of the reductions.

Innovative companies in the field of information and communication technologies or "start-ups" benefit from an exemption from corporate tax and the employer's payment on salaries during the first two years of activity, and from a discount of 50% of the same taxes for the third year.

Start-ups whose annual turnover does not exceed XOF100 million excluding tax and that have obtained a label are eligible.

The conditions under which a company is awarded a start-up label are set by government decree.

Investments in the Republic of Benin are subject to a common regime and may benefit from one of the privileged (preferential) regimes. The investment code distinguishes between three basic privileged regimes and two special regimes. The basic privileged regimes offer customs and tax advantages to national and foreign companies under Beninese law, and apply as follows:

• Regime A applies to companies with investments of between XOF50 million and XOF1 billion;
• Regime B applies to companies with investments of between XOF1 billion and XOF50 billion; and
• Regime C applies to companies with investments of XOF50 billion or more, excluding tax.

The special regimes are as follows:

• the sectoral incentive regime, which aims to encourage investments in activities or economic sectors that are deemed strategic for companies eligible under Regimes A and B according to a decree issued by the government; and
• the specific investment regime, which aims to facilitate the implementation of infrastructure projects and facilities for cultural, sporting, health and educational tourism.

The deficit recorded in a financial year is considered a deductible expense from the taxable profit of the following year. To this end, the deficit must be justified. The loss carry-forward is limited to three years.

Interest paid on loans is deductible if the rates charged correspond to those of the market.

However, interest paid by a company to its members or to company members of the same group shall be deductible only up to the limit calculated at the rate of the Central Bank (BCEAO) increased by three points, and on the condition that the share capital has been fully paid up. The total amount of net deductible interest due annually on all debts contracted by a company is limited to 30% of the result before tax, interest, depreciation and provisions.

The part of interest that is not immediately deductible may be carried forward and deducted within the limit of five years.

Interest due on loans is deductible if the liabilities to which it relates are not in arrears, according to Central Bank Instruction No 026-11-2016 of 15 November 2016. The repayment of partners' current accounts must take place within five years of their availability, and the company must not be dissolved during this period.

The subsidiaries composing the group must present separate financial statements according to the revised SYSCOHADA Act in Benin. The group, for its part, must consolidate these accounts according to the Accounting System of Combined and Consolidated Accounts.

Holding companies or parent companies are required to file the consolidated financial statements of the companies they control, no later than two months after their annual declaration of results.

Transfer prices must be reported by subsidiaries controlled by a parent company.

When the subsidiary is established in the Republic of Benin, the tax is due on the basis of the profit made in Benin.

When the parent company is located in Benin and there is a treaty between Benin and the country of establishment of the subsidiary, the tax is due according to the provisions of this treaty.

In the absence of an agreement, double taxation is possible.

Capital gains arising from the disposal of fixed assets in the course of operations are not included in the taxable profit for the financial year in which they are realised if, in the declaration of the results of said financial year, the taxpayer undertakes to reinvest a sum equal to the amount of these capital gains added to the cost price of the items sold in fixed assets in their companies in Benin before the expiry of a period of three years from the end of the financial year. This commitment to reinvest is joined to the declaration of results for the financial year in which the capital gains were realised and the financial years covered by the re-use period.

For the application of these provisions, the values constituting the portfolio are considered as part of the fixed assets when they have entered into the company's assets five years before the date of disposal.

Re-use may not consist of the acquisition of non-depreciable fixed assets nor the acquisition of movable or immovable property of a luxurious nature. If the re-use is carried out within the three-year period, the untaxed capital gains are considered to be allocated to the depreciation of the new fixed assets and are deducted from the cost price for the calculation of subsequent depreciation and capital gains. Otherwise, they are deducted from the taxable profit of the financial year in which the period expired.

If the taxpayer ceases their activities or disposes of their business during the above-mentioned period, the capital gains to be reinvested will be taxed immediately.

Other taxes that may be payable by an incorporated business on a transaction include the following:

• the registration fee;
• the Advance Income Tax (AIB), which is in fact the prepayment of tax on profits – the rate varies between 1%, 3% and 5%;
• Value Added Tax (VAT) at the rate of 18% of the pre-tax value of the transaction;
• tax on real estate capital gains (TPVI) at 5%; and
• tax on financial and insurance activities (TAFA) at 10%.

It should be noted that companies may be subject to specific taxes, depending on the sector of activity.

Incorporated businesses are subject to the following other significant taxes:

• the Employer's Salary Payment (VPS);
• the tax on property income (IRF);
• the tax on salaries and wages (ITS); and
• the tax on motor vehicles (TVM).

This section is not applicable in Benin.

In general, corporate tax rates are not lower than individual professional rates, except for those who pay the synthetic professional tax (TPS).

The closely held corporation legal system does not exist in Benin.

For the structures that are commonly used in business, there are no rules preventing any limited liability company or joint stock company from accumulating profits for investment purposes. However, proof of investment must be reported to the tax administration.

The term "closely held corporation" is not expressly used in Benin.

Nevertheless, the tax rate on capital gains from the sale of shares varies between 5%, 10% and 15%.

The tax rate varies between 5%, 10% and 15%.

However, in the West African Economic and Monetary Union (WAEMU) area, individual dividends from and gain on the sale of shares are taxable at source in the member country and exempt in Benin.

Withholding taxes are charged as follows:

• interest – Personal Income Tax on Income from Receivables, Deposits and Guarantees category (IRCM RCDC): 15%; and
• dividends/royalties – Personal Income Tax on Income from Movable Capital category (IRCM RVM). For income from securities other than bonds, the rate is 15%. For bonds income, the rates are set as follows:
1. 6% for bond income, reimbursement and bonuses paid to creditors and bondholders;
2. 3% for income from bonds issued by WAEMU member states; this rate is set at 0% when the term of maturity of the bonds exceeds ten years; and
3. 5% for capital gains on the sale of bonds.

The basic withholding tax is levied at source by applying a 15% rate to the tax base. This rate is reduced as follows:

• to 10% for the proceeds of regularly distributed shares;
• to 5% for the proceeds of shares that is regularly distributed to shareholders not resident in Benin, unless a treaty for the elimination of double taxation between Benin and the country of said shareholders provides for a more favourable tax rate;
• to 5% for income from shares that is regularly distributed by companies that are listed on a stock exchange approved by the Regional Council for Public Savings and Financial Markets within the WAEMU; and
• to 10% for the profits of permanent establishments.

Exemptions

The General Tax Code lists many exemptions, including the following:

• capital gains on the sale of securities entered on the assets side of the balance sheet of a company;
• capital gains on the sale of securities entered on the assets side of the balance sheet of a company that is subject to business profits tax or corporate tax;
• proceeds from securities issued by the Republic of Benin or a public entity;
• depreciation, reserves or provisions entered in the balance sheet;
• distributions of reserves made in the form of capital increases; and
• profits incorporated directly into the capital, under conditions strictly defined by the General Tax Code.

The main tax treaties are with France, Norway and Morocco.

Regulation No 08/2008/CM/UEMOA (WAEMU) adopts rules for the avoidance of double taxation within the WAEMU and rules on assistance in tax matters.

Local tax authorities contest the use of treaty country entities by residents of non-treaty countries.

An annual transfer pricing declaration must be submitted.

Profits indirectly transferred to the parent company or to other companies in the scope of consolidation by increasing or decreasing the purchase and selling prices must be included in the income statement for tax purposes.

Amounts paid for purposes other than the reimbursement of costs incurred (royalties, fees, use of patents or other fees, etc) are subject to the particular attention of the tax administration.

The effectiveness of the services or transactions must be proven to the tax authorities.

Local tax authorities challenge the use of limited risk distribution agreements between related parties for the sale of goods or the provision of services at the local level if the agreement is discriminatory.

There is no significant aspect of local transfer pricing rules and/or their application that differs from OECD standards in Benin.

For example, the treaty signed with Morocco relies essentially on OECD standards.

The provisions of each convention to which Benin is a party will apply.

For example, in the WAEMU tax treaty, when a resident of a member state considers that measures taken by another member state result in double or unfair taxation, they may submit their case to the competent authority of their country, independent of the remedies provided by the national legislation of that state. The case must be submitted within three years of the first notification of the measures that result in taxation that is not in accordance with the provisions of the treaty. If the objection appears to be justified, that competent authority shall endeavour to resolve the issue by mutual agreement with the competent authority of the other member state(s).

Compensatory adjustments are allowed and made by the tax services.

Local branches of non-local companies and local subsidiaries of non-local companies have the same tax regime in Benin.

The tax rate is 5% on capital gains from the sale of shares by non-resident individuals or non-resident companies. Tax treaties may eliminate double taxation.

Any change of control that has a direct effect on a business that is subject to corporate tax or business profit tax must be notified three months in advance to the tax authorities.

The tax system in Benin is declarative. The income of foreign-owned local affiliates selling goods or providing services must be reported through the financial statements.

Failing that, the tax administration can find out through cross-checks and proceed to taxation with penalties and fines.

Corporate income tax is due on profits made by companies operating in Benin, as well as those whose taxation is attributed to Benin by an international treaty for the elimination of double taxation.

Amounts paid to the head office and technical assistance costs are deductible, provided that the taxpayer can prove that they correspond to real operations and that they are not abnormal. The share of head office overheads payable by subsidiaries and/or permanent establishments located in the Republic of Benin may not exceed 10% of the taxable profit before deduction of the costs in question. In the event of a deficit, this provision applies to the profit before the deduction of head office expenses of the most recent non-barred financial year.

Head office costs include secretarial costs, the remuneration of staff employed at the head office and other costs incurred by the parent company for the needs of all subsidiaries and/or permanent establishments. Technical, accounting and financial assistance costs, study or survey costs and other similar costs are only deductible up to 10% of overheads if they are paid to a company that does not operate in the Republic of Benin. Overhead costs are operating expenses minus the purchases of stocks and raw materials, depreciation and provisions.

Other than reimbursements of expenses actually incurred, amounts paid by a permanent establishment to its head office or to any of its other establishments in consideration of the following are not deductible:

• the rental of movable or immovable property;
• the use of intellectual property rights;
• commission for specific services provided; or
• commission for a management activity.

Interest paid by a permanent establishment other than a bank to its head office in consideration of sums which the head office has drawn from its own funds and made available in any form whatsoever to that permanent establishment is also not deductible.

Tax is due by the mere fact of the payment of interest in any manner whatsoever, or by the debiting or crediting of interest to an account of either the debtor or the creditor.

The foreign income of local companies is not exempt from corporate tax. Depending on the nature of the income, it is taxed at the rates of corporate income taxes.

If a treaty is signed between Benin and the foreign country, the provisions of the treaty are applicable.

The general principle is that foreign income is not exempt.

A withholding tax at the rate of 15% applies. This rate is reduced as follows:

• to 10% for the proceeds of regularly distributed shares;
• to 5% for the proceeds of shares that are regularly distributed to shareholders not resident in Benin, unless a convention for the elimination of double taxation between Benin and the country of said shareholders provides for a more favourable tax rate;
• to 5% for income from shares that is regularly distributed by companies listed on a stock exchange approved by the Regional Council for Public Savings and Financial Markets within the WAEMU; and
• to 10% for the profits of permanent establishments.

Intangible assets developed by local companies and used by non-local subsidiaries in the course of their activities are subject to local corporate tax.

If these intangible assets give rise to the receipt of income (management fees, for instance) by local companies, tax will be due on said income.

International tax rules are being internalised in Benin.

Rules related to the substance of non-local affiliates apply, and are called the anti-abuse clauses in the treaties.

Capital gains on the sale of shares by non-resident entities are taxed at a rate of 5%.

Companies that are controlled by or under the control of companies established outside Benin and have an annual turnover excluding tax or gross assets equal to or more than XOF1 billion are required to submit an annual transfer price declaration electronically by 30 April each year at the latest, on pain of penalty. The content and format of this declaration are set by a decree of the Minister of Finance.

The share of head office overheads payable by subsidiaries and/or permanent establishments located in the Republic of Benin may not exceed 10% of the taxable profit before deduction of the expenses in question. In the event of a deficit, this provision applies to the profit before the deduction of head office expenses of the most recent non-barred financial year. Failing that, the right to deduction is lost.

If the tax authorities gather evidence in the course of an accounting audit that leads to the presumption that a company has made an indirect profit transfer, they may request the company to provide information and documents.

The tax administration may also request documentation justifying the pricing policy applied in transactions of any kind with foreign-based companies with which the audited company has a controlling relationship.

When the company has provided an insufficient response, the tax administration sends a formal notice and asks the company to complete its response within eight days, specifying the additional information it wishes to receive. This formal notice must remind the taxpayer of the penalties applicable in the event of failure to reply.

Based on the basic limitation period of three years, the tax administration is supposed to audit companies at least every three years.

However, the tax authorities may decide to carry out a documentary audit, a specific audit or a general audit of the company's accounts at any time.

For the moment, the BEPS recommendations that have been implemented relate to changes in transfer pricing. Benin is moving forward with digital taxation recommendations.

Through the internalisation of transfer pricing tax standards, the Benin government seeks to combat the erosion of the tax base. Indeed, as of the 2020 tax year, the tax law requires multinational enterprises to file transfer pricing and country-by-country declarations.

The income inclusion rule and the rule on insufficiently taxed payments are not included in Benin's tax legislation. These rules should be internalised before BEPS Pillar II is implemented. Benin is concerned by Pillar I, especially in the digital sector, where it will have the most impact.

The rules of international taxation apply, according to the treaties to which Benin is a party.

The tax policy objective is to comply with international tax standards.

Improving Benin's tax system goes beyond achieving competitive tax rates. The aim is to achieve a balance between a sound tax governance framework and enhanced public resource mobilisation.

There is taxation according to ordinary law and preferential regimes. Under the ordinary law regime, taxes are due according to the General Tax Code provisions, while the preferential regime refers to the investment code and government measures.

Dealing with hybrid instruments is part of the fight against tax base erosion. Indeed, to avoid thin capitalisation and transfer pricing issues, the OECD measures are internalised in the Benin tax code.

There is a territorial tax regime in Benin.

Interest paid by a company to its partners or to entities of the same group is deductible only up to the limit calculated on the basis of the Central Bank rate plus three points, and subject to the condition that the share capital has been fully paid up.

In Benin, profits indirectly transferred to the parent company are incorporated into the accounting result for the calculation of corporate tax.

The profits indirectly transferred are determined by comparison with the profits that would have been made if there had been no control relationship.

Anti-avoidance rules are likely to have an impact only if the inbound and outbound investors use aggrieved optimisations. Furthermore, disability does not qualify for special benefits.

The internalisation of transfer pricing measures has changed the practice of multinational enterprises in Benin. The profits reported are now increasingly significant.

Benin tax law favours the country-by-country declaration.

Indeed, any company established in the Republic of Benin is required to file a country-by-country declaration, within twelve months of the end of the financial year, by electronic means only, in accordance with a model established by the authorities, including the country-by-country breakdown of the profits of the group of affiliated companies to which it belongs, and tax and accounting data, as well as information on the place of business of the undertakings making up the group, where it holds directly or indirectly a sufficient shareholding in one or more undertakings such that it is required to draw up consolidated financial statements in accordance with the accounting principles in force, or would be required to do so if its shareholdings were listed on the stock exchange in the Republic of Benin and it has an annual consolidated turnover excluding tax of at least XOF492 billion for the financial year preceding the one to which the declaration relates.

The changes are under discussion at the African Tax Administration Forum.

BEPS pillars I and II are believed to be applicable in Benin, which is why the authorities are taking step-by-step measures to internalise the necessary measures in the General Tax Code.

No proposals have yet been brought forward in relation to digital taxation based on BEPS provisions.

For the moment, the sale of electronic communications services on networks open to the public is subject to a contribution. This concerns sales of services relating to money transfers carried out by electronic means, by mobile telephony, by telegraphic means or by telex or fax, except bank transfers and transfers for the payment of taxes, duties and fees. It also applies to cash withdrawals following a money transfer made to financial institutions, telephone companies or other specialised entities.

The rate of the contribution is set at 5% of the pre-tax selling price of the service.

Revenue earned by offshore companies from intangible property will be subject to income tax.

Profits from intellectual property are taxable as non-commercial income. This taxation is not a source of controversy.