CLIENT ALERT : EQUATORIAL GUINEA

Equatorial Guinea Passes New Tax Law: General Taxation of The Republic of Equatorial Guinea

WHAT HAPPENED?

The changing socioeconomic landscape of Equatorial Guinea requires a strong regulatory framework to address emerging tax issues and practices. International bodies such as the IMF, OECD, OHADA, and CEMAC have played a significant role in shaping tax regulations aimed at preventing tax evasion and ensuring compliance by multinational corporations operating in the country. These regulatory advancements are vital for improving transparency and accountability in tax administration, especially as new measures, such as Corporate Income Tax and Income Taxes, are implemented.

To attract more foreign investment and boost economic growth, the Government of the Republic of Equatorial Guinea, through the Ministry of Finance, enacted the new Tax Law No. 1/2024 on November 19, 2024 (the “New Tax Law”). This landmark legislation is designed to modernize the nation’s tax system, improve revenue collection, and create a business-friendly environment that fosters economic development.

WHAT ARE THE CONSEQUENCES?

All taxpayers—individuals, businesses, and multinational corporations operating in Equatorial Guinea—are required to fully comply with the provisions of the New Tax Law. Non-compliance may result in substantial penalties, including fines, interest charges, and potential legal action. The New Tax Law explicitly emphasizes its universal applicability, stating that it applies to “all taxpayers, regardless of their size or nationality.”

ABOUT THE NEW TAX LAW

Corporate Income Tax (CIT)

The Corporate Income Tax rate has been reduced from 35% to 25%.

This is expected to boost investment, leading to a larger capital stock and increased productivity, which could raise wages and employment levels.

Minimum Income Tax (MIT)

A Minimum Income Tax of 1.5% has been established.

The above rate shall be paid twice yearly. The declaration dates for this tax concept are set for July 15 th (for transactions covering January 01 to June 30) and January 15 th of the following year (for transactions covering July 01 to December 31), of every Fiscal year.

The requirement to declare MIT twice a year may increase the administrative workload for companies. Companies are encouraged to ensure accurate record-keeping and timely submissions. Companies may need to adjust their tax planning strategies to account for the semi-annual nature of MIT. Any potential adjustments to internal processes to comply with these deadlines may be beneficial.

Personal Income Tax (PIT)

The Personal Income Tax is capped at a maximum rate of 25% for individuals earning salaries exceeding 20,000,000 XAF annually, which simplifies the tax structure for high earners.

This revision would likely stimulate economic growth and increase disposable income for individuals. However, companies should be on alert as employees might opt for a better work-life balance, potentially leading to a tighter labour market and increased competition for talent. So, companies may engage in investments in Human capital to curb the long-term effects of this revision.

Withholding Tax (WHT) in the Hydrocarbon Sector

A new withholding tax rate has been introduced specifically for the hydrocarbon sector:

• 3% for resident entities; and
• 10% for non-resident entities.

Reflecting a targeted approach to taxation in this critical industry, resident entities shall benefit from reduced withholding taxes which would enhance cash flow, allowing companies to reinvest savings into operations, exploration and development projects without forgetting the increased competitiveness of local companies in the global market as lower tax rates can lead to reduced overall operational costs.

The Ministry of Finance and the operator will keep record by means of declarations and proofs as applicable.

Dividends Tax

The tax on dividends is maintained at:

• 10% for resident entities; and
• 15% for non-residents.

These rates align with international practices and aim to attract foreign investment.

Tax on Business Profits for Individuals

Additional regulations concerning the taxation of business profits earned by individuals have been introduced. The profits obtained by individuals who regularly carry out a lucrative economic activity on their own account will be subject to this Tax, annual in nature, the Tax on Business Profits for individuals. This shall cover the following: Industrial, commercial, artisanal, agricultural, and similar profits including capital gains from transfer of goodwill, benefits of liberal professions, trades and other similar professions. It however excludes incomes already subject to: Tax on salaries, Tax on income from Real Estate Capital and Tax on Dividends.

The Tax is of an annual nature with a rate placed at 25% of Business profit.

Other specific details on these provisions are still forthcoming.

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