Corporate income tax incentives in Tunisia: interpretation issue as related to the International trade companies
As reminder, trade activity in Tunisia is restricted to foreign investors. Indeed, it’s requested to get a prior authorization from Ministry of trade, unless to get a local partner having at least 50.1% of share capital. However, foreigner investors are allowed to set up and totally control an International trade company “ITC” in reference with the Law # 94-42.
When share capital is held by non-resident persons (juridical or individuals) for at least 66%, the ITC is considered as a non-resident company towards the change legal frame and therefore it may open and manage foreign bank accounts (EURO, USD…).
Under law 94-42, and various amendments, a company is considered as an ITC only if it realizes at least 50% of its revenues from export of Tunisian products (either manufactured or natural ones). Based on such condition, an ITC may realize the following activities: imports, exports, international cross trade (to buy goods from a country A in order to resell it to a country B) and intermediation.
As precision, and according to Decree of Trade Minister dated on December 1998, such quota computation, when applicable to non-resident ITCs, shall not take into account the revenues generated from international cross trade activity.
If an ITC is set up under the totally exporting regime, therefore, it benefits from tax incentives granted by the State, amongst which in particular the favorable CIT rate (0% if the company is set up before end 2013 and 10% if it’s set up after that date). As reminder, the common CIT rate in Tunisia is 25%.
In May 2015, the Tax administration has published an internal memo explaining that activities of cross trade and intermediation shall be done as secondary activities (in regards with export of Tunisian products) and therefore, in case an ITC realizes such activities as main ones, it tacitly loses the character of ITC. A direct consequence of such interpretation is that an ITC is tacitly converted to a common company and therefore it will pay the CIT at the full rate (instead of the incentive one), added to late penalties. Such Tax memo created a great confusion into the sector.
Our Firm is accompanying and assisting some of ITCs that have been object of tax audits which leaded to reassessments. For one of the files pending ahead the Court, the Judge rejected the Tax administration internal memo motivations and has asked an independent expertise about the mode of computation of the 50% quota as explained here above. Such expertise has proved that the ITC is respecting the quota of 50% since international cross trade revenues shall not be included into the computation basis.
To allow a better comprehension of such issue, we may take the following example. An ITC exports Tunisian olive oil for 100, realizes cross trade revenue for 300 and local sales of imported goods for 50.
In reference with Tax internal memo, the quota of Tunisian goods export will be 22% (100 out of 450), and consequently the company is not considered as an ITC.
However, if we strictly apply the law (particularly the Ministry decree of 1998), the quota of Tunisian goods export will be 66% (100 out of 150) and consequently the company is considered as an ITC.
We hope the final judicial decision will be on the right way. To be continued!
Mourad Abdelmoula, Afinco