Burkina Faso is a landlocked country in West Africa. The country occupies a vast plateau, and its geography is characterized by savannah covered with grass in the north and gradually giving way to sparse forests in the south.
About nine-tenths of the population is engaged in subsistence agriculture or animal husbandry. Difficult economic conditions, exacerbated by recurrent severe droughts, have prompted significant migration from rural to urban areas of Burkina Faso and neighboring countries, most notably Côte d’Ivoire and Ghana. There were 1.5 million people abroad at any given time or almost a third of the country’s workforce. (However, in the early 21st century, unrest in neighboring countries, especially in Côte d’Ivoire, made it difficult for Burkina Faso to find a job.) Industrial development in Burkina Faso is hampered by the small size of the market economy and the lack of direct access to the sea. Beginning in the late 1990s, the government began to privatize some state-owned enterprises to attract foreign investment.
The tax system of Burkina Faso
Burkina Faso has made various tax changes for 2020 in the Finance Law on Budget Execution for 2020, which was reportedly passed by Parliament on 5 December 2019 and subsequently passed. The main changes are as follows:
- The rule limiting the deduction of royalties paid to related parties for licenses, patents, trademarks, manufacturing processes or formulas, and other similar rights, was amended to ensure that the limit is equal to 3.5% of turnover (excluding VAT) on goods or services, the production or sale of which results in the payment of royalties (previously, the limit was determined based on the total turnover);
- The rule limiting the deduction of fees made to persons residing or residing in a taxable country has been amended to provide that a person is considered to be domiciled or resident in a taxable country if it is not taxable in that country or is subject to income tax or income not exceeding half of the tax payable in Burkina Faso (the previous rules applied to corporate tax in Burkina Faso, which was expanded under the amended commands to cover other taxes more generally for individuals);
- The circle of persons subject to income tax withholding from payments to service providers to non-residents and residents has been expanded to include diplomatic and consular missions, as well as international organizations;
- An additional VAT exemption is provided for the road transport of people and goods carried out by transport companies subject to the real tax regime;
- Electronic tax payments are mandatory for taxpayers under the supervision of the Office of Large Taxpayers, while requirements for electronic declarations are becoming mandatory for taxpayers under the guidance of the Office of Medium Taxpayers (electronic returns are already required for large taxpayers from 2019).
Consumption taxes
The nature of the tax is Value Added Tax (VAT). The tax rate is 18% (standard rate). Under the Burkina Faso Mining Code, mining rights holders do not pay VAT. During the exploration phase, copyright holders are exempt from VAT on all imported goods (conditions apply). Export is not taxed. Goods entering Burkina Faso are usually subject to customs duties. Special duties are levied on the following goods: beverages, tobacco, perfumery, and cosmetic products, non-biodegradable plastic packaging and bags, petroleum products, coffee and tea, cola nuts, and cars with at least 13 horsepower. Airplane tickets are subject to a particular duty.
Corporate taxes
The tax rate is 27.5%. For foreign companies, the resident corporation is subject to worldwide income tax on movable capital. Other types of taxable income are subject to withholding tax. Non-residents are taxed only on the earnings of Burkina Faso.
A legal entity registered in Burkina Faso is considered a resident for tax purposes. The income of branches of foreign companies from sources in Burkina Faso is subject to a withholding tax of 12.5%. The taxable base is 75% of the branch’s annual income.
Capital Gains Tax – capital gains arising from the disposal of property, plant, equipment, and shares are generally included in taxable profit, but only for half of the total. Capital gains resulting from mergers and asset contributions are exempt from corporate income tax. Profits from the sale of real estate are taxed separately at a rate of 10%.
Principal Allowable Deductions and Tax Benefits Business expenses are deductible if they are strictly related to the industry. Losses can be carried forward for four years after the year of the loss. The deduction of royalties paid to related parties for licenses, patents, trademarks, manufacturing processes or formulas, and other similar rights is limited to 3.5% of the turnover (excluding VAT) of goods or services the production or sale of which results in royalties.
Other corporate taxes include stamp duty for administrative actions (at a fixed or variable rate depending on the type of document), business transfer tax at 10%, real estate tax at 0.1% of the taxable amount, and license fee for Doing Business. The social security contributions paid by the employer are 16% (3.5% for donations at work; 7% for family benefits and 5.5% for old-age pensions).
