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Part C: Fiscal Terms - 36. Fiscal Terms - 36.3 Taxes | 36.3(b). Withholding Taxes on Payments to Non-Resident Persons

Withholding taxes are a share of payments made to non-residents of the country (for example, payments for services, interest, dividends, private sector royalties, etc.) which are “withheld” and transferred to the government. Withholding taxes makes it possible for the government to tax income generated within the country by those who are not based in the country.

As with income tax, withholding taxes (on dividends, interest, royalties, fees and various types of income) should generally be provided in the tax law and should be standard across all sectors.

36.3(b). Example 1:

Article [_]

(1) Subject to the satisfaction of their obligations set forth in this [Code][Act][Law], all holders of mining rights are guaranteed free repatriation abroad of dividends and income from invested capital, as well as the proceeds of liquidation or sale of their assets.

(2) However, profits distributed by a [Country national] company to non-residents are subject to withholding and at the rate set forth in [Tax Code], subject to the preferential rates for income derived from investments for the mining sector, set forth in this [Code][Act][Law], or tax treaties which offer a more favourable rate. This withholding is to be liquidated by the [Country national] company making the distribution.

(3) Foreign workers residing in [Country] and employed by holders of a mining right or authorisation, are guaranteed the free conversion and repatriation to their home country of all or part of their salaries or other forms of remuneration due to them, subject to their income and other taxes having been paid in accordance with the provisions of this [Code][Act][Law] and the [Tax Code].

Annotation

Drawn from the Guinean mining code (2011), this provision has the advantage of referring withholding taxes on dividends to the general tax code. However, Article 176 of the Code provides for a reduced rate of 10% of withholding tax on dividends for non-resident investors in mining ventures. This may make it more difficult for the tax regulating entity to enforce the tax, especially if some foreign investors receive dividends from both mining and non-mining entities in Guinea.

In addition, this example highlights a potential loophole in the tax regime: bilateral investment treaties may result in exemption from, or a reduced rate for, withholding tax on dividends and interest.

Countries may want to consider in negotiating such treaties a provision that allows income generated in the country to be taxed before it is repatriated to the investors’ home country.

36.3(b). Example 2:

Article [_]

(1) The rate of tax applicable to a payment to a non-resident person or partnership and the rate of withholding tax applicable to such a payment is:

(a) in the case of dividends and interest, 10%;

(b) in the case of royalties, natural resource payments, and rents, 15%; and

(c) in the case of endorsement fees or management and technical service fees, 20%.

Annotation

Drawn from Ghana’s Internal Revenue Act (2000), this provision follows good practice by including withholding taxes on payments to non-residents in the general tax legislations. These provisions apply to companies both in the mining and non-mining sectors.