Madagascar: Global Tax Guide

Table of Contents

Legislation

General Tax Code (as updated for the 2024 Finance Law)

Residence/Territorial Scope

Article 01.01.12 of the General Tax Code provides that a company is resident in Madagascar if it is registered in Madagascar or has its place of management in Madagascar.

Article 01.01.05 of the General Tax Code provides that companies are liable to income tax on the basis of all their income.

Article 01.01.02 of the General Tax Code provides that subject double tax treaties, all income of whatever nature, earned in Madagascar companies with or without a permanent establishment there, and whose turnover is greater than or equal to Ar 400,000,000 is subject to income tax under the Actual Profit Regime.

For the application of the provisions of Article 01.01.02, the following are considered to have been carried out in Madagascar:

• All income earned by legal persons having their registered office in Madagascar, regardless of their origin;

• Income from Malagasy sources earned by legal persons who do not have a registered office or residence in Madagascar, excluding income from securities that are subject to withholding tax.

Permanent Establishment

Article 01.01.02 of the General Tax Code defines a permanent establishment as a fixed place of business through which the enterprise carries on all or part of its business.

A permanent establishment includes:

• A place of management;
• A branch;
• An office;
• A factory;
• A workshop; and
• A mine, oil or gas well, quarry, or any other natural resource extraction site.
• A construction project, an assembly or installation project or supervision activities related to this project, but only if that construction site, project or activities last longer than 120 days;
• The provision by an enterprise of services, including consulting services, through employees or other personnel engaged by the enterprise for that purpose, but only if activities of this nature continue (for the same or a related project) in Madagascar for a period or periods totalling more than 90 days of a one-year period beginning or ending in the relevant fiscal year.

The term “permanent establishment” does not include:
• The use of facilities for the storage or display of goods or merchandise belonging to the company;
• The operation of a stock of goods or merchandise belonging to the company for the sole purpose of storage or display;
• The operation of a stock of goods or merchandise belonging to the enterprise for the sole purpose of processing by another company;
• The operation of a fixed place of business for the sole purpose of purchasing goods or gathering information for the company;
• The operation of a fixed place of business for the sole purpose of carrying on any other business activity for the company that is preparatory or auxiliary nature;

Corporate Income Tax Rates

Article 01.01.14 of the General Tax Code provides that the corporate income tax rate is 20 percent.

For the calculation of the tax, the taxable profit is rounded down to the nearest thousand Ariary.

The amount of tax calculated is reduced by the amount of the income subject to withholding tax (with no refund available).

Under no circumstances may the tax calculated for a financial year be less than the minimum set out below:

• Ar 500,000, increased by 1% of the annual turnover excluding tax for the financial year, for taxable persons carrying out agricultural, artisanal, industrial, mining, hotel and tourist activities;

• Ar 1 000 000, increased by 1 per cent of the annual turnover excluding tax for the financial year, for other undertakings.

However, this minimum is reduced to 2% of the turnover before tax achieved during the financial year in question, for taxpayers selling motor fuels at retail. When they cumulatively carry out other taxable activities, these must be accounted for and declared separately from those of the retail sale of motor fuel, and are subject to the application of a minimum levy relating to the activity carried out.

For non-profit organizations and associations the rate is generally set at 10 per cent.

Companies that invest in the production and supply of renewable energy and those in the agricultural, tourism, industrial, buildings and public works sectors, can benefit from a tax reduction equal to the tax corresponding to 20% of the investment thus made.

The right to a reduction that may be used in respect of the taxation year may not, however, exceed 50% of the tax actually due. The remainder is carried forward within the same limit to the taxes of the following years for a period not exceeding that of the tax depreciation.

Taxable Income and Allowances

Article 01.01.09 of the General Tax Code provides that corporate income tax is established each year on the results obtained from the accounting year which may either coincide with the calendar year, or extend over the period from 1 July of a given year to 30 June of the following year, or be spread over any period of twelve months.

Article 01.01.10 of the General Tax Code provides that the taxable base consists of the net profit determined on the basis of the overall results of operations of all kinds carried out by companies, including in particular those resulting from the sale of any assets, whether in progress or at the end of their operations, ancillary profits and miscellaneous gains.

However, the profit or gain resulting from the change in the fair value of an investment property or a biological asset as provided for in the 2005 General Accounting Plan is not included in the determination of the taxable result for the financial year in respect of which a company carries out the revaluation, provided that the deferred tax relating to the profit is recognised in the records for the financial year, and that the details of the elements that are the subject of remeasurement are disclosed in the notes to the financial statements.

Article 01.01.03 of the General Tax Code provides that the following are exempt from income tax:

• Interest paid by the Caisse d’Epargne de Madagascar;
• Interest paid by the Treasury in the context of a national loan;
• Interest paid on cash certificates;
• The proceeds and capital gains on the sale of shares held by joint stock companies under Malagasy law whose main purpose is to acquire minority shareholdings in the share capital of companies in the creation phase or existing companies in the restructuring phase;
• The remuneration for communication services provided from abroad via satellites.
• The net dividends received from its subsidiary by the parent company, under the conditions set out in Article 01.01.11-II of the General Tax Code.

Deductions

Article 01.01.10 of the General Tax Code provides that deductions are generally available from taxable income for expenses incurred with a view to the acquisition or retention of profit and which are necessary for the normal operation of the company.

The General Tax Code specifically includes a number of deductible expenses, including:

• Purchases, external services, personnel costs and other expenses of ordinary activities Only salaries corresponding to actual work and not being exaggerated in view of the nature and importance of the service rendered, as well as all allowances granted to retirees, regardless of their name, including the sum exceeding one year’s salary per retired employee giving rise to the payment of IRSA, are allowed as a deduction from taxable profits.

• Expenses related to any form of health coverage paid by the employer for the benefit of all its employees are deductible up to a limit of 10% of the payroll. The following are not allowed to be deducted (subject to certain restrictions)

• Interest, royalties and other proceeds from obligations, receivables and the assignment or grant of licences to use, patents, trademarks, manufacturing processes or formulas and other similar rights or remuneration for services, paid or payable by a natural or legal person domiciled or established in Madagascar to natural or legal persons who are domiciled or established in a foreign State or a foreign State are not deductible if the foreign jurisdiction is subject to a preferential tax regime. This does not apply in the case where the debtor provides proof that the expenses correspond to actual transactions and that they are not abnormal or exaggerated.

• A loss from a change in the fair value of an investment property as well as any new allocations established as a result of a revaluation are also not deductible.

• Depreciation is permitted as a tax deductible expense subject to various limits:

  1. up to 50% of the acquisition value of eligible assets acquired by companies approved under the Law on the Development of Industry, for the first annual fee and the remainder to be spread over the period of tax depreciation.
  2. For aircraft used for business purposes but not permanently intended for hire or transport for consideration, the deductible annual depreciation is calculated on a basis set at 50% of the acquisition value.
  3. In the case of leased buildings, the deductible annual depreciation must not exceed 15% of the gross rents received annually on the said buildings.However, this does not apply to buildings rented out and belonging to real estate companies
  4. Depreciation is calculated on a sliding scale, taking into account the duration of the normal use based on the following principles:

 The depreciation of capital goods, other than residential buildings, construction sites and premises used for the exercise of the profession, may be calculated according to a permanent declining balance depreciation system.

A fixed annual rate of 30 per cent of the residual value of the property is applied.

For the purpose of calculating the amortization period, the year of acquisition is counted as a full year even if the acquisition occurs during the year.
Declining balance depreciation that would have been deferred during loss-making years may be set off against the results of the first subsequent profitable years, in addition to the annual depreciation relating to these years.

• Provisions are deductible where they are made in order to meet clearly specified expenses or losses in value and which current events make probable, provided that they have actually been recorded in the records for the financial year and are included in the statement of provisions.

However, impairment losses on inventories and work-in-progress, on participations, and receivables attached to participations, as well as capital losses on the sale of securities, are not allowed for deduction.

• Impairment losses on bad debts are deductible if they meet the general conditions required for impairment losses. In addition, the claims must be individualized and have been the subject of all amicable and judicial proceedings for prosecution.

• Impairment losses on stocks of agricultural raw materials are allowed as a deduction up to a limit of 5% of the value of the stock of raw materials at the end of the financial year. They must be supported by a statement showing the nature, quantity and value of the products concerned.

• Interest on sums due to third parties is generally deductible, however, for the interest paid to the non associated companies in the same group, the deductible interest is limited to a sum not exceeding twice the equity capital at a rate which must not be higher than that granted by Banky Foiben’i Madagasikara increased by 2 points.

• For companies approved under the Law on the Development of Industry, deductible interest is limited to a total debt-to-equity ratio of 3 to 1 at the same rate as above.

• Payments made by taxable persons to associations recognised as being of public interest by decree of an educational, social or cultural nature, to approved bodies for scientific and/or technical research or for the promotion and creation of businesses contributing to the achievement of the objectives of the economic and social development plan are allowed as a deduction up to a limit of 5% of the turnover achieved for the financial year in question.

• Expenses relating to donations granted to foundations are allowed as a deduction of 75% recognized as being of public utility by decree.

• Expenses related to financial transactions between companies deemed to be related, are deductible up to the limit of:

o 10% of the general expenses for the financial year carried out in Madagasikara, for the share of head office expenses or management fees, and technical assistance costs;

o 10% of the gross operating surplus, for trademark royalties and 15% of the same aggregate for patent royalties relating to the relevant intangible assets;

o 5% of purchases made from a centralising entity, for commissions paid, subject to the presentation of invoices paid by the central purchasing body.

Tax Losses

Article 01.01.10 of the General Tax Code provides that tax losses can be carried forward for 5 years. This deduction is made before the deduction of deferred depreciation.

However, companies carrying out activities relating to public procurement and other non-related activities are not entitled to deduct from the overall income the losses incurred relating to the activities relating to the public procurement.

Withholding Tax

Article 01.01.14 of the General Tax Code provides that a withholding tax rate of 10% (subject to the terms of a double tax treaty) applies:

-on the amount of sums paid to companies or other legal persons who do not have a fixed place of business in Madagasikara or who have a fixed place of business there that is not equivalent to a permanent establishment, as remuneration for the provision of services of any kind physically provided or actually used in Madagascar.

-on dividends paid to non-resident persons,

-on royalties of any kind, paid by a natural or legal person resident in Madagasikara to non-resident persons.

Transfer Pricing

None.

CFC Rules

None