Income Tax in Liberia
Personal Income Tax:
What is Personal Income Tax (PIT)?
PIT or Personal Income
Tax is defined as taxes paid by ALL persons self-employed or employed by
another, on their total gross income (aggregate of all economic benefits of whatever
kind that the tax payer derives), using the PIT table reproduced below and
found in Sections 800 to 803 of the Revenue Code of Liberia as Amended 2011.
Tax Table for Resident
Natural Persons
Step
|
Taxable Income of (in Liberian dollars)
|
Tax Rate and Computation (in Liberian
Dollars)
|
1
|
0 to
70,000
|
Not
Applicable
|
2
|
70,001
to 200,000
|
5% of
the excess over 70,000
|
3
|
200,001
to 800,000
|
6,500
+ 15% of the excess over 200,000
|
4
|
800,001
and above
|
96,500
+ 25% of the excess over 800,000
|
Who Pays Personal Income Tax?
It is paid by all
natural persons who exercise employment or work in Liberia no matter the agency
or entity or the kind of work being done and citizens working with the Liberian
Government in the foreign service.
It is paid by resident
natural persons, resident legal persons, and nonresident persons. The gross income of a resident includes all
economic benefits regardless of source.
The gross income of a nonresident person includes only economic benefits
having a source in Liberia. Liberia
Revenue Code Section 201(c).
Who is a Resident Natural, Resident
Legal, and Non-Resident Person?
Liberia Revenue Code
Sections 800 defines (1) a natural resident person as resident in Liberia for
the entire tax year if he or she has a normal place of abode in Liberia and is
present at any time during the tax year; is present on more than 182 days in a
12 month period that ends during the tax year; or is an employee or official of
Liberia posted abroad during the tax year.
Liberia Revenue Code
Section 801 defines a resident legal person as one who is incorporated and
formed under the laws of Liberia and either has its management and control in
Liberia or undertakes the majority of its operations in Liberia; or is a
registered business entity that undertakes some business activity and has a
majority of its direct or indirect shareholders in Liberia; or is a general
partnership, joint venture, or trust,
and a partner, co-venturer, or trustee is a resident in Liberia.
Liberia Revenue Code
Section 802 defines a non-resident as a person who is not a resident during the
tax year.
Liberia Revenue Code
Section 803 describes a Permanent Establishment as the establishment through
which an entity carries out its business in Liberia in full, or in part, for no
less than 90 days during the tax year.
What is the Legal Basis for
Personal Income Tax?
·
Every person is obliged to pay the taxes
for which the person is liable.
·
No one may be required to pay taxes that
are not provided for by this Code.
Liberia Revenue Code, Section 2.
Election to File a Tax Return:
Liberia Revenue Code
Section 901(d) states if a legal person not otherwise required to file an
income tax return desires to claim a net operating loss, loss carryforward, or
any other loss, deduction, credit, or allowance under this Code, that person
may elect to file an income tax return for the tax period in which the loss,
deduction, or credit was generated.
A nonresident subject
to tax under Section 806 (i) of the Liberia Revenue Code may elect to file an
income tax return by submitting it at the time and in the manner required by
Part 1 and Chapter 9 of the Liberia Revenue Code, and is thereby required to
pay the amount of income tax on taxable income specified in Section 200 or 201
of the Liberia Revenue Code. An amount
of tax withheld pursuant to Section 806 is creditable against income tax
liability and refund of an overpayment may be available as described in Section
72 of the Liberia Revenue Code. A
nonresident’s election to file an income tax return is effective for the tax
period for which the election is made and for the next four succeeding tax
periods.
Filing of Personal Income Tax
Return (Annual Income Tax):
Liberia Revenue Code
Section 900 states a resident natural person who has taxable income as computed
under Section 201 of the Liberia Revenue Code for a tax period is required to
pay income tax for that period.
A resident natural
person is not required to file a tax return if:
· He/she derives 90% of gross income from
employment income (salary, benefits, and wages) that are subject to withholding.
· Is taxable as a small taxpayer (a
taxpayer who carries on a business with less than $3,000,000LD turnover a
year).
· A small taxpayer who qualifies as a
petty trader and has paid the applicable Petty Traders License Fees (a petty
trader is a natural person with annual turnover of less than $200,000LD).
o
A small taxpayer who does not qualify as
a petty trader must pay presumptive tax on a quarterly basis using the Advanced
Payments tax form provided by the LRA.
Due Dates for Filing Personal
Annual Income Tax Returns:
A taxpayer’s income tax
return is due by the last day of the third month following the end of the
taxpayer’s tax year. For calendar year
taxpayers, that due date is March 31 of the year following the end of the tax
year in question. Payment of income tax
is due on or before the due date.
Liberia Revenue Code, Section 902.
Corporate Income Tax:
Business income:
Generally residents are
taxable on all income regardless of source. Therefore, foreign source income by
a resident is taxable in Liberia subject to available foreign tax credit
relief. Non-residents are subject to tax on income having a source in Liberia.
The Corporation tax rate is 25% and 30% for general companies and mining/petroleum
companies respectively. Some mining/petroleum companies have concessionary tax rates
with the government. Withholding taxes also apply to certain types of income
for both residents and non-residents. Withholding tax on interest, dividends,
and royalties paid to a non-resident is the final tax.
Rates:
Resident Companies:
Capital
Gains
|
Treated
as income
|
Rental
Income
|
10%*
|
Dividends
|
15%**
|
Interest
|
15%
|
Royalties
|
15%
|
Natural
resource payments
|
15%
|
Management
& consultancy fees
|
None
|
Contract
of services
|
10%
|
Mining,
petroleum and renewable resource projects
|
|
Interest
|
5%
|
Dividends
|
5%
|
Services
|
6%
|
Acquisition
price
|
10%
|
Nonresident Companies:
Capital
gains
|
Sales
of shares in a resident company taxable as
Income
|
Rental
income
|
15%
|
Dividends
|
15%
|
Interest
|
15%
|
Royalties
|
15%
|
Natural
resource payments
|
15%
|
Management
& consultancy fees
|
15%
|
Contract
of services
|
15%
|
Mining,
petroleum and renewable resource projects
|
|
Interest
|
5%
|
Dividends
|
5%
|
Services
|
6%
|
Acquisition
price
|
15%
|
Gains are treated as
income and gains below L$ 1,600,000 on the sale of personal-use property may be
excluded from income.
* WHT is due on rental
income where the aggregate annual rent exceeds LIB$70,000
** Dividend paid by a
resident company to another resident company is exempt.
A
corporation is liable to pay tax on its taxable income. A corporation’s tax return is due annually on
the last day of the 3rd month following the end of the taxpayer’s tax year or
March 31st for calendar year taxpayers.
Taxable
Income:
It
is income that includes profit and/or loss from operations, gains or losses on
sale of property, and other income.
Gross
Income:
The
aggregate of all income earned, from whatever source derived during the
year. It includes but is not limited to
receipts from operations and gain on the sale of property used in the business
or held for investment and other benefits such as noncash.
Property
Transfers:
Cash
Payment
Transferor
gain on sale of property = Amount received from transaction – depreciated-adjusted
property value.
Non-Cash
Payment
Transferor
gain on sale of property = Fair market value plus cash or noncash entitlement
If
a transfer of property is for no consideration then cost to transferor and
transferee is the greater of fair market value or depreciated property amount.
If
a charitable contribution made as a transfer of property is for no
consideration to unrelated persons then to the transferor and transferee the
cost is fair market value. For a
definition of who is a related person see Liberia Revenue Code, Section 208.
If
a transfer of property is by death, the transferor’s amount derived on the
transfer is considered to be the property’s fair market value, and the
deceased’s estate is treated as incurring acquisition costs of an equal amount.
Rollovers:
Rollovers
are property transfers. The valuations
of rollovers are as follows:
(1) Rollover
pursuant to Divorce: A rollover
(transfer of property) in the event of a divorce is valued at
depreciation-adjusted cost.
(2) Rollover
pursuant to Involuntary Conversion: In
the case of involuntary destruction or transfer of property followed by
replacement within a year, the amount derived is valued at
depreciation-adjusted cost before the rollover plus any gain that remain when
you deduct the amount received minus the replacement cost.
Amount Derived =
Depreciation-Adjusted Cost before Rollover + (Amount Received on Involuntary
Conversion – Replacement Cost).
The tax cost of
the replacement property equals to the depreciation-adjusted cost before the
involuntary conversion plus the excess of the cost to acquire the asset over
the amount derived on the involuntary conversion.
Tax Cost of
Replacement Property = Depreciation-Adjusted cost before the Involuntary
Conversion + (Cost to Acquire the Asset – Amount Derived on Involuntary
Conversion).
(3) Rollover
pursuant to a Transfer to a Related Person:
Transfers between related persons are valued at depreciation-adjusted
cost subject to limitations. If the
property transfer is between related persons and from a pooled method of
depreciation, the cost is the balance in the depreciation account.
Exclusions:
Includes disability, or death benefits, gifts and
transfers by death, certain noncash benefits provided by an employer,
tax-exempt government obligations, personal use property where gain is equal to
or more than L$1,600,000.00, and exclusion of interest if less than L$200 a
year. Liberia Revenue Code, Section 202.
Deductions:
Deductions include expenses of operating a business
during the year within limitations (Revenue Code of Liberia, Section 206),
losses, bad debts, interest on business indebtedness, and net operating loss
carry-forward not to exceed five succeeding years from the year of the loss. Deductions are allowed for:
·
Expenses see Liberia Revenue Code,
Section 203.
·
Losses not compensated by insurance
· Loss on property held for investment to
the extent that the loss is offset by a gain on the disposition of the property
during the tax year. Unused loss may be carried
forward.
·
Bad debt that was includable in gross
income
· Banks regulated by Central Bank are
allowed deductions for additions to the Reserve for Bad Debts Account
·
Net Operating Loss Carryforward (not to
exceed 5 years)
· Business interest accrued or paid during
the tax year. The deduction for interest
payable to any person other than a resident bank is limited to the amount of
interest received plus 50 percent of taxable income other than interest income. Liberia Revenue Code, Section 203(d).
1.
Incentive Deduction – qualifying
manufacturing and service businesses are entitled to a deduction of up to 30
percent by itself or combined with (2) below of the purchase price of equipment
and machinery. Both Incentive Deduction
(1) and Allowances (2) below may be combined not to exceed 30%.
2.
Allowances – manufacturing and
service businesses are allowed to deduct up to 20 percent of the cost of
equipment and machinery but no more than 30 percent in a combination of (1) and
(2).
a.
Manufacturing, agricultural,
service businesses (other than tourist facilities) located out of Montserrado
County and outside of Government Free Zone area are allowed an additional
deduction of 10 percent of the purchase price of equipment and machinery
b.
Tourist facilities or transnational
corporations using Liberia as the regional headquarters are allowed a deduction
of 10 percent of the purchase price of equipment and machinery.
Depreciation and Amortization:
Depreciable property does not include land and
inventory, is used to produce taxable income, has a useful life of more than a
year and that depreciates as a result of use.
Tangible moveable depreciable property is heavy
machinery or light machinery. Heavy
machinery depreciation rate is 30% a year and light machinery depreciation is
40% a year. If it is not clear if a
piece of equipment is heavy or light machinery it should be classified as heavy
machinery.
Heavy machinery means tractors, telecommunications
towers, power support towers, buses for 20 or more passengers, airplanes,
ships, heavy trucks more than 5 tons empty weight, and similar equipment.
Light machinery includes passenger automobiles,
office furniture, computers, printers, telephones, passenger vans or buses for
fewer than 20 passengers, light trucks less than 5 tons empty weight, and
similar equipment.
Tangible fixed depreciable property is to be
depreciated asset by asset on a straight line basis not to exceed 15 years.
Intangible property include patents, copyrights,
goodwill, etc. are to be depreciated on a straight line basis not to exceed 15
years.
Pooled Depreciation:
Liberia Revenue Code, Section 204(c).
Other Deductions:
Charitable contributions made to the government are
eligible for deductions. If the
contribution is noncash the amount of the deduction is its adjusted tax cost or
fair market value whichever is lower.
The charitable contribution must not exceed 15 percent of taxable income
before such deduction and after inclusion of any gain on the transfer.
For Limitations on Deductions, see Liberia Revenue
Code, Section 206.
Finance Leasing:
If a lessor leases tangible property to a lessee
under a finance lease contract, the lessee is treated as the owner of the
property and the lease payments are treated as loan payments to the lessor by
the lessee.
A lease of property is a finance lease under the
following conditions:
· If
the lease term exceeds 75 percent of the useful life of the property
· If
the agreement provides the lessee the option to purchase the lease at the end
of the term for a presupposed or fixed price
· If
the agreement provides for transfer of ownership at the end of the lease
· If
the residual value at the end of the lease is less than 20 percent of fair
market value at commencement of lease
· If
the present value of minimum lease payments equals or is greater than 90
percent of the fair market value at commencement unless the lease commences at
the last 25 percent of its life
· If the property is custom made for the
lessee and cannot be used by anyone else at the end of the lease.
Treatment of Finance Lease Payments:
Lease payments are treated as payments made on a
loan by the lessor to the lessee. The
discount rate to determine the present value of lease payments is the interest
rate published by Central Bank on the date the lease is entered into and the
lease term may include additional periods for which the lessee has an option to
renew the lease. If the lessor was the
owner of the property before the lease commenced then under the lease contract
the transaction is treated as a disposal by the lessor and a purchase by the
lessee.
Income Splitting:
Income splitting is transfer to a related person,
directly or indirectly, an asset, and where the related person enjoys amounts
derived from the asset with the purpose of the transfer being to reduce the tax
payable by the person and related person.
Where this is found, the Commissioner may adjust amounts to be included
or deducted in determining the income of each person or the source of income to
prevent any reduction in the payment of taxes.
Section 210
For a definition of who is a related person see
Liberia Revenue Code, Section 208.
For Transactions between Related Persons, see
Liberia Revenue Code, Section 211.
Currency Exchange Rate Fluctuations:
For determining taxable income, and due to the
fluctuations of currency rates, the amount to be used is the rate in effect
when payment is made or services are performed.
Foreign Tax Credit:
Payers of Liberian income tax that pay taxes on
income not having a source in Liberia may, on their Liberian income tax return
report the foreign income and take the Liberian foreign tax credit. The amount of the credit is limited to the
amount of tax that would otherwise be charged on that income at the income tax
rates in effect for that tax year, using the taxpayer’s average rate of tax
paid. The amount of foreign tax paid or
due is creditable against Liberian income tax otherwise due.
Methods of Accounting:
There are two methods of accounting that are
acceptable under the tax laws of Liberia
1.
Cash Method Accounting
2.
Accrual Method of Accounting
Limitations: Except for a trust or partnership a legal
person must account for income on an accrual basis. A natural person, trust, or partnership whose
business income for a tax year exceeds an amount set forth in Regulations must
use the accrual method of accounting in all future tax years.
Prepayments:
Allowable deductions for expenses that are not
capital expenditures such as a service or other benefit that extends beyond six
months after the end of the tax year are allowed proportionately over the tax
years to which the service or benefit relates.
Medical Tax Credit:
Businesses operating in Liberia are allowed to
deduct medical expenses incurred on behalf of employees and must be
substantiated. See Liberia Revenue Code,
Section 219.
Long Term Contracts:
Income and deductions relating to a long-term
contract are taken into account on the basis of the percentage of contract
completion during the tax year. A long
term contract is one that is not completed within the tax year in which the
contract commenced, other than a 6 month contract from the date it commences.
Income Earned = Cost incurred to Date/Estimated
Total Contract Cost x Contract Price
Inventories:
A deduction is allowed for the cost of inventory
sold during the year. It is
calculated:
Cost of Opening Inventory + Cost of Goods Acquired
during the Year – Cost of Closing Inventory = Cost of Inventory sold during the
Year.
Ending inventory must be valued at the lower of cost
or market at that date. When items of
inventory are not readily identifiable, taxpayer may value inventory using
first-in first-out method, average cost method, or the last-in first-out
method. Once chosen, an inventory
valuation method cannot be changed unless by permission of the Commissioner.
A cash basis taxpayer must calculate the cost of
inventory using the prime cost or absorption cost method, and an accrual basis
taxpayer must calculate the cost of inventory using the absorption cost method.
Tax Period:
Calendar Year – is the tax period.
Fiscal Year – the Commissioner may grant upon
written application to a legal person except a trust or estate, permission to
use a 12 month period other than a calendar tax year as their tax period. The Commissioner may withdraw this permission
by written notice that will take place at the end of the tax period in which
the notice is written.
Transitional Tax Year – when an application is made
to change from one period to another, example one fiscal year to another or one
fiscal year to a calendar year, the year between when the old period ends and
the new period begins is called the taxpayer’s transitional tax year.
Short Tax Year – occurs in the case of jeopardy
assessment or when the cessation of business occurs. Jeopardy assessment is when the Commissioner
makes an assessment of taxes due before the due date for filing a return or
payment of tax when it is supposed the payment is in jeopardy of being
paid. The period from the date of the
jeopardy assessment to last day of the taxpayer’s tax year is a short tax
year.
When a business ceases operations, they are required
to close their books the second month after the month of cessation of
business. The period between the last
full tax year prior to closing of the books and the date on which the books are
closed is to be treated as a short tax year.
Withholding Tax:
What is Withholding?
Withholding is an obligation by a withholding agent to
withhold the taxes due the Government of Liberia on behalf of a withholdee or
withholdees in respect of goods supplied or services rendered by the withholdee
to the withholding agent. The
withholding agent pays the tax to the LRA using the withholdee’s Taxpayer
Identification Number, or TIN. Liberia
Revenue Code (LRC) Section 905(a).
Who
Pays Withholding?
The following are subject to the payment
of withholding:
·
A
resident legal or natural person;
·
A
nonresident with a branch in Liberia or doing business in Liberia;
·
A
government agency; or
· Unless
expressly exempted by international agreement or treaty, a nongovernmental Organization operating in Liberia or a
diplomatic mission to Liberia.
What are the Payments
subject to Withholding?
The following payments are subject to withholding: (Section 905
LRC)
· Contract Services or
Services Rendered
· Acquisition Price of an
Investment
· Interest
· Royalties
·Dividends
· License Fees
· Gaming Winnings
· Payers of Rent
How
is Withholding on Individual Income Tax paid?
To pay withholding taxes:
·
Go to the Taxpayer
Services of the Liberia Revenue Authority, Monrovia
·
Obtain a withholding
form for
A) Services rendered (Schedule B-Resident), (Schedule
B-Non-Resident) or
B) Withholding form for salaries and wages (Schedule A),
· Take the completed form
to Returns Processing of the LRA to obtain a Bank Payment Slip
· Proceed to the bank
payments section to make payment and obtain a flag receipt
· Note that to make
payments above US$100 or L$5000, you will have to obtain a manager check from a
commercial bank.
What
is the Percentage of Withholding on Wages/Salary?
Withholding on wages or salary is based on the Personal Income Tax
Table below: (Section 200 LRC 2011):
Step
|
Taxable
Income Of—(Liberian Dollars)
|
Tax
Rate and Computation (Liberian Dollars)
|
1.
|
0- 70,000
|
0
|
2.
|
70,001 to 200,000
|
5%
of the excess over 70,000
|
3.
|
200,001
to 800,000
|
6,500 + 15% of the
excess over 200,000
|
4.
|
800,001
and above
|
96,500
+ 25% of the excess over 800,000
|
What
is the Percentage of Withholding on Contract Services/Services Rendered?
·
The withholding rate for
resident natural or legal person is 10%
·
The withholding rate for
non-resident natural or legal person is 15%
What is the Percentage of Withholding on Dividends?
·
The withholding rate for
resident natural or legal person is 15%
·
The withholding rate for
non-resident natural or legal person is 15%
What is the
Percentage of Withholding on Rent?
·
The withholding rate for
resident natural or legal person is 10%
·
The withholding rate for
non-resident natural or legal person is 15%
What is the
Percentage of Withholding on Gambling?
·
The withholding rate for
resident natural or legal person is 20%
·
The withholding rate for
non-resident natural or legal person is 20%
What is the
Percentage of Withholding on Interests?
·
The withholding rate for
resident natural or legal person is 15%
·
The withholding rate for
non-resident natural or legal person is 15%
What is the Percentage of Witholding on Board &
Management Fees?
·
The withholding rate for
resident natural or legal person is 10%
·
The withholding rate for
non-resident natural or legal person is 15%
What is the Percentage of Withholding on the
Acquisition price of an investment?
·
The withholding rate for
resident natural or legal person is 10%
·
The withholding rate for
non-resident natural or legal person is 15%
What is the Percentage of Withholding on Goods &
Service Tax?
Goods and Services Tax:
GST Type
|
Tax Rate
|
GST Domestic Goods
|
7%
|
GST on Electricity Services
|
7%
|
GST on Telecommunication Services
|
15%
|
GST on Provision of Water for Fee
|
7%
|
GST on Hotel Services
|
10%
|
GST on Restaurant Services
|
7%
|
GST on Gambling Services
|
10%
|
GST on Sale of Tickets by International
Transport Services (air, sea, and land)
|
10%
|
GST on Services of a Travel Agency or Travel
Arranger, including the issuing of tickets
|
10%
|
GST on Sporting or Game Arranger Services,
including the issuing of tickets
|
10%
|
GST on other services
|
7%
|
What
is the Percentage of Withholding on Excise Tax?
Excise Tax Table:
Excise Type
|
Tax Rate
|
Earth
and Stone; Asbestos Product Manufactured in Liberia
|
35%
|
Scrap
Metal Exported from Liberia
|
5%
|
Alcoholic
Beverages with an alcohol content in excess of one percent imported or
produced in Liberia
|
35%
|
Tobacco
and Tobacco Products imported to or manufactured in Liberia
|
35%
|
Non-Alcoholic
Beverages and Water Produced in Liberia
|
2%
|
Cosmetics
Imported to and produced in Liberia
|
8%
|
Luxury
Automobiles and Jewelry imported to or manufactured in Liberia
|
10%
|
Gambling
Equipment imported to or manufactured
in Liberia
|
30%
|
Water
imported into Liberia
|
35%
|
Non-alcoholic
beverages other than water imported into Liberia
|
10%
|
Sugar
in crystal or granule form Tariff No. 1701.99.10 and 1701.99.90
|
10%
|
Monosodium
Glutamate or products containing more than 80% monosodium glutamate
|
30%
|
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Note:
Information
placed here in above is only for general perception. This may not reflect the
latest status on law and may have changed in recent time. Please seek our
professional opinion before applying the provision. Thanks.
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