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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)

 · Wages and Salaries
·  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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This blog is Created by CA Anil Kumar Jain.