In order to foster a conducive environment for commercial activities, strengthen economic
relations, and enhance cooperation in tax matters, the CEMAC member States adopted on
April 18, 2019, Regulation No. 07/19-UEAC-010A-CM-33 revising Act No. 5/66-UEAC-49 of
December 13, 1966 relating to the agreement on the elimination of double taxation on
income. This new tax convention introduces a series of fiscal advantages, among which is a
favorable tax regime for dividends distributed within the CEMAC zone. Essentially, it is a set
of mechanisms designed to alleviate and avoid double taxation on dividends paid in one
State to individuals or entities residing in another CEMAC member State. The term
“dividends,” as used by the community legislature, refers, among other things, to income
derived from shares, profit-sharing bonds, mining shares, founder’s shares, or other profit-
participating interests. This preferential regime stems from Sections 10 and 24 of the
aforementioned CEMAC tax convention. Its purpose is undoubtedly to encourage intra-
community investment within the subregion, thereby constituting a tangible benefit for its
recipients. It is therefore important to present it in order to ensure it reaches its intended
audience as effectively as possible. The substance of this regime highlights favorable tax
rates and the elimination of double taxation.
Regarding the favorable tax rates, they result from Section 10, paragraph 2 of the
aforementioned tax convention. These rates apply when the dividends are taxable in the
State from which they originate, according to its domestic tax legislation, but the beneficial
owner of the dividends is a resident of another CEMAC member State. In such a case, two
scenarios must be distinguished. The first is where the beneficial owner is a company that
directly holds at least 25% of the capital of the company paying the dividends, over a period
of 365 days including the date of the dividend payment. In such circumstances, the tax
imposed in the State of origin of the dividends cannot not exceed 5% of the gross amount of
the dividends. The second scenario applies where the beneficial owner is located within the
CEMAC but holds less than 25% of the capital of the distributing company, or is located
outside the CEMAC and holds 25% or less of the capital of the dividend-paying company. In
both instances, the distribution tax cannot exceed 10% of the amount of dividends paid.
These treaty rates are clearly more advantageous than those provided under national local
fiscal laws. For example, the distribution tax rates currently in effect in CEMAC countries are
10% for residents and 15% for non-residents in Equatorial Guinea, 15% in the Central
African Republic, 16.5% in Cameroon, 18% in Chad, 20% in Congo Brazzaville and Gabon.
As far as the elimination of double taxation is concerned, it is provided for under the
provisions of Section 24 of the aforementioned convention. Paragraph 1 of this section
stipulates that when a resident receives dividends that are also taxable in the State of origin,
the resident State shall grant a deduction from the tax it collects on such dividends in an
amount equal to the distribution tax paid in the State of origin. This is the application of the
tax credit mechanism, whereby, in accordance with tax treaties, tax paid by a resident in
one State is credited against the tax payable in another State when the treaty provides for signatories shared taxing rights. As a result, beneficiaries of dividends distributed within
the CEMAC enjoy a significant tax advantage in the form of a tax credit. However, the same
paragraph ultimately states that the tax credit from the source State, to be deducted in the
recipient’s State of residence, cannot exceed the amount of tax calculated in that State
before the deduction of the said credit. Considering that double taxation can be detrimental
in many respects, this mechanism should be viewed as a definite benefit for dividend
recipients within the CEMAC and a genuine incentive for intra-community investment.
In conclusion, the favorable tax regime applicable to dividends paid by companies in CEMAC
member States to residents of those States comprises two main elements. On one hand, it is
reflected in favorable tax rates, and on the other, in the avoidance of double taxation.
Although this preferential tax regime remains relatively unknown to CEMAC residents who
receive dividends, it clearly expresses a strong intent to promote economic growth and
encourage investment within the CEMAC region. These goals could be further advanced by
establishing a favorable tax regime specifically designed for holding companies.
Authors: Martin.J Hendje, Tax & Legal Consultant; Supervisor: Albert Désiré Zang, Managing
Partner