The Minister of Finance and Budget has just issued a new order n°006775 MFB/DGID dated May 21, 2024, which repeals and replaces order n°034269/MFB/DGID dated November 08, 2023, defining the application of article 355 bis of the CGI.
As a reminder, this article, which provides for VAT to be levied on digital services used in Senegal or when the beneficiary is established there, was introduced into the General Tax Code (CGI) by Law 2022-22 of December 19, 2022 on the Finance Act (LFI) for the year 2023, amended by Law 2023-18 of December 15, 2023 on the Finance Act (LFI) for the year 2024.
- What justifies this new order?
In accordance with article 355 bis item 5 of the CGI, it is the responsibility of the Minister of Finance to specify the terms and conditions for applying VAT to digital services supplied by foreign taxable persons. This was done through decree n°034269/MFB/DGID of November 08, 2023.
Only six (6) months after its publication, this order was repealed and replaced by a new order n°006775 MFB/DGID dated May 21, 2024.
There are at least two possible reasons for this new order:
- The repeal of the order of November 08, 2023 follows the deletion, by the 2024 LFI, of the last paragraph (item 6) of article 355 bis. This stipulated that the provisions of the aforementioned article «only apply when the customer is a private individual not subject to VAT in Senegal». This text exempted foreign suppliers from collecting and remitting VAT on invoices sent to their local VAT-registered customers. In other words, if the customer was subject to VAT in Senegal, it was still the customer's responsibility, on the basis of article 355 bis of the CGI, to collect and remit VAT on behalf of the foreign digital service provider.
However, article 4 paragraph 2 of the 2023 decree only obliged customers subject to VAT in Senegal to liquidate, collect and repay VAT in accordance with the provisions of point 3 of article 355 of the CGI in the absence of proof of regular registration of the operator of the foreign platform. In other words, non-resident online suppliers and digital platform operators are required to collect VAT on all their transactions with local customers, whether they are taxable or not.
This is an important nuance, since the decree places the onus on the VAT-registered customer to ensure that his foreign digital service provider is properly registered. If this is the case, VAT can be paid to the service provider, who is then responsible for transferring it to the tax authorities. On the other hand, if the taxable customer does not have proof of the service provider's regular registration, he will have to settle the VAT himself, collect it and pay it to the tax authorities.
This situation creates uncertainty and additional tax risk for Senegalese taxpayers. All the more so as article 9 of the 2023 decree does not require the tax authorities to publish a list of direct suppliers and operators of foreign platforms operating in Senegal, or to provide information concerning them, specifying those who are up to date with their declaration and payment obligations.
How, then, will local taxpayers be able to ensure that their foreign digital service providers are properly registered? In order to avoid any tax risk, most will no doubt continue to settle VAT on their behalf, even in the presence of duly registered foreign digital service providers.
- Article 363.4 of the CGI introduced by the LFI 2023 stipulates that «for the operations provided for in article 355 bis, VAT is declared, online via the tax administration portal, no later than the 15th of January, April, July and October». However, article 6 of the 2023 decree stipulated that direct suppliers and electronic platform operators had to declare VAT no later than the first fifteen (15) days of each month. In other words, while the CGI provides for quarterly declarations, the 2023 decree provided for monthly declarations. This situation of legal non-compliance in the decree naturally had to be corrected.
- What has changed?
In addition to the quarterly declaration, the new text introduces an average exchange rate, invoicing rules and simplified documentary obligations.
- VAT reporting schedule
Under the old decree, VAT declarations were made by direct suppliers and digital platform operators via ETAX within the first fifteen days of each month. Article 6 of the new decree stipulates that non-resident online suppliers and digital platform operators must declare VAT via the remote declaration interface within the first twenty (20) days following each quarter.
- Defining an average exchange rate
As a reminder, the tax base for the provision of digital services is defined according to the actual sales regime. This being the case, it consists of the consideration received or receivable by the non-resident online provider or operator of foreign digital platforms.
Where sales prices are set in a currency other than that which is legal tender in Senegal (CFA Franc), the value of sales is converted on the basis of the average exchange rate. This is the rate applicable on the last day of the month concerned, as published by the Central Bank of West African States (BCEAO).
- Precise billing rules
Invoices issued by non-resident online suppliers and digital platform operators must include certain information. They must mention their identity, address and NINEA issued by the Administration.
In addition to these elements, they must also indicate the information needed to identify local customers, depending on whether they are taxable persons or private individuals.
In the case of invoicing to local taxable persons, the following information is mandatory:
- the identity of the local taxable person, his NINEA and address;
- the nature of the service provided ;
- the total price of the service(s) concerned, with an indication, where applicable, of the average monthly exchange rate used for foreign currency transactions;
- the amount of VAT invoiced at the standard rate; and
- the total amount of VAT due.
In the case of invoices sent to individual customers, non-resident online suppliers and operators of foreign digital platforms are authorized to issue simplified invoices indicating the following:
- type of supply ;
- date of supply ;
- VAT due; and
- Information used to locate the customer.
- Simplified documentation requirements
From the outset, it should be understood that the legislator does not require non-resident online providers and operators of foreign digital platforms to maintain and produce commercial and accounting books and records in accordance with current local standards.
However, the aforementioned suppliers and operators remain subject to the obligation to store, in electronic format, in their jurisdictions of residence and in accordance with current privacy protection rules, all copies of invoices or receipts and/or underlying accounting documents for all taxable transactions carried out with their customers.
They are also required to keep copies of invoices and/or underlying accounting records identifying supplies to local taxable persons and indicating, where applicable, all information enabling local taxable persons to be identified for tax purposes, the nature of services and the calculation of VAT collected on operations carried out in Senegal. In addition, at the Administration's request, they are required to forward copies of agreements and contracts signed with local taxable persons. To this end, they are required to keep copies of such agreements and contracts by any means at their disposal.
Without prejudice to the declaratory obligations in force in Senegal and unless expressly requested by the tax authorities, they are exempt from systematically producing a list of their customers located in Senegal.
- Persistent points of legal non-compliance
- Declaration deadline
As mentioned in point 1) above, the former decree provided for monthly declarations, whereas item 4 of article 363 provides for quarterly declarations no later than the fifteenth (15th) of January, April, July and October.
Curiously, however, article 6 of the new decree stipulates that non-resident online suppliers and digital platform operators must declare VAT via the remote declaration interface within the first twenty (20) days following each quarter. This provision is not very clear, nor does it comply with the provisions of the aforementioned article 363. In fact, in an attempt to align itself with the legal provisions, which stipulate a deadline of 15 days following each quarter, the new decree enshrines a quarterly deadline, but sets a deadline of 20 days, thus creating confusion and infringing legal requirements.
In our opinion, it would have been wiser to reproduce the text of article 363 of the CGI or simply to refer to the provisions of said article.
- Determining the tax base
Taking into account invoicing in foreign currency, the new decree introduces a second paragraph in article 3. This paragraph states that «non-resident online suppliers and foreign digital platforms are required to convert the value of their sales [...] in order to determine the bi-monthly tax base». Given that the reporting period is quarterly, a base determined on a fortnightly basis is notoriously non-compliant.
