Angolan Tax Reform (I): The New Patrogane Law
The purpose of the current Angolan tax reform is to diversify sources of tax revenue (which up to now has been excessively dependent on oil), to modernise the Angolan tax system with a view to promoting greater tax justice and equity and also to increase the effectiveness and efficiency of the machinery of tax administration. In this regard, despite the fact it was announced that the principal laws would take effect as from 1 January 2012, a number of pieces of legislation which will bring about a profound restructuring of the Angolan tax system are still awaiting publication in Diário da República (the official gazette). We will now analyse this legislation and then follow up with a series of tax newsletters (of which this is the first), to be sent out as and when the corresponding legislation is published in the official gazette. The aim of these tax newsletters will be to provide the necessary guidance on the new tax system, in particular, on the main taxes and tax codes that are subject to reform. These taxes and codes are the General Tax Code, Employment Income Tax, Corporate Tax, Capital Application Tax, Consumption Tax and Stamp Duty. The scope of these newsletters may be extended to cover other legislation such as that applicable to invoices and equivalent documents, and that relating to the status of large-scale taxpayers.
In the context of this reform of the Angolan tax system, the Patronage Law (Law 18/12) was published in the Diário da República on 18 January 2012. The new law introduces tax incentives for anyone that makes donations with the aim of developing the social, cultural, sporting and youth sectors, or in the areas of science and technology, health, education or the information society.
The new Patronage Law establishes the legal rules for tax incentives and State aid in the area of patronage. For the purpose of the application of these new rules, the only relevant actions are donations in cash – which must be made by bank transfer, donations in kind and the provision of services without payment to the patron. The tax incentives apply when these actions are carried out in relation to one of the sectors or areas referred to above with one of the objectives laid down in the new law.
Only legal entities that give assets and provide services for actions that incentivise and contribute to the development of one of the sectors listed above in an altruistic and economically disinterested way can acquire the status of patron and receive the tax benefits provided for on the Patronage Law. The Law defines the objectives that give the patron the right to the tax benefits under the above terms. This system does not apply to individuals even if they make the same donations.
Public or private legal entities that carry out actions of a charitable, humanitarian or educational nature may benefit from the donations provided for in the Patronage Law. The State, foundations that benefit the public, technical and professional, social, cultural and community associations, academies, Angolan cultural players, universities and higher education institutes and centres of excellence may also benefit under the law.
The tax benefits established under the new law are divided into two groups. In the first, tax benefits are granted to non-profit organisations that are recognised as being of benefit to the public when that benefit derives from cultural, sporting, social solidarity, environmental, youth, healthcare, scientific or technological activities. The new law provides that such organisations are exempt from any taxes on the income earned, as long as: (i) those holding positions on the respective boards are not remunerated, (ii) the organisation has organised accounting under the terms of the general accounting plan and has accounts certified by accountants under the terms applicable to commercial companies, (iii) funds resulting from the activity carried on by the organisation are not distributed to any member or third party, and (iv) there is no direct or indirect interest in the income from the activities carried on. In the second group, in relation to the tax benefits granted to patrons, provision is made for the amounts granted as donations to achieve one of the objectives provided for in the Law are deemed to be costs or losses of the financial year. As such, 40% of the respective value is deductible from the tax base for corporate tax. This limit is 30% if the activities of the legal entity are for the benefit of its employees and their respective households. The costs of acquisition of works of art, or any other form of artistic output, by artists who are Angolan nationals are deductible up to a value equivalent to 1% of the income for the financial year in which the donations are made.
To have access to the said tax benefits, the patrons must register with the appropriate authority (still to be created and regulated) prior to making the first donation. After registration, patrons must communicate any donations they make in writing to their local tax office. Any such donations must be properly documented and if they are not, the tax authorities may make adjustments to the taxable amount.
The Angolan Patronage law also creates important ancillary obligations that are incumbent upon the beneficiaries of the donations. The beneficiaries must provide the entity responsible for the registration of patrons with a copy of the programme or plan of activities and documentary evidence of the use or application of donations
received in working towards the objectives for which they were granted. They must also file the declaration in the official form in relation to the donations received in the previous year by the end of February of each year. Moreover, they must issue a document proving the donations they have received. This document must state that the donations were made without any consideration and they must also have the up to date registration of the
patrons showing the identification of the latter and the date and value of each donation.
It is important to point out that the Patronage Law also lays down rules on incompatibilities. These rules determine that donations may not directly benefit anyone with ties to the person making the donation (these are understood to be companies in which the patrons hold determined positions, or in which the shareholders are the patron’s spouse, unmarried partner, relatives up to the third degree or equivalent, dependents, director,
managers or shareholders).
The Law also provides that sham donations or donations where the value declared is above the real value are criminal offences. Fraudulent and concerted actions on the part of the patrons or the beneficiary in order to make an unlawful profit are also crimes. Also punishable, but as an administrative offence subject to a fine, is the receipt by the patrons of any financial or material advantage as a result of the donation that is made, as
is the misrepresentation of the intended objectives and any failure to observe the applicable administrative and financial rules. Anyone committing an offence may be banned from benefitting from public aid or the incentives provided for under the Patronage Law for a maximum period of five years.
Provision is made for the Angolan Executive to introduce the regulations under this new law within one hundred
and twenty-four days.
ENTRY INTO FORCE
When the law comes into force it will take effect as from 1 January 2012.