Tax and the self-employed in Equatorial Guinea

In the African environment with economies facing growth challenges, the self-employed assumes an indispensable role in the functioning of the market economy, as they constitute the first stage in the creation of a crowded and competitive market.

The self-employed are faced with serious and exclusive challenges. Given their fragile condition, they require a special treatment regime that subsidises their successful operations.

According to the law of Equatorial Guinea, a self-employed worker is any natural person who performs economic activities on his account. Compared to working for someone else, being self-employed has many advantages such as self-management, flexibility, dedicating yourself entirely to your passion and, above all, being your boss.

One must take into account that this also entails obligations of an administrative and fiscal nature.

Register as self-employed

In recent years, there has been a tendency by the Government of Equatorial Guinea to promote economic activities of small entrepreneurs, which is why self-employment is now more common in Malabo and Bata.

To register as a self-employed person, you require a Tax Identification Number, a business certificate and a business registration certificate. To obtain the aforementioned, you are obliged to inquire at the VUE business single window. It is compulsory to present your identity document and indicate the location of the business operations.

Taxes to be paid and advantages

Personal Income Tax: The PIT is levied on net income obtained in Equatorial Guinea. The procedure is to complete a form, within the first 10 days of each month, declaring the gross income of the previous month. This must be submitted to the Tax Administration.

The tax rate ranges from zero per cent to 35 per cent, depending on the income. If the annual income obtained is less than $1,800, it will be exempt.

Generally, if the self-employed carries out the activity through a commercial company, they will be liable for Corporation Tax instead of PIT.

Value Added Tax: VAT (15 per cent in Equatorial Guinea) is levied on the consumption of goods and services. All self-employed must be aware that as a provider of goods and services, they act as a mere intermediary between the tax administration and the final consumer.

The VAT return is submitted within the first 15 days of each month. If no transaction has been carried out, a negative return must be submitted.

Challenges and overcoming being autonomous

The actions of the self-employed are subject to risks and instability. In addition to tax obligations, there are certain common difficulties faced on a day-to-day basis. The question is how to handle them.

Liquidity problems: In many cases, this is due to late payment of consumers and/or clients. It forces the self-employed to advance financial amounts to meet the fiscal obligations. Taxes are to be paid, irrespective of the actual payment received. This not only puts your assets at serious risk but also the survival of your business(es).

As a solution, there are several strategies that a freelancer can adopt. For example, keep track of income and expenses, so that a forecast can be made considering fixed and variable costs. Likewise, it is convenient to be aware of the payments that are due in order to take possible irregularities and delays into account. Adjusting expenses, favourable agreements for the business that allows flexibility and to pay in instalment are other solutions. As an alternative, the self-employed can resort to credit. Banks such as Bange offer credit especially focused on the self-employed. Ecobank offers credits in support of female entrepreneurs. Additionally, other entities offer credits for small entrepreneurs after meeting certain requirements.

Problems with deductions: Many freelancers do not have an office and resort to working from home. This can pose a problem when presenting expenses to deduct. Despite having the appearance of professional expenses with the right to be deductible, it can be complex before the tax administration to effectively achieve such deductions due to the difficulty of separating.

To overcome these glitches, it is important to be able to justify and have a financial record of your activity. A financial record always requires an invoice for all expenses related to it. It is imperative to ensure that the invoices are generated correctly and to always apply the corresponding VAT or PIT.

As a general rule of thumb, an expense can only be deducted if it directly relates to the specific activity. Therefore, it is preferable not to present any expense that cannot be fully justified, as this will lead to a penalty.

Management snags: The self-employed have profuse responsibilities. These tasks are inter alia, developing their business, attending to administrative errands and managerial tasks (which include accounting and taxation).

It is essential that the self-employed accurately capture the income and expenses of their activity in accounting books. To avoid penalties by the Tax Administration, the accounting books must be kept for five years.

* Mitogo and Dyombe work with Centurion Law Group