On Friday, November 24, our good friend from the National Revenue Authority (NRA), Alfred Akibo-Betts, stopped by our weekly talk to help us understand the benefits of doing business and paying taxes in Sierra Leone. The conversation which informed us of the many statutes of Sierra Leonean tax codes was simplified for the benefit of all.
Owning your own business brings many freedoms, such as controlling your income and the ability to choose your own work hours. But owning your own business doesn’t exempt you from paying taxes. However, the way you manage your taxes is different from an employee. Familiarize yourself with the tax advantages and disadvantages when owning your own business in Sierra Leone, and then decide whether you’re able to manage this responsibility.
Employees don’t have to deal with saving a percentage of their income for taxes. Employers handle taxes for their employees, and they withhold the necessary deductions. Owning your business requires discipline with regard to paying taxes. The amount owed to the NRA depends on how much you earn; and if you don’t prepare and set aside the necessary funds to pay your taxes, the consequences can include paying interest on any delayed payment and the NRA can put a lien on your bank account or on your property.
While being disciplined and saving for your own taxes can prove problematic, people who own their own business have the privilege of enjoying a variety of deductions to help lessen their tax liability.
So, are you ready to do business in Sierra Leone?
- Advantages of Sierra Leone company registration
- A Sierra Leone limited liability company (Ltd) can be incorporated with just 1 shareholder and 1 director of any nationality and whom can either be an individual or body corporate. Both the director and shareholder can be Sierra Leone non-residents;
- Contrary to popular belief that Sierra Leone is a war-torn country, especially fuelled by the 2006 movie “Blood Diamond”, the country is politically and economically stable and with significant economic potential attractive to foreign investors seeking new opportunities;
- The Sierra Leone government recently reduced the number of procedures of starting a business hence shortening the registration timeline to at least 2-4 weeks and additionally abolishing the requirement for a minimum paid up capital at incorporation;
- Entrepreneurs looking to establish their businesses in Sierra Leone will benefit from bilateral trade agreements between Sierra Leone and other countries and enjoy duty free access to larger markets such as the United States under the African Growth and Opportunity Act (AGOA) treaty and the European Union through the Everything But Arms (EBA) treaty;
- Companies engaged in agricultural produce and services will enjoy an exemption from corporate income tax up to the year 2020. Additionally, 50% of dividends paid by such companies are exempted from withholding taxes;
- Some of the incentives offered by the Sierra Leone government to foreign entrepreneurs include i) a 3 year exemption from import duty for importation of plant, equipment and machinery ii) 125% tax deduction on expenses on training and research and development and export promotion activities iii) 3 year tax exemption for foreign employees where bilateral agreements apply;
- The government of Sierra Leone recently established their first Special Economic Zone (SEZ) providing incentives to businesses including i) exemption from import and export duty ii) 3 year corporate income tax holiday iii) hastened government processes such as locational registration, immigration and customs services.
- Disadvantages of Sierra Leone company registration
- Although the duration of starting a business in Sierra Leone has been significantly reduced to about 2-4 weeks, the process of obtaining business licenses still remains lengthy and a major impediment to investing. Every company must obtain a general business license and an additional sector-specific license for their intended operations;
- Another impediment to investing in Sierra Leone is the requirement for foreign investors to obtain self-employment or work permits as well as a residence permits issued by the Ministry of Labour. These permits costs at least US$2,000 and the timeline of obtaining the same is at least 10–16 weeks;
- The Republic of Sierra Leone lacks enough skilled labor force critical for smooth running of businesses and economic advancement as most of the country’s youth remain victims of the 1991-2002 civil war devastation. The total adult literacy rate still remains at a low 43.3% according to UNICEF;
- Wide spread corruption in Sierra Leone both in the private and public sector remains an obstacle to investment, especially for foreign companies. It is not uncommon for government officials, police officers or bankers to ask for bribes or kickbacks in order to secure contracts, solve disputes or secure credit facilities respectively;
- Branches of foreign companies in Sierra Leone will experience higher income tax rates compared to other legal entities. A branch is subject to an additional 10% tax applicable on repatriated income on top of the standard corporate income tax rate of 30%.
With these benefits any business can succeed with the concessions offered by the Government of Sierra Leone.
Paying the right amount of tax has been one of the serious topics concerning most income earners in the country. Many, if not all, wants to as much as possible reduce the amount of tax they will have to pay to the NRA. As such, they engage to all kinds of ways to reduce their tax obligations, such as tax amnesties, tax avoidance and even tax evasion.
Oftentimes, the reason you or your business receives letter of notice from the NRA, is caused by the following: Failure to file and pay tax return, or NRA is questioning the amount of tax paid, or both.
By paying the filing and paying the right amount of tax, it will minimize the instances that NRA will audit your accounting records.
In order to grow your business, at some point, you will need people or institutions with money that are willing to invest in your company. These investors will look into your financial and tax records to support their investment decisions.
Maintaining a truthful and accurate accounting and tax records will boost confidence of investors. On the other hand, fraudulent and inaccurate will create an impression that the company is not trustworthy to invest with.
Paying the right amount of tax is a social responsibility to the country. The taxes we pay will go to the government funds that will be used in developing and improving the government facilities and life of Sierra Leoneans, inside and outside our country.
If all income earners will pay the right amount of tax, the government can collect more money to support its objectives such as building roads, schools, better government salaries and improve government services. These factors can help attracting more investors and jobs in the country. More people having jobs, means more people having money to spend which will directly or indirectly improve your business as well.