Doing Business in New Caledonia: Corporate Taxation

Significant developments

The introduction of a VAT, named TGA 'Taxe Générale sur les Activités' is under discussion and may occur in 2014.  The law introducing the TGA would include the replacement of the present Tax on Services (TSS) and some other taxes levied on imported goods.

Taxes on corporate income

All corporations, whether public or private, pay tax at the rate of 30% on New Caledonia-source income only. Nickel-related industries are taxable at the rate of 35%. Corporations created in development zones between January 1, 1998 and December 31, 2001 are eligible for a tax holiday for eight years.

“Contribution sociale additionnelle” was introduced in January 2005 for companies other than mining or metallurgical companies showing a taxable result over XPF 200 million. The tax is computed at :

A 5% rate for the portion of profit between XPF 200 and 300 million;

A 10% rate for the portion of profit between XPF 300 and 400 million;

A 15% rate for the portion of profit over XPF 400 million.

and is additional to the income tax.

Under certain conditions, metallurgical companies may be entitled to tax holidays and/or rebates during the construction phase and the early operation of the plant.

Taxable income is defined as the difference between the net book values of the company at the beginning and at the end of the financial period, less share capital contributions plus distributions. Other specific adjustments are made to taxable income. Net book value includes intangible assets.

Dividend income received from non-resident companies is subject to tax as normal company income, for its gross amount, the withholding levied in the state of source being considered a tax credit.

Dividend income received from resident companies is exempt from tax.

Corporate residence

The place of effective central management determines corporate residence. However, the revenue taxed locally is restricted to the revenue resulting from local operations. There is no provision in the Code for worldwide income taxation. Permanent establishments of foreign corporations are taxed locally.

Other taxes

There is no sales tax or value-added tax (VAT) in New Caledonia up to June 30, 2014.

The tax on services (TSS) is levied at 4% up to March 31, 2006, at 5% thereafter. It applies to management fees as well as to interest paid to a non-resident company.

Business license fee (patente)/This tax, to which all businesses, whether commercial or professional, are subject, is divided into fixed and variable components. The fixed component is calculated by various formulas, the elements of which include the space utilized and the number of employees.

The variable component is 1.2% of the CIF value of imports, surtaxes apply.

Import duties - Rates and definitions of import duties vary widely and are significant in the budget of the Territory. Consultation with a specialist is recommended.

Impôt sur le revenu des créances, dépôts et cautionnements (IRCDC)/This tax is applicable to interest or other revenue received by New Caledonian resident companies (including permanent establishments) on their deposits of all types, intra-group loans when the beneficiary of the interest is a resident company, and current accounts and guarantees. The IRCDC rate is 8% of gross revenue. Notable exclusions are bank savings and current accounts financing real estate operations. Interest charged on loans to a subsidiary or branch of a non-resident entity is not subject to the tax.

Capital gains tax - Capital gains may be taxed as revenue, depending on the source.

Capital taxes - There are no taxes on capital.

Stamp duty - The Territory imposes duties on documents that effectively transfer title in real property and private companies at global rates of upto 13% and 1% respectively. Certain other documents must also be registered and are subject to duty at a nominal rate.  Surtaxes apply.

Taxes on natural resources - The Territory imposes a tax in the form of a rental or royalty on mineral and oil holdings, whether for exploration purposes or for development and extraction.

Local taxes - Only the Territory levies income taxes. Communes levy rates that are not assessed on income.

Branch income

A branch of a foreign corporation is taxed on the accounting net income of the branch as though it were a resident corporation. The accounting net income is deemed to be automatically distributed and subject to 13.25% withholding tax, including all local taxes (see “Withholding taxes”).

Income determination

Taxable income is defined as the difference between net book values of the company at the beginning and the end of the financial period, less share capital contributions plus distributions. Other specific adjustments are made to taxable income. Net book value includes intangible assets.

Inventory valuation - FIFO and weighted-average costs are the only recognized valuation methods.  LIFO is not permitted. Inventory valuation methods must be consistent for book and tax purposes. Provisions may be set up to cover price increases for stock items. See under “Deductions” below.

Capital gains - Gains on fixed assets are divided into short-term and long-term gains. Short-term gains are included in taxable income and taxed at 30%, with an option to spread them equally over three years. Long-term gains (those in particular on sales of non-depreciable assets held for at least two years) are taxed at reduced rates: (1) at a 15% standard rate and (2) at 25% for gains from construction property or shares of companies whose main assets are construction property.

Corporations subject to corporate income tax can benefit from these reduced rates for long-term capital gains only if the net balance, i.e., 85% and 75%, respectively, is allocated to a “special long-term gain reserve.” Distributions offsetting this reserve are partly added back to the tax result in order to bring the total burden on the gain from the reduced rate back up to 30%.

Short-term gains are those on fixed assets held for less than two years and that part of the gain on depreciable fixed assets held for at least two years that corresponds to depreciation charged on those assets.

Long-term losses are those on the disposal of non-depreciable assets held for more than two years. Short-term losses are losses on the disposal of any other fixed assets. Long-term losses can offset only the long-term gains from the following ten tax periods. Short-term losses are deductible from the current taxable profit.

Inter-company dividends - Dividend income received from resident companies is exempt from tax.

Foreign income - Dividend income received from non-resident companies is subject to tax as normal company income on the gross amount, withholding tax levied in the state of source being considered as a tax credit. Other than dividends, interest and royalties received from abroad, only income from local sources is taxed.

Stock dividends - Stock dividends are liable to IRVM withholding tax (as are cash dividends) and, like cash dividends, are excluded from the income tax base of the recipient New Caledonian company.

Deductions

Depreciation and depletion - Depreciation is computed by the straight-line or the reducing-balance method, at the option of the taxpayer. Reducing balance rates are higher than straight-line rates.

Net operating losses - As of January 2006, tax losses can be carried forward indefinitely.

Payments to foreign affiliates - There are no specific provisions for transactions of this nature.

Taxes - In computing the liability for income tax, a deduction is available for amounts paid for social security taxes and land and property taxes. Stamp duty may be deductible through depreciation or as part of the cost of inventory, or if it is part of borrowing expense (deductible over five years). Tax fines are not deductible.

Provisions for price increases - Business entities may calculate a tax deductible provision for increases in the price of items in stock. This is done by identifying unit price increases of more than 10% over a maximum of two years and multiplying the excess of 10% by the quantity of that article in stock. Charges to this provision must be added back to taxable income at the end of the sixth year following that in which the provision was set up.

Group taxation

There is no provision for group consolidation of income for tax purposes.

Tax incentives

Direct investment in excess of XPF 10 million but in the annual limit of XPF 50 million by companies in the sectors of tourism, hotels, industry, transport, fisheries, new energy sources, agriculture, construction, and public works give rise to a 15% tax rebate. The tax rebate cannot be applied to more than 50% of the income tax payable but can be carried forward over two years.

Indirect investments, in excess of XPF 50 million, by companies other than mining or metallurgical companies to investment programmes in various emerging sectors that benefit from a government agreement may benefit from a 45 to 60 % tax rebate provided the investor commits to waive to the project company a portion (55% to 75%) of the rebate determined by reference to the time the investment is retained. The tax rebate cannot be applied to more than 70% of the income tax payable but can be carried forward over four years.  The amount of the waivor is not tax deductible.

As of January 1, 1991, subject to prior agreement, profit realized by a corporation in the sector of hostelry and tourism is exempt from income tax for 15 to 20 years. There are further incentives in the form of subsidies obtained by application to the Investment Code Authority. In certain cases these may amount to as much as 40% of the total funds required.

Withholding taxes

Impôt sur le revenu des valeurs mobilières (IRVM)/IRVM is a withholding tax that is applicable to dividends, debenture interest, director’s fees, and branch net income that is deemed distributed. The IRVM rate is 13.25%, including all local taxes. The definition of dividends includes all forms of distribution of unappropriated profits. Dividends paid by a Caledonian company subject to corporate income tax to another Caledonian company subject to corporate income tax are not taxable.

Tax treaties - The only tax treaty is with Metropolitan France, of which New Caledonia is a ‘Territoire’. Under this treaty dividends are taxable at source at the maximum rates of 5% and 15%, depending on whether the recipient is a corporation (not a partnership) or an individual, respectively. Royalties are taxed at up to 10%. Interest is not subject to withholding in the state of source.

Tax administration

Returns - The taxable year is the fiscal year, as elected by the company. This is generally the calendar year. Corporate tax returns must be filed within 120 days from the end of the fiscal year. The tax amount is self-assessed.

Payment of tax - Companies are required to pay tax in three instalments. The first two instalments are payable by the end of the seventh and eleventh months during the financial year, and are calculated on the basis of one-third of the tax paid for the previous year. The balance is payable four months after the balance sheet date.