A New Legal Framework to Promote the Public-Private Partnership in the Democratic Republic of the Congo
On February 11, 2014, the Democratic Republic of the Congo (DRC) enacted the Law No 14/005 creating tax, customs and parafiscal system of non-tax revenues and exchange control system applicable to Cooperation Agreements and Cooperation Projects, “PPP Law”. This law is substantiated by the will of the DRC to implement a public-private partnership aimed at raising significant funds to further the implementation of huge reconstruction and development programme designed to provide the country with core infrastructures in order to upgrade the social welfare of population.
The cooperation agreement and cooperation projects shall be the subject of the private-public partnership regarding resources-generating areas, especially core infrastructures and natural resources such as mines, hydrocarbons, forest and water. Cooperation agreements concern also related projects, namely projects implemented based on the same conditions as cooperation projects and with the aim to reach one or several goals of the same, especially construction projects of hydro-electric power station, electric, road and railway network.
The new PPP Law creates a special legal environment and a special tax, parafiscal, customs and exchange rate control system applicable specifically to investment projects in resources and development sectors for the country, considering the significance of funds to be raised. The collection of taxes, duties and fees by the Central Government and local governments as well as decentralized local authorities, therefore, complies with the new rules specifically applicable to cooperation agreements entered into by enterprises, business group, companies and/or firms, which have legal status, whether private or public, incorporated under the laws of the DRC or foreign laws as well as to their sub-contractors, that could demonstrate sufficient technical and financial resources to properly conduct a cooperation project or to raise funds from financial backers.
PPP law specifies that Decree from the Prime Minister determines conditions of eligibility and the content of cooperation agreements. But, these are the five core conditions to be complied with:
- Investment value shall not be less than the equivalent to Congolese Francs of one billion of US Dollars;
- Management of social and environmental clauses;
- Presentation of the offer in the form of financial arrangement on the project;
- Commitment to transferring the technology;
- Commitment to using the expatriate work force only when qualifications and skills are not available locally .
We have to underline that terms and conditions to achieve cooperation projects shall be defined in the cooperation agreement, subject to complying with the statutory provisions prevailing in the DRC. In this regard, PPP law particularly imposes the creation of one or several joint ventures between the Government and State-run Company designated by the Government and the enterprise, business group, the company and/or the firm, which have entered into the cooperation agreement respecting cooperation projects, projects related to or concerning the exploitation of mineral resources, forests, energy or hydrocarbons.
With respect to the cost of project, which is the object of the cooperation agreement, shall be equal to the overall cost, duties and taxes included, of any creation or extension of activities, particularly the acquisition of lands, equipment, construction materials, tools and funds requirements of working capital. In addition, the repayment of financing of cooperation projects shall be effected on the basis of revenues of the joint venture.
We have to note that the cooperation agreement must be approved by the Council of Ministers, signed by the relevant Government members and recognized by Decree of the Prime Minister of the DRC for it to be effective.
Therefore, apart from duties, taxes, royalties and rates formally stipulated in this law, companies, business groups, enterprises, or businesses created under cooperation agreements and related agreements, shall be exempted from direct or indirect import or export duties, rates, taxes, customs duties, royalties at the national, provincial and municipality level payable in DRC, as far as they are strictly related to the cooperation agreement and cooperation projects. These exemptions shall also apply to sub-contracting parties within the services or activities solely connected to the cooperation agreement and cooperation projects during all the life of project.
We may note that the above exemptions are not applied to categories of taxes, duties, royalties and rates, which concern twenty-five taxations in total, based on the terms and conditions defined in joint Decree of the Minister of the concerned activity and the Minister of Finances. These are, as an example, the concerned taxes, rates, royalties and duties: fees for services rendered; income and profit taxes at the end of the refund of financing; special tax on expatriate workers; income tax from movable property except for the tax upon interests of funds borrowed for business purposes on behalf of third party lenders; value added tax; professional tax on salary; surface fees; mining royalties; royalties; excise duties; distributable margin; interest of the Government; bonus in hydrocarbons and mines’ sectors; profit oil; cash bonus; fees, royalties in forest, water and power sectors; fees, royalties and taxes in telecommunications sectors; fees, royalties and taxes in environment protection (…)
Furthermore, the Government warrants the enterprises, business groups, companies or enterprises and their shareholders, who have entered into cooperation agreements, the free transfer of revenues and capital in accordance with Exchange Rate Control in force, as well as the freedom to open bank accounts in foreign and local currencies within the country as per conditions specified in the prevailing laws.
Finally, we have to note that guaranties and benefits already granted to enterprises, business groups, companies, agencies or firms incorporated under cooperation agreements entered into the DRC Government and foreign business groups previous to PPP law shall continue to be acquired by their beneficiaries until the completion of such projects. Also, any new legislation in common law encompassing tax, customs, parafiscal and exchange rate provisions more favourable than the provisions defined in this PPP law will be immediately applied, as of right, to enterprises, business groups, companies or firms signing a cooperation agreement and a related agreement.
Thus, the DRC hopes, through the implementation of innovative mechanisms stipulated in PPP law, attracting significant investments in order to achieve its construction and development programme, the assets of which for emergence by the horizon 2030 are several and readily available. It should be noted that this new investment system is part of a huge reform process of the legal and statutory framework of mines, hydrocarbons, agriculture, electricity and insurance.