Togo: What Future for Togo’s Taxation of Foreign-Sourced Service Provision

The business climate in Togo has experienced significant upheaval in recent months, particularly in terms of tax and customs regulations. These changes, primarily affecting international transactions, warrant the attention of large multinational groups due to the disruptions they are causing.

Background to a Controversial Change in Tax Doctrine

Since the enactment of Law 2012-016 on 14 December 2012, the Togolese tax administration has been consolidated into a single entity, the Togolese Revenue Office (OTR), which replaced and merged the former Directorate General of Taxes and Customs.

Both before and after this reform, the Togolese tax authority has long treated the provision of software and other intangible goods from abroad, along with related services (installation, maintenance, subscription renewals, etc.), as foreign services. These were subject to a 20% withholding tax and VAT payable by the recipient. However, in recent months, the Customs Department of the OTR has begun reassessing businesses by treating software and other intangibles imported from abroad as goods, thereby challenging the previous interpretation of these transactions.

The administration’s reversal represents a substantial disruption to Togolese tax practices. Although this new approach is based on legal provisions such as WTO Decision 4.1 of 24 September 1984 and Article 20-f of Togo's National Customs Code, it has drawn significant criticism:

• Lack of internal consistency: As a unified entity, the OTR should adopt a harmonised position for both Tax and Customs departments. 

• Failure to respect the goods/services distinction: According to Togo’s General Tax Code, services (such as maintenance, royalties, and rights) are difficult to equate with goods. 

• Retroactivity or questionable new interpretation by the tax authorities: The reassessments by the Customs Department, which are effectively based on a change in doctrine, are being applied not only prospectively but also retrospectively to previous years that are still open for review. This has disrupted corporate accounting practices, as businesses, relying on the previous doctrine, treated these items as foreign services and paid taxes accordingly. This highlights the urgent need for a clearer distinction between "foreign services" and "imported goods." 

Need for Clarification of Tax Treatment for Foreign-Sourced Services 

It is essential for taxpayers, especially foreign companies or entities receiving foreign services, to clearly define the concepts of "taxable goods" and "foreign services." The supply component of international contracts is undisputed. However, distinguishing between "pure service provision" (not subject to customs duties) and intangibles or ancillary services requiring customs clearance has become increasingly complex. 

A clear directive from the Togolese tax administration is urgently needed to ensure fiscal security in international transactions. 

If you wish to discuss these topics, please contact:  

FACE Africa Tax & Laws Togo