Togo: Toward the Generalized Application of the Financial Activities Tax to Capital Income?

The expansion of the scope of the Financial Activities Tax (TAF) introduced by the 2024 Finance Act now raises questions extending far beyond interest and treasury income. A financial gain no longer needs to arise from the beneficiary’s principal business activity to fall within the scope of the TAF. The Togolese Revenue Authority (OTR) already applies the TAF to income from intragroup current-account advances. Following this new approach, the taxation of dividends and gains from the transfer of shares or equity interests may not be far behind.

The treatment of dividends is particularly delicate. As the return generated by invested capital, a dividend is inherently financial in nature from the recipient’s perspective. Since shares and equity interests qualify as securities, the income derived from them could arguably be linked to the securities transactions referred to in Article 214 of the General Tax Code and, on that basis, brought within the scope of the TAF. Taking it to its full extent, such an interpretation would result in dividends received by holding companies, commercial enterprises, or individual investors being treated as financial income subject to the TAF, even though those recipients are not engaged in any traditional banking or financial activity.

In practical terms, Togolese and foreign investors could therefore face, in addition to the standard 13% withholding tax on dividends, a further 10% charge under the TAF.

Such an interpretation would represent a significant departure from the historical understanding of the TAF as a turnover tax primarily targeting professionals engaged in the business of dealing in money. It could transform the TAF into a tax applying not only to transactions carried out by specialized financial institutions, but also to a substantial portion of the capital income earned by ordinary businesses.

The same reasoning could be extended to gains from the transfer of shares or equity interests. Dividends nevertheless remain the most pressing practical concern because of their frequency, their importance within corporate groups, and the risk of overlap with existing mechanisms for taxing income from movable capital, including the IRCM and corporate income tax.

Pending a clear position from the tax authorities, Togolese companies and major international groups investing in Togo remain exposed to tax reassessments and harmful legal uncertainty.

Clarification from the OTR is therefore necessary to secure the tax treatment of dividends, define the categories of income concerned, identify the person legally liable for the tax, clarify how the TAF interacts with withholding taxes already applied, and prevent an excessive and unpredictable expansion of its scope.