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5.1. Tax Base for Resident Entities

Resident companies are taxed on their worldwide income received from sources within and outside Madagascar.

Capital gains are considered as ordinary income and are subject to tax at the same rate as corporate tax (‘CIT’). However, gains on shares held by Madagascar stock companies the main activity of which consists of holding minority interests in either newly formed companies, or in existing distressed companies being restructured, are exempt from tax subject to conditions. It is clarified that with respect to holdings in existing companies, the exemption only covers participation in existing companies under restructuring.

Dividend income received by a resident company from another resident company is subject to CIT. Stock dividends are also subject to CIT.

However, under a participation exemption regime, a parent company is required to pay CIT on only 5% of the dividends received from its subsidiary (the remaining 95% being exempt), provided the parent company fulfills the following conditions:

  • It is a resident in Madagascar;
  • It holds a minimum of 75% in the share capital of the subsidiary;
  • It is either a public limited company or a private limited company;
  • It is liable to pay CIT and is not subject to any other preferential tax regime;
  • The consolidated annual turnover is more than MGA 200 million; and
  • Subsidiaries and branches of the parent company are not located in low-tax jurisdictions as compared to Madagascar.