Guinea-Bissau’s transition to VAT reform

Guinea-Bissau implemented a Value Added Tax (VAT) system on January 1, 2025, marking a significant shift in its taxation framework. This move aims to enhance tax revenue collection, promote tax justice, and ensure legal compliance, aligning the country with the harmonised model established by the West African Economic and Monetary Union (UEMOA).

Previous Tax System

Before this development, Guinea-Bissau operated under a General Sales Tax, known locally as “Imposto Geral Sobre Vendas e Serviços,” which imposed a flat rate of 19% on most goods and services. This system was criticised for its inefficiency and lack of alignment with UEMOA directives, prompting the need for reform.

New VAT Regime

The VAT system introduces a multi-tiered rate structure:

• Standard Rate: 19% applicable to most goods and services.
• Reduced Rate: 10% for basic goods and services, including specified imports.
• Zero Rate: 0% for exports, promoting competitiveness in international markets.

A simplified regime with a 5% rate is also available for businesses with a turnover of up to FCFA 40 million.

Registration Thresholds

Businesses with taxable supplies exceeding FCFA 10 million (approximately EUR 15,000) over 12 months must register for VAT. Those with turnovers between FCFA 10 million and FCFA 40 million may opt for the simplified VAT regime. At the same time, businesses below the FCFA 10 million threshold are considered small taxpayers and are exempt from VAT.

Implementation Challenges and Preparations

The journey to VAT implementation has faced several postponements, with initial plans set for January 1, 2023, later deferred to July 1, 2023, and now implemented on January 1, 2025. The Ministry of Finance has instructed the General Directorate of Contributions and Taxes (DGCI) to adopt all necessary measures and bylaws to facilitate an effective and efficient transition to the new VAT regime.

Implications for Businesses

Businesses are advised to prepare for this transition by:

• Registering for VAT: Ensuring compliance with the new thresholds and registration requirements.
• Updating Accounting Systems: Adjusting financial systems to accommodate the new VAT rates and reporting obligations.
• Training Staff: Educating employees about VAT procedures to ensure smooth operations.

Non-compliance could result in penalties, making it imperative for businesses to act promptly.

Why the Change?

The shift from the existing sales tax to a VAT regime addresses several systemic issues. The old system, with its flat 19% rate, was burdensome on consumers and lacked flexibility. By introducing multiple rates and aligning with UEMOA standards, the government aims to create a fairer and more effective taxation environment. Moreover, adopting a VAT system enhances transparency in the supply chain. It ensures that businesses pay taxes only on the value they add to products and services, potentially reducing the final cost burden for consumers. The change is part of a broader strategy to modernise Guinea-Bissau’s economy and improve its tax collection efficiency along with its neighbouring countries.