Francophone Africa: Changes to OHADA (Organisation for Harmonisation of Business Law in Africa) Rules on Operating through Branches
The Organisation for Harmonisation of Business Law in Africa’s new Uniform Act provisions will impact petroleum companies operating through branches in the organisation’s member states.
On 5 May, the Organisation for Harmonisation of Business Law in Africa’s (OHADA’s) amended Uniform Act relating to commercial companies and economic interest groups (the Uniform Act) took effect and superseded the previous version from 17 April 1997. OHADA, which was created by a 1993 treaty, comprises 17 member states, and its uniform acts are directly applicable in each member state, resulting in legal harmonisation in Francophone Africa.
One of the key amended provisions is Article 120 of the Uniform Act, which relates to branches of foreign corporations operating in OHADA member states. Under the former version of the act, Article 120 provided that a foreign-owned branch should be attached to a company in existence or a company to be created that is governed by the laws of one of the OHADA member states no later than two years after the branch was set up. This applied unless an exemption was obtained from the minister in charge of trade in the member state in which the branch was located. No limitation was provided regarding the duration of such exemptions or the number of exemptions that could be obtained. It had thus become customary for petroleum companies, among others, to operate in some OHADA countries through branches, rather than subsidiaries, by obtaining successive exemptions.
Under the amended version of Article 120 of the Uniform Act, exemptions will now be limited to a one-time non-renewable exemption for a maximum period of two years, subject to special regimes (such regimes are not defined in the Uniform Act). Failure to comply with these new provisions may lead to the branch being struck from the registre du commerce et du crédit mobilier (trade and personal property credit register).
The maximum time period for operating as a branch in an OHADA member state will thus be four years if an exemption is granted (it will be two years without an exemption). Any branch registered in an OHADA member state will afterwards need to be attached to a company governed by the laws of an OHADA member state.
In practice, the attachment could take the form of the business and assets of the branch being contributed to a local subsidiary in exchange for the issuance of shares of that subsidiary or a sale of assets to a pre-existing or newly incorporated subsidiary. The tax implications of such an attachment, however, will need to be managed through careful tax planning and structuring to seek to minimise taxation (in particular, possible capital gains or transfer taxes) and to maximise favourable tax regimes, such as those usually applicable to petroleum companies. Consents may also need to be obtained under applicable legal or contractual provisions.
. OHADA’s member states are Benin, Burkina Faso, Cameroon, Central African Republic, Chad, the Comoros, the Republic of Congo, Côte d'Ivoire, Equatorial Guinea, Gabon, Guinea, Guinea-Bissau, Mali, Niger, Senegal, Togo, and the Democratic Republic of Congo. These countries have adopted French as one of their official languages, except for Guinea Bissau, which is Portuguese speaking.