Source: Investment Guide, Sierra Leone: Opportunity and Challenges, Key Legislation for Businesses.
Sierra Leone’s Income Tax Act 2000 and the multiple Finance Acts enacted since 2010 contain various incentives to encourage private sector investment and promote the inflow of foreign capital and technology into Sierra Leone.
These include income tax exemptions, deductions for income tax purposes, import duty exemptions and goods and services tax exemptions. Such incentives are contingent on the satisfaction of relevant criteria including the need to improve local content, which is explored in further detail below.
General incentives include income tax relief on plant, machinery and equipment; a three year grace period on import duties for new and existing businesses importing plants, machinery or equipment; lower import duty rates for raw materials; and 100 per cent. tax deductions for expenditure on research and development, training, and the development of social services (such as the building of schools and hospitals).
Sector-specific incentives have also been implemented for investments in agriculture, energy, infrastructure, tourism and pharmaceuticals. These are outlined in the KEY SECTORS.
Additional incentives are provided to SEZs, including import and export duty exemptions, three-year corporate tax holidays and expedited government services including customs, immigration and registration.
The non-profit international development agency World Hope International has established an SEZ near Sierra Leone’s principal seaport in Freetown. The GoSL is considering the establishment of further SEZs in other parts of the country under its Post-Ebola Recovery Strategy.
The Companies Act (provides for the registration and incorporation of companies in Sierra Leone. The Act is extensive and includes provisions governing a company’s formation, share capital, meetings and directors’ powers and duties. The Act created the Corporate Affairs Commission, which regulates the establishment of new companies, enforces compliance with procedural requirements, and handles the incorporation and registration of companies in Sierra Leone.
The Companies Act was amended in 2014 to remove administrative barriers in the process of incorporating companies in Sierra Leone, reduce the number of offences created by the Companies Act and bolster provisions on the extent of directors’ liability and duties of disclosure.
Compliance with the Companies Act is considered a priority in order to ensure a more detailed, comprehensive and transparent companies register. The Corporate Affairs Commission has therefore been given a mandate to de-register any company that violates the Companies Act.
The Business Registration Act 2007 sets out the four steps that need to be taken to register a business in Sierra Leone. The World Bank has reported significant improvements in the procedure for registering companies, with the time taken for incorporation falling from seven days to two or three days.
The Bankruptcy Act 2009 provides the legal framework for declarations of bankruptcy. Under the Act, an individual who cannot pay debts of a specified amount may declare themselves bankrupt. The individual will then be disqualified from holding certain elective and public offices and from practising any regulated profession. The Bankruptcy Act also includes provisions to encourage and assist ailing businesses to reorganise instead of going straight into liquidation.
The Companies Act sets out the procedure for winding up a company. This can be done voluntarily, by the court or subject to the supervision of the court. The Bankruptcy Act sets out the circumstances in which a firm may be liable to have a “bankruptcy petition” presented to it or a receiving order or “adjudication of bankruptcy” made against it.
The Small and Medium Enterprises Development Agency Act 2015 established a new agency to promote SMEs and work towards creating a business environment in which such businesses can thrive. The aims of the SMESL are to enhance monetary and banking policy, technology, marketing infrastructure and institutional bodies. In April 2016, the SMESL announced that it will provide loans to SMEs at interest rates below 10 per cent. per year without any requirement to provide collateral.
A number of other suggested economic improvements are being developed by the GoSL in conjunction with the Bank of Sierra Leone, including a Borrowers and Lenders Bill to widen the scope of available collateral, a Collective Investment Bill aimed at establishing and regulating collective investment schemes, and a Security and Exchange Bill to enable regulation of the stock exchange to pass from the Bank of Sierra Leone to the Securities and Exchange Commission and promote private sector growth.
IMPORTS AND EXPORTS
As a member of the WTO, Sierra Leone’s MFN tariff rates are applied to other WTO this has not been affected by the implementation of the ECOWAS CET, as the CET rates are within Sierra Leone’s WTO binding commitments. Imports from other MRU states are duty free.
Customs clearance for imported goods was simplified in the early 2000s. The Customs Act 2011 further reformed import and export requirements, providing clarification to what was previously a complicated and time-consuming process. The Customs Act is administered by the Department of Customs on behalf of the NRA, headed by a Commissioner-General, and outlines requirements for imports and exports in terms of reporting, transfer, origin and calculation of transfer value. Customs valuation in Sierra Leone is broadly based on the Agreement on Implementation of Article VII of the GATT 1994.
The Customs Act outlines the power of the Department of Customs to establish customs zones and ensure that all relevant information is easily available to interested parties. The Customs Act also gives interested parties the ability to apply for an advance binding ruling on the tariff classification and methods for the determination of origin and valuation.
Recent reforms have been designed to encourage agricultural investment. These include the introduction of a three-year exemption on import duties in respect of plant, machinery and equipment for both new businesses and expansion of existing enterprises provided a threshold investment amount is met. Raw materials also attract a reduced import duty rate of three per cent.
As a part of the NRA’s “modernisation programme”, the ASYCUDA, a computerised customs management system covering most foreign trade procedures, transit and suspense procedures, was formally commissioned in 2010. ASYCUDA allows for direct trader input, increasing efficiency and lowering clearance time. DFID has been providing assistance to the NRA to support Sierra Leone’s implementation of the modernisation programme, with a particular focus on improving the NRA’s governance and organisational capacity, including in the Department of Customs.
The main taxes affecting businesses in Sierra Leone are: taxes on corporate profits and dividends; sales taxes; and import and excise duties. Corporate income tax provisions are set out in the Income Tax Act 2000 (as amended). The Goods and Services Act 2009 (as amended) provides for a tax on the consumption of goods and services within Sierra Leone. This tax replaced a number of existing indirect taxes. The rates of tax for the current year are set out in the annual Finance Act and the 2016 rates are summarised here .
FDI incentives include the ability for companies to carry forward tax losses in any given year and tax credits for 100 per cent. of expenses relating to research, development and training activities. There are no specific rules relating to the taxation of group companies.
The Finance Act 2016 increased the taxable personal allowance to Le 400,000 per annum, but also raised the top income tax rate to 35 per cent. with the aim of furthering the Free Health Care Initiative. However, any business employing females in management roles between the 1st January 2016 and 31st December 2018 will be eligible to claim a tax credit of 6.5 per cent. on each female management-level employee’s PAYE.
The NLP envisages the introduction of further taxes specifically related to land and development, including Improvement Value Taxation in urban areas and a development levy on undeveloped land.
The Ministry of Labour and Social Security is responsible for the regulation of the country’s labour market, but in reality most employment in Sierra Leone is informal and unregulated. Employment law is out-dated and in urgent need of reform.
General employment law concepts such as salary, holidays, redundancy and disputes are governed by the Regulations of Wages and Industrial Relations Act 1971 and the Employers and Employed Act 1960. However, these statutes do not reflect modern employment rights standards and as a result are often not applied. The laws on hiring and firing are particularly unclear. The GoSL’s 2015 Budget included an allocation of Le 5.3 billion (US$1.2 million) for the enforcement of labour regulations and a review of obsolete laws with a view to reforming the legislative regime, though this was not repeated in the 2016 Budget, with the focus turning to more practical measures as detailed below. A likely timescale for further legislative change is unclear at present.
A national minimum wage of Le 500,000 (US$70) per month was introduced in 2015, and was unchanged in 2016. The GoSL has implemented significant public sector pay increases, including a 15 per cent. rise in July 2015, and an increased allocation for public sector wages in the 2016 Budget. A number of additional employee protections exist under domestic legislation, although their enforcement is questionable.
Sierra Leone’s NASSIT administers the country’s national pension scheme. This is a defined benefit scheme and is compulsory for all public and private sector employees (but is voluntary for the self-employed). A valid NASSIT Social Security Clearance Certificate shows that all contributions due from the employer have been made. This certificate is required before any employer can import, export or clear goods at a port, obtain a permit for the construction of any building, tender or be considered for any contract with a public institution, register any document conferring title to land, leave the country (if they are a non-citizen), and obtain a work permit for foreign employees.
In addition, the law requires foreign investors to apply for a self-employment permit and foreign employees for a work permit. The process of obtaining these permits is governed by multiple statutes and involves several GoSL To avoid any issues, work permit applications should be submitted six months in advance, and the permits are granted by the Minister for Labour, taking into account various statutory criteria which allow a margin of discretion. Once permits are issued they last for three years and must then be renewed annually.
The LCA has imposed new restrictions on expatriate employment in the mining, petroleum, service industries agriculture and agri-business, transportation, maritime, aviation, hotel and tourism, public works and construction, fisheries and marine resources, manufacturing, health and energy sectors. Expatriates may fill up to 50 per cent. of management and intermediate level positions during the first five years of a company’s establishment in Sierra Leone, after which this level drops to 40 per cent.
Statistics Sierra Leone conducted the first LFS in over 30 years in 2014 to collect information on Sierra Leone’s labour market. The LFS largely focused on primary occupation in three main sectors: wage employment, agricultural self-employment, and non-agricultural household enterprises, with the aim of providing statistics to assist the GoSL in policy-making and development planning. Preliminary results of the LFS indicate that 65 per cent. of the working-age population are in employment. Participation in the labour market is higher in rural areas, at around 69 per cent. compared to 54 per cent. in urban areas. The final LFS report was published in September 2015.
In February 2016, the GoSL enacted the National Youth Service Act 2016, thereby establishing the National Youth Service Scheme, a graduate training project aimed at combating youth unemployment and equipping young graduates to serve the country more effectively. In addition, the GoSL allocated Le 8.6 billion in the 2016 Budget towards the development of job centres and district Ministry of Labour and Social Security offices, and a further Le 113.7 billion has been allocated to subsidise university tuition fees in order to raise educational standards. The Sierra Leone Skills Development Fund has been allocated additional funds of Le 3 billion to promote professional internship opportunities and further specialised skills development.
The NLP envisages that the GoSL will enact constitutional amendments to prohibit discrimination in the workplace and business on the basis of gender or marital status, and to provide women with the right to full and equal protection under the law. Any discriminatory practices are expected to be outlawed. Businesses should take care to ensure that their policies are compliant with non-discrimination rights or amend them as necessary.
There is an on-going and much-needed land reform process underway in Sierra Leone, supported by the World Bank. Sierra Leone welcomes foreign investment in land, and the National Sustainable Agriculture Development Plan is designed to attract foreign investment.
The current regulatory framework for land investments is underdeveloped. A lack of transparency surrounding land deals has, on occasion, led to protests and violence and agribusiness ventures have occasionally become mired in land tenure disputes or attracted accusations of “land-grabbing”. The GoSL has allocated Le 3.1 billion of its 2016 Budget to land planning and management, including a review of existing legislation and the implementation of the NLP, which encompasses a wide range of new strategies and development plans in relation to areas such as planning and the administration of public land.
Sierra Leone was ranked 122nd in the world for protection of property rights in the World Economic Forum Global Competitiveness Report 2015-2016. However, planned reforms are intended to make the process of land acquisition by investors more transparent. The NLP includes a planned complete restructuring of the land rights administration system to provide greater transparency and strengthen security of title, including harmonising the current centralised system and local community traditions. The NLP envisages that an amendment will be made to enshrine universal land rights in the Constitution.
In addition, the NLP aims to build on the constitutional right to compensation for expropriation by enacting a statutory compulsory purchase scheme for public purposes, including a transparent planning process, a guarantee of compensation and a right to non-discrimination in the exercise of compulsory purchase powers. A new system for land registration is also to be introduced, and amendments made to land surveying requirements. A National Land Commission is to be established to oversee the new land governance regime, including the operation of electronic title registers and an adjudication system for title disputes.
A freehold system operates in Freetown and the Western Area. A leasehold system is in operation outside of those areas. The GoSL commonly takes a head lease on provincial land and sub-leases it to foreign investors. Foreign nationals may hold a lease of up to 99 years. Under the customary land system, investors can lease land by entering into a joint venture with the local chief. The sale of public land is prohibited pending the reform of land tenure laws.
It is possible to take out a mortgage in Sierra Leone, although it is not common. Securities are registered with the OARG in Freetown. Registration involves the payment of stamp duty, the rate of which ranges from 1 per cent. to 12.5 per cent. of the loan amount depending on the value of the loan. A small registration fee must be paid to the OARG. Where funds for repayment are to be repatriated, the relevant agreement should be registered with the Bank of Sierra Leone. Filing and registration takes between 48 hours and one week. Enforcement is through the normal court process.
The Ministry of Trade and Industry oversees the regulation of anti-competitive practices. A “Competition Policy” and a “Consumer Protection Policy” have been approved by the Cabinet though not yet translated into draft legislation. The 2010 UNCTAD Investment Policy Review has identified areas deserving priority consideration, including access for operators in the mining sector to facilities such as roads and railways that may be privately owned, and the competitive determination of prices in the operation of port services.
Although policies in these areas have yet to be finalised, it should be noted that a Committee under the Ministry of Trade and Industry has been mandated to oversee the implementation of the ETLS, which aims to ensure that goods can be circulated freely within the ECOWAS Free Trade Area.
State-owned enterprises still exist in the energy, water, transport, financial and construction sectors, but they are subject to largely the same terms and conditions for market access and business operations as private enterprises.
As part of its privatisation programme, in 2002 the GoSL established the NCP to act as a shareholder on the GoSL’s behalf and serve as a policy and decision-making body with respect to the privatisation of state-owned enterprises. Among other things, the NCP is mandated to increase the participation of the private sector in state-owned enterprises. The NCP has expressed a commitment to attracting private sector investment, in particular with regard to infrastructure development projects at the SLPA, whose reform programme has been supported by the World Bank.
In November 2015, the GoSL passed the Public Procurement Act 2015, which aims to further the decentralisation of domestic procurement processes.
The GoSL does not regulate prices aside from in the petroleum sector. Prices in this sector are regulated by the Petroleum Regulatory Agency established by the Petroleum Act in 2013.
INTELLECTUAL PROPERTY (IP)
The Sierra Leone Intellectual Property Organization currently deals with IP issues but there are plans to establish a specialised IP division within the High Court.
Sierra Leone is a member of the WIPO and the , the common IP organisation for the English-speaking parts of Africa. As a member of WIPO, Sierra Leone must implement the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
The IP regime in place in Sierra Leone is basic and issues have been reported concerning the enforcement of IP rights. The GoSL has been making efforts to modernise the system, including working with the International Centre for Trade and Sustainable Development, ARIPO and Saana Consulting to develop a TRIPS-compliant IP regime. Despite recent reforms to domestic IP legislation, the enforcement of IP rights is still difficult due to public sector capacity constraints and the fact that IP rights are generally not well understood.
The Patents and Industrial Designs Act 2012 allows for the direct national filing of PCT An international application under the PCT is treated as a domestic one. The Copyright Act 2011 provides copyright protection for authors and enshrines in statute rules concerning copyright eligibility, use, duration and vesting rights. Civil and criminal sanctions are imposed for breaches. Sierra Leone has not passed national legislation implementing international agreements in respect of trade marks, but the Trade Marks Act 2014 provides that trade marks can be protected at the OARG.
ANTI-BRIBERY AND CORRUPTION
The ACC has the power to investigate and indict companies for corruption offences.
The Anti-Corruption Act 2000, as amended in 2008, applies in respect of both domestic and foreign companies. Facilitation payments are a criminal offence for which the ACC can bring a prosecution but such payments remain a problem particularly in relation to public procurement, tax and dispute settlement. Issues also remain at local levels as the Local Government Act 2004 does not provide sufficient clarity on the relationship between tribal authorities and local councils. GoSL officials and private sector stakeholders have suggested that the Local Government Act should be reviewed, but this has not yet been concluded. However, improvements have been made in the public sector with the enactment of the Public Financial Management Act 2016, which establishes a Single Treasury Account to ensure greater transparency in the management of public funds.
In the 2015 Budget, Le 4.2 billion (close to US$1 million) was allocated to the National Anti-Corruption Strategy with the aim of advancing the measures implemented in the Anti-Corruption Act. The JSRSIP III also focuses on strengthening the ACC through the proposed establishment of an Anti-Corruption Court to fast-track cases relating to corruption offences.
As noted in the SIERRA LEONE AT A GLANCE section , Sierra Leone has made progress on Transparency International’s Corruption Perception Index, climbing 39 places in the rankings since the second Anti Corruption Act was passed in 2008. With the JSRSIP III’s focus on this issue, it is hoped that this trend will continue, although it is important to note that irrespective of the number of new rules adopted to combat corruption, it will be the degree to which those rules are applied and enforced which will determine the GoSL’s success in this area.
An overhaul of environmental laws is underway. The EPA was established by the EPA Act in 2008. The EPA is undertaking a complete review of Sierra Leone’s environmental laws under the auspices of the EU funded Environmental Governance and Mainstreaming project.
Projects require environmental, social, and health impact assessments. These requirements are based on EU law and may therefore be familiar to international investors. The EPA is responsible for the administering and enforcing these assessments, which are non-binding. Enforcement action is rare and some projects have attracted controversy, with the bureaucratic process of adhering to enforcement requirements causing project delays in the past.
The Mines Act introduces measures to reduce the harmful effects of mining activities on the environment. Further details of these measures can be found in the NATURAL RESOURCES section. The GoSL has allocated Le 4.6 billion in its 2016 Budget to strengthen enforcement of such measures, and Le 500 million to enhance transparency in the extractive industries through the Extractive Industry Transparency Initiative.
Sierra Leone has long had the WCA, which prohibits construction, quarrying, farming and forest clearance in any designated national park in Sierra Leone. More recently, Sierra Leone has renewed its efforts to adopt international standards in forest conservation, renewable energy and climate change. In November 2014, the Ministry of Agriculture launched the NPAA and the Conservation Trust Fund to support the enforcement of the WCA.
Sierra Leone partakes in the Reducing Emission from Deforestation and Forest Degradation initiative, which aims to generate institutional, technical and social capacity necessary for sound forest governance, recognise the importance of forests in relation to climate change, and promote the use of renewable energy.
In December 2015, the NPAA, UNDP, civil society actors and the Parliamentary committee on Agriculture, Forestry and Food Safety agreed the text of draft bills aimed at strengthening governance of wildlife conservation, forestry and wetlands, as well as proposed amendments to the NPAA Act to bolster the Authority’s powers to protect the environment.
The Local Content Policy, which was approved in 2012, has now been codified in LCA. The Local Content Policy requires a certain percentage of jobs in each sector to be held by nationals and the use of local suppliers where possible, and a Local Content Agency has been set up by the Ministry of Trade and Industry to assist with implementing this.
The LCA provides specified guidance on the percentages of local employees that a company must employ, and prescribes percentages of specific goods that must be sourced locally for various production processes. It is also aimed at strengthening cooperation between foreign and domestic enterprises and setting certain operational targets, including developing worker skills and improving technology. The LCA defines a Sierra Leonean company as one where 50 per cent. of the share capital is owned by Sierra Leonean citizens, and establishes the Local Content Agency to oversee the implementation of, amongst other initiatives, an annual Local Content Plan, a certification system for goods and services and a local content scorecard system to rank companies’ compliance with local content development policies.
Among the initiatives introduced by the LCA is the requirement for all contracts, sub-contracts and purchase orders exceeding US$250,000 to be declared to the Local Content Agency in a Quarterly Procurement Report at the start of the quarter in which they are to be put out to tender, and the tender packages submitted to the Agency for advance approval. There are also certain local content requirements relating to specific sectors as set out in the KEY SECTORS.
CORPORATE SOCIAL RESPONSIBILITY
The A4P promotes CSR and the creation of a CSR framework. There is significant encouragement from the GoSL, civil society and NGOs for inward investors to undertake CSR projects in Sierra Leone, and greater participation from local enterprises is also evident. Both private and State-owned enterprises are increasingly running CSR programmes, and CSR is built into government department and agency performance contracts to ensure that they provide support for the communities in which they operate. Common activities include the sponsorship of education programmes, community resource management and environmental sustainability initiatives.
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