Authors: Bertrand Montembault, Louis de Longeaux and Erwann Nicot
On 21 December 2018, the Ministerial Committee of the Central African Economic and Monetary Community (Communauté Économique et Monétaire de l’Afrique Centrale or “CEMAC“), a regional organisation that was established for the purpose of creating an economic and monetary union among its member States, adopted Regulation No.02/18/CEMAC/UMAC/CM on exchange control in the CEMAC (the “CEMAC Regulation“). In June 2019, the Bank of Central African States (Banque des États de l’Afrique Centrale or “BEAC“) issued a number of directives (instructions) regarding its implementation.
The CEMAC Regulation sets out the framework to, and the terms and conditions for, the realisation of the foreign exchange transactions in the CEMAC member States, (i.e., Cameroon, Chad, Equatorial Guinea, Gabon, the Central African Republic and the Republic of the Congo). It repeals and replaces Regulation No.02/00/CEMAC/UMAC/CM of 29 April 2000 setting out a harmonised exchange control regime among CEMAC member States.
One of the key aspects of this new regulation is that the role of the BEAC has been strengthened with a greater involvement of the BEAC in the declaration and authorisation of transactions, the control of the compliance with the foreign exchange regulations and the interpretation of the CEMAC Regulation.
The CEMAC Regulation entered into force on 1st March 2019. Pursuant to its terms, economic agents had 6 months, until 31 August 2019, to comply with its provisions.
In July 2019, as part of the implementation of this new regulation, representatives of the BEAC met with trade associations and unions representing different groups of economic agents and credit institutions. During this meeting, representatives of oil and mining companies, as well as import businesses, have expressed their concerns about the short period given to the economic agents to comply with the CEMAC Regulation and some of its provisions like the obligation to repatriate all incomes from exportation and the prohibition of foreign currency bank accounts that they consider ill-suited to the specificities of their sectors. The Governor of the BEAC has proposed to hold further meetings with them to discuss the implementation of the CEMAC Regulation to their sectors.
This note is not an exhaustive summary of the CEMAC Regulation. It only provides an overview of some provisions of the CEMAC Regulation that are often of interest to foreign companies which have or seek to develop activities in one or more CEMAC countries. For those who were familiar with the former exchange control regulation, this note also seeks to highlight differences between the CEMAC Regulation and the now repealed Regulation No.02/00/CEMAC/UMAC/CM of 29 April 2000.
1. FOREIGN CURRENCIES AND REPATRIATION OF INCOME FROM EXPORTATION
Transactions between two CEMAC residents1 cannot be settled through transfer between bank accounts located outside the CEMAC.
1.1 EXPORT OF GOODS
Foreign currencies held in a CEMAC country shall be sold or deposited by their owner with a credit institution.
CEMAC residents shall sell all revenues received in foreign currency abroad or paid by a non-resident2 pursuant to external transactions (i.e. transactions outside the CEMAC area) to their local credit institution, including profits from exports of goods and services.
All transactions related to exports of goods shall be declared to the competent administrative authorities, through the submission of an export declaration to the customs department and a commitment from the exporter to repatriate its export income. In keeping with the former regime, exports of goods exceeding 5 million CFA Francs (around 7,600 EUR) must be domiciled in a CEMAC credit institution.
The exporter has now 150 days from the date of the export to collect and repatriate the export income through its local bank, whilst under the former regulation revenues from exports had be repatriated within 30 days of the due date stated in the contract. When setting payment terms in contracts, parties should be aware that the starting point of the 150 day period is the effective date of the exportation and not the date when the income is collected. The exporter shall justify any discount made or agent fees which may reduce the income collected.
The CEMAC Regulation emphasizes the importance of the obligation to repatriate income from exports (of goods or services) by stating that neither the member States, nor the BEAC can derogate from this rule in their respective regulations or by contract. Failure to comply with this obligation may be sanctioned by a fine equal to 10% of the amount which should have been repatriated and the suspension of the infringer’s right to transfer money within the whole CEMAC banking system for a period of 1 to 9 months.
1.2 EXPORTS OF SERVICES
All transactions related to exports of services shall be declared to the competent authorities. Those for an amount equal to or exceeding 5 million CFA Francs or must be domiciled in a CEMAC credit institution. Incomes arising from exports of services must be repatriated, but the CEMAC Regulation does not state a maximum time period to do so, unlike what is provided for the exports of goods.
Exports of services shall be formalised in a contract which may take the form of an agreement, a purchase order or an invoice and must include specific information set out in the CEMAC Regulation.
Imports of goods within the CEMAC are free, except for gold. Member States are afforded some discretion, as they made place additional restrictions on imports of goods on humanitarian, health, security or environmental grounds.
All imports of goods must be declared to the customs department. Similarly, all imports of services are subject to a declaration to the competent authorities.
Imports of goods or services for an amount of 5 million CFA Francs or more shall be domiciled in a CEMAC credit institution.
3. BANK ACCOUNTS
3.1 OPENING OF FOREIGN CURRENCY BANK ACCOUNTS BY RESIDENTS
3.1.1 OPENING OF FOREIGN CURRENCY BANK ACCOUNTS BY RESIDENTS OUTSIDE THE CEMAC
Resident legal entities (personnes morales résidentes), except credit institutions, are prohibited from opening foreign currency bank accounts outside the CEMAC. This is an innovation, as former Regulation No.02/00/CEMAC/UMAC/CM only prohibited residents from opening foreign currency bank accounts in the CEMAC.
Failure to comply with this prohibition may lead to the issuance of a fine corresponding to 15% of the credit movements, and by the repatriation of the foreign currencies corresponding to the balance of the account and their transfer to the BEAC. However, the BEAC can allow a resident legal entity to open a foreign currency account outside the CEMAC in accordance with the terms and conditions set out in a BEAC directive issued in June 2019. The granting of any such authorisation is to be notified by the BEAC to the applicant and the relevant ministry responsible for money and credit. The June 2019 directive of the BEAC provides that resident legal entities which already have foreign currency bank accounts within or outside the CEMAC, have 6 months from its entry into force to comply with it, i.e. until 10 December 2019. It remains to be seen how strictly the BEAC will apply this prohibition from opening foreign currency bank accounts outside the CEMAC but it is likely that only well-supported requests to the BEAC to open or keep foreign currency accounts will achieve a positive outcome.
Bank accounts held abroad by individuals residing in the CEMAC must be declared to the BEAC.
3.1.2 OPENING OF FOREIGN CURRENCY BANK ACCOUNTS BY RESIDENTS WITHIN THE CEMAC
All CEMAC residents (natural and legal persons) are prohibited from opening foreign currency bank accounts within the CEMAC. However, the BEAC can allow a resident legal entity to open a foreign currency account within the CEMAC.3 Such accounts cannot be credited by amounts in CFA Franc or debited from accounts in CFA Francs. Withdrawing foreign currency from a foreign currency account held by a resident to meet local needs is prohibited.
3.2 BANK ACCOUNTS OF NON-RESIDENTS
3.2.1 FOREIGN CURRENCY BANK ACCOUNTS OF NON-RESIDENTS
Non-residents can open bank accounts in foreign currency within the CEMAC provided that they inform the BEAC. However, if the non-resident becomes a CEMAC resident, this should lead to the automatic closure of such bank account and the transfer of the balance to a CFA Franc account.
Such accounts cannot be credited by amounts in CFA Francs or by debits originating from accounts in CFA Francs. Further, they cannot show a negative balance. Withdrawals from foreign currency accounts held by non-residents within CEMAC to meet local needs are prohibited.
3.2.2 BANK ACCOUNTS IN CFA FRANCS OF NON-RESIDENTS
Non-residents may freely open CFA Franc accounts within the CEMAC.
4. TRANSFER OF FUNDS
Applications to transfer funds over 1 million CFA Francs (around 1,500 EUR) abroad are subject to the justification of the origin of the funds and to the presentation of supporting documentation required by the exchange control regulation.
Below 1 million CFA Francs per month and per economic agent, transfers abroad only require justifying the origin of the funds and a declaration to the BEAC.
Transfers of funds abroad exceeding 100 million CFA Francs (around 152,000 EUR) shall be declared to the BEAC and to the relevant ministry responsible for money and credit at least 30 days before their completion.
Transfers outside the CEMAC, by non-residents, of income originating from capital (dividends, interest, fees) are free if the underlying transaction is not one subject to authorisation or, if so, if it has been authorised by the relevant authority.
Upon presentation of supporting documentation, non-residents can freely complete transfers of income generated by public and private sector procurement contracts (marchés publics et privés).
5. FINANCIAL AND CAPITAL TRANSACTIONS
5.1 FOREIGN SECURITIES (VALEURS MOBILIERS ETRANGERES0
Funds collected within the CEMAC area through the issuance of securities in foreign currency or CFA Franc by a non-resident are intended to finance in priority investments within the CEMAC. Transferring abroad the proceeds of the issuance of foreign securities within the CEMAC requires BEAC’s authorisation. The BEAC informs the relevant ministry responsible for money and credit. Securities issued outside the CEMAC by CEMAC residents are treated like loans.
For amounts not exceeding 50 million CFA Francs (around 76,000 EUR), the issuance, publicity, offer of sale and assignment of foreign securities must be declared to the BEAC and to the financial market regulator for Central Africa prior to the transaction.
When exceeding 50 million CFA Francs, the issuance, publicity, offer of sale and assignment of foreign securities within the CEMAC are subject to the prior authorisation of the BEAC, which informs the relevant ministry responsible for money and credit, without prejudice the financial market regulator for Central Africa’s assent (avis conforme).
5.2.1 LOANS CONTRACTED BY CEMAC RESIDENTS
The CEMAC Regulation no longer requires that an authorisation be issued by the authorities of certain loans contracted by CEMAC residents (in particular loans for an amount exceeding 100 million CFA Francs), instead opting for a declaration regime applicable to all loans.
CEMAC residents are free to contract loans from non-residents. Such loans taken out by residents, including branches or subsidiaries (succursales ou filiales) of foreign legal entities, must be declared by the borrower or its agent to the relevant ministry responsible for money and credit and the BEAC, 30 days in advance, like under the former regime. The declaration of the loan must be submitted with a file containing copies of the loan agreement, the repayment schedule, the financial statements of the borrower and the corporate decision authorising the representative to take out the loan, if applicable.
Another declaration has to be made by the borrower or its agent to the relevant ministry responsible for money and credit and to the BEAC, 30 days after the transaction, and must include supporting documents showing that the funds have been repatriated or how they have been used.
Repayments of these loans have also to be declared to the relevant ministry responsible for money and credit and to the BEAC within 30 days of the repayment but, and this clarifies the former regulation, this declaration is made by the credit institutions.
The CEMAC Regulation also includes specific provisions which apply to loans contracted by States or credit institutions.
5.2.2 LOANS MADE BY CEMAC RESIDENTS
Loans granted by resident legal entities to non-residents are subject to the prior authorisation of the BEAC.
Repayments of these loans must be declared to the relevant ministry responsible for money and credit and the BEAC within 30 days of the repayment and must repatriated.
5.3 DIRECT INVESTMENTS
The definition of “direct investment” in the CEMAC Regulation has been broadened compared to the one in former Regulation No.02/00/CEMAC/UMAC/CM. It is however not crystal clear in its last section. Direct investment is now defined as a shareholding equal to or exceeding 10% held by a resident in a non-resident company or by a non-resident in a resident company which gives the holder a significant control or influence in the management of the company. Real estate investments by residents outside the CEMAC area or by non-residents within the CEMAC, investments in a company indirectly controlled by or under the influence of the investment company, the sister companies, as well as the debts also qualify as direct investment.4
Unlike under the former regime, which only required direct investments exceeding 100 million CFA Francs to be declared, all direct investments have to be declared. The declaration must be made both to the relevant ministry responsible for money and credit and to the BEAC, whereas under the former regime, the declaration was made only to the minister in charge of finance.
5.3.1 INBOUND DIRECT INVESTMENTS
Inbound direct investments from outside the CEMAC are declared to the relevant ministry responsible for money and credit and the BEAC at least 30 days in advance.
The completion and liquidation of foreign direct investments within the CEMAC are declared to the relevant ministry responsible for money and credit and to the BEAC within 30 days following the completion of the transaction. Therefore, inbound direct investments shall be declared both before and after the completion of the investment operation.
Contrary to former Regulation No.02/00/CEMAC/UMAC/CM, the CEMAC Regulation considers that a share capital increase resulting from the reinvestment of non-distributed profits is a direct investment and must accordingly be declared to the relevant ministry responsible for money and credit and the BEAC within 30 days following the completion of the transaction.5
The transfer of profits resulting from the liquidation or assignment of a foreign direct investment within the CEMAC must be declared to the relevant ministry responsible for money and credit and the BEAC at least 30 days prior to the transaction being completed.
5.4 PORTFOLIO INVESTMENTS
A portfolio investment (investissement de portefeuille) is defined as cross-border trades or positions relating to debt instruments or shares, other than those relating to direct investment or reserve assets. From the combined reading of the definitions of portfolio investment (investissement de portefeuille) and direct investment (investissement direct), we understand that whereas a shareholding of less than 10% should be considered as portfolio investment, a participation equal to or exceeding 10% in the share capital of a company should qualify as a direct investment.
5.4.1 INBOUND PORTFOLIO INVESTMENTS
Inbound portfolio investments in the form of a shareholding must be declared to the BEAC and the relevant ministry responsible for money and credit at least 30 days prior to their completion.
Inbound portfolio investments in the form of a share capital increase resulting from the reinvestment of non-distributed profits must be declared to the relevant ministry responsible for money and credit and to the BEAC within 30 days following the completion of the transaction.6
The transfer of the proceeds from the sale of foreign portfolio investments within the CEMAC, for an amount exceeding 100 million CFA Francs, has to be declared to the BEAC and the Ministry responsible for money and credit 30 days prior to its completion.
The transfer, for amounts exceeding 100 million CFA Francs, of the proceeds of sales of foreign portfolio investments within the CEMAC, as well as the transfer of such proceeds by a non-resident outside the CEMAC, must be declared to the BEAC and to the Ministry responsible for money and credit, 30 days prior to their completion.
5.4.2 OUTBOUND PORTFOLIO INVESTMENTS
Outbound portfolio investments over a threshold to be set out in a BEAC directive are subject to the BEAC’s authorisation. Below such a threshold, outbound portfolio investments must be declared 30 days before their completion.
6. DOMICILE OF REHABILITATION FUNDS IN THE HYDROCARBON AND MINING SECTORS
The CEMAC Regulation provides that in specific sectors like hydrocarbons and mining, if there is a legal or contractual obligation to set up a fund for the rehabilitation of the site at the end of the exploitation period, the BEAC can open bank accounts in foreign currency or CFA Francs in the name of the relevant member State and its counterparty or the operator, as the case may be, to lodge the rehabilitation fund.
7. COMMUNICATION OF INFORMATION TO THE BEAC
The CEMAC Regulation provides that economic agents must inform the BEAC and other competent authorities of all transactions outside the CEMAC, whether related to goods, services, gifts, incomes, transfers or equity. Guidelines should specify the form, nature, frequency and other modalities for the communication of such information.
8. CONTROL AND POWER TO IMPOSE SANCTIONS
The BEAC, the ministries responsible for money and credit and the Banking Commission of Central Africa (Commission Bancaire de l’Afrique Centrale or “COBAC“) record infringements to the foreign exchange regulation. They can impose pecuniary and non-pecuniary administrative sanctions within their respective fields of competence.
The BEAC may recover fines imposed on economic agents, following formal notice (mise en demeure), by directly debiting the economic agent’s bank account held at the BEAC or at a commercial bank.
As part of its supervisory power, the BEAC can request that economic agents share both information regarding their transaction with foreign countries, and the required supporting documents.
The relevant ministry responsible for money and credit may conduct desk and on-site checks of economic agents (other than credit institutions).
The COBAC assists the BEAC in monitoring the implementation of the exchange control regulation and is in charge more specifically of controlling the authorised intermediaries (i.e., credit institutions, post administrations and, for manual foreign exchange transactions, the micro-finance institutions and authorised bureaux de change).
- “Resident” is defined, in the CEMAC Regulation, as a natural or legal person having its main residence or its prevailing centre of economic interest within the CEMAC, staying even in a non-continuous manner for more than one year in one of the CEMAC member States or having the intention to pursue an economic activity for at least one year within the CEMAC, including branches (succursales) of multinational companies.
- “Non-resident” is defined, in the CEMAC Regulation, as a natural or legal person having its main residence or its prevailing centre of economic interest outside the CEMAC, including among others, companies and undertakings carrying out specific temporary activities within the CEMAC, except if they are registered at the trade register (registre du commerce et du crédit mobilier) of one of the CEMAC member States, even on a temporary basis.
- The same prohibition was included in former Regulation No.02/00/CEMAC/UMAC/CM but the authorisation to open bank accounts in foreign currency (by way of a derogation from the prohibition) was granted by the Finance Minister, after consulting (avis conforme) the BEAC.
- In the French language, the end of the definition of direct investment reads: “…investissement dans une entreprise sous contrôle ou sous influence indirecte de l’entreprise d’investissement, les entreprises soeurs, ainsi que les dettes.”
- It is not clear whether the requirement for a declaration before the operation also applies to share capital increase resulting from the reinvestment of non-distributed profits.
- This is the same regime as for a direct investment taking the form of a share capital increase resulting from the reinvestment of non-distributed profits. It results from the combined reading of different provisions of the CEMAC Regulation that a share capital increase resulting from the reinvestment of non-distributed profits can either be a direct investment or a portfolio investment, the qualification presumably depending on the additional shareholding acquired by the particular investor as a result of the share capital increase.
For more information, please contact Bertrand Montembault, Louis de Longeaux and Erwann Nicot or your usual Herbert Smith Freehills contact: