According to social legislation, in case of dismissal or retirement of an employee, the employer allocates a special allowance.

It could be severance pay, retirement allowances, death allowances etc.

To guarantee payment of these benefits, companies are used to sign contracts with insurance companies.

Previously, the deduction of these premiums obeyed to a particular formalism that the employer had to respect to avoid any tax issues. But, since the financial law of 2005, deductibility rules mentionned in the Ivorian tax Code are applied to these allowances (Section 18-A8) of Ivorian Tax Code)

Les difficultés d’interprétation de cette mesure, en pratique, appellent quelques éclaircissements de notre part.

1. Conditions of deductibility of departure allowances

To be deductible, insurance contracts relating to premiums retirement must meet the following conditions :

• Be concluded with an Ivorian Company
• Provide a general nature

It’s important to note that sections 308 and 326 of the Insurance Code prohibits to purchase insurance from a foreign company unless special permission of the minister in charge of Economy and Finance.

Therefore, premiums paid by an employer to foreign insurance companies are not deductible.

2. Tax treatment of provisions

In principle, provisions made by companies for retirement or departure of their employees are not considered as deductible expenses.

Nevertheless, tax administration provides the opportunity for employers to deduct such provisions only when they are paid to insurance companies under conditions as listed above.

From our point of view, this is a way to encourage companies to subscribe to these types of contracts, what constitues a real guarantee for the employees.