Corporate Tax 2020

Last Updated January 15, 2020

Mozambique

Law and Practice

Authors



Pimenta e Associados has earned the status of one of Mozambique's leading and fastest-growing firms since its formation in 2005. Pimenta has a total staff of nearly 30 persons, 18 of whom are lawyers duly admitted to the Mozambique Bar Association. Although the firm has several important Mozambican clients, the majority of its clients are foreign investors doing business in Mozambique. The clients are also very diverse in terms of the industries in which they operate, including agriculture, aviation, banking and financial services, energy, healthcare, insurance, mining, port concessions, real estate, shipping and tourism. The firm also acts for embassies, charities and non-governmental organisations. At a regional level, the firm regularly works with some of the most important South African law firms. Worldwide, the firm is regularly instructed by several leading US, UK and Chinese firms.

Local businesses are commonly organised in two corporate forms: as a limited liability joint stock company (Sociedade Anónima, or SA), or as a limited liability company by quotas (Sociedade por Quotas, or LDA). There are other forms available, which are, however, less commonly used.

LDAs are the most widely used. It is a convenient form of organisation for small and/or closely held enterprises due to its less complex administrative and supervisory structure, and number of shareholders requirement (they may be held by a single shareholder).

SAs have a more complex administrative and supervisory structure, and incorporation generally requires at least three shareholders. It is a form of organisation generally used for large and widely held enterprises.

LDAs and SAs have the same tax treatment, both being taxed as separate legal entities, except if caught by the tax transparency regime.

Arrangements in the form of partnerships are not recognised as such in Mozambique from a corporate law perspective and from a tax law perspective. As a result, there is no comprehensive set of rules establishing how foreign partnerships or their partners are taxed in Mozambique.

However, a tax transparency regime does exist in relation to certain specific types of tax-resident entities. The entities to which such regime applies are (i) civil companies not constituted in a commercial form, (ii) companies that fall under the definition of professional service firms (eg, law firms, and audit and accountancy firms), and (iii) certain family-owned companies or closely and privately held companies whose activity is the simple administration of property.

Incorporated businesses are deemed to be tax resident in Mozambique if they have their head office or place of effective management therein.

Incorporated businesses tax resident in Mozambique are subject to a 32% corporate income tax (CIT) rate on their worldwide profits.

The taxable income of Mozambican tax transparent entities is subject to tax at the partners’ level. Different tax rates apply depending on whether the partner is a company or an individual, and resident or non-resident in Mozambique.

Taxable profits are the net accounting profits calculated in accordance with the accounting records for the period (P&L), plus the net of the positive and negative variations not reflected in the P&L determined in accordance with the accounting records, but subject to the tax adjustments foreseen in the CIT Code. These adjustments include the following:

  • unrealised capital gains and losses;
  • excessive depreciation or non-accepted depreciation for certain assets, including certain intangibles (eg, goodwill);
  • correction of amounts deducted as provisions and impairments in excess of deductible amounts as determined in the CIT Code;
  • bad debt deductions above the limits established in the CIT Code;
  • CIT and autonomous taxation;
  • penalties, fines and compensatory interests, as well as taxes levied on third parties that the taxpayer is not legally authorised to bear;
  • undocumented expenses;
  • interest deductibility limitations in relation to shareholder loans;
  • limitations in relation to representation expenses;
  • amounts paid or owed to individuals or companies tax resident in a jurisdiction subject to a privileged tax regime as defined in the CIT Code, unless the taxpayer may prove that such correspond to operations effectively undertaken and they are not abnormal or of an overstated amount; and
  • transfer pricing adjustments.

Mozambique does not have a regime similar to the patent box regime that may be found in other jurisdictions.

However, holders of an investment project authorisation approved by the relevant Investment Agency may be entitled to certain tax benefits, including technology investments. The scope of the benefits available depends on the characterisation of the project, and on the industry/location/service. Depending on the underlying facts and scope of the project, the benefits may be in the form of investment tax credit, accelerated depreciation, deduction to the CIT taxable base, exemption from customs duties or VAT upon importation, and exemption/reduction of the CIT rate for a certain period.

Approved investments in the area of scientific investigation, information and communication technology development, as well as research and development, carried out in science and technology parks benefit from exemption of CIT during the first five tax years, a 50% CIT reduction for the following five tax years and a 25% CIT reduction for a further five tax years. This special incentive is, however, only attributed to investments carried out in science and technology parks.

There are a range of tax benefits established in the Code of Fiscal Benefits granted to holders of investment projects authorisation, which may be classified as specific – per industry/location/service, as the case may be – or general – which do not fall within the specific sections available.

The Code of Fiscal Benefits establishes specific benefits for projects that fall within the following sections: (i) creation of basic infrastructures, (ii) commerce and industry in rural areas, (iii) transforming and assembly industry, (iv) agriculture and fishery, (v) hospitality and tourism, (vi) science and technology parks, (vii) large-scale projects, (viii) fast development zones, (ix) free industrial zones, and (x) special economic zones. The tax benefits generally include exemption from customs duties and VAT upon importation, exemption from/reduction to the CIT rate, and, in certain circumstances, further tax benefits.

The Code of Fiscal Benefits does not provide for a specific tax incentive for financings.

In Mozambique there is no distinction between income and capital losses.

Tax losses may be carried forward for five years. There is no limitation on the use of losses for each year. However, carry-forward losses are lost if the entity’s corporate purpose changes or the nature of the activity previously undertaken substantially changes.

Business expenses, including interest, are tax deductible to the extent that they are proven indispensable for the realisation of the taxable income or gains or for the maintenance of the productive source.

There are, however, limitations on deductibility of interest in two different formats: (i) in relation to shareholder loans to Mozambican subsidiaries and (ii) in relation to loans from non-resident entities in a special relationship with a Mozambican entity.

Interest and other remuneration on shareholder loans is not deductible in relation to the part that is above the reference rate (MAIBOR – 12 months) plus 2%.

Furthermore, pursuant to the CIT Code, thin capitalisation rules are generally applicable to credits and loans from a related non-resident entity to a Mozambican taxpayer. Entities are deemed to be related provided that one of the following requirements is met: (i) the non-resident entity directly or indirectly holds at least 25% of the share capital of the debtor; (ii) both parties are (directly or indirectly) controlled by the same entity; or (iii) the non-resident entity, although not holding a 25% participation, exercises a significant influence in the management of the Mozambican subsidiary. In such situations, interest in excess of a 2:1 debt-to-equity ratio is not deductible by the Mozambican company for CIT purposes. However, such limitation may not apply if the Mozambican taxpayer demonstrates, considering the type of activity, industry, dimension of the companies and other relevant criteria, that it could have obtained the same level of financing and with similar conditions through a non-related party.

No rules are in place on consolidated tax grouping.

Capital gains derived by Mozambican-resident entities are considered taxable profits and subject to the general 32% CIT rate.

There are no exemptions or reliefs in place in relation to taxation of capital gains in Mozambique, including in relation to gains from selling shares (Mozambique does not have a participation exemption regime on capital gains).

However, the net of capital gains from the sale of tangible fixed assets shall not be computed as taxable profits if the sale proceeds are reinvested in the acquisition, production or construction of tangible fixed assets within the following three fiscal years from the sale. A one-year extension may be available subject to prior approval by the Minister of Finance.

Other taxes may apply depending on the underlying transaction, including the following:

  • Stamp Duty is levied on acts and contracts specifically listed in the Stamp Duty Schedule, notably on (i) certain share acquisitions, (ii) transfer of real estate, (iii) tenancy agreements of real estate, (iv) loans and other financing operations, (v) guarantees, (vi) insurance policies, (vii) licences, (viii) notary acts, etc; and
  • VAT is levied at a standard 17% rate on importation of goods and the supply of goods and services that are deemed located in Mozambique.

In addition to 2.8 Other Taxes Payable by an Incorporated Business, incorporated businesses may be subject to other taxes in relation to real estate, including the following:

  • a 2% property transfer tax (Sisa) may be due on the acquisition of real estate located in Mozambique, over the amount of the transfer or the tax value of the real estate, whichever is higher (a higher rate applies when the shareholders are tax resident in a jurisdiction subject to a privileged tax regime as defined in the CIT Code); and
  • municipal real estate tax (Imposto Predial Autárquico) is levied on the tax value of the real estate, and at a 0.4% rate in relation to residential real estate and at a 0.7% rate in relation to non-resident related real estate.

Most closely held local businesses operate in a corporate form.

Resident individuals are taxable in Mozambique through personal income tax (PIT), which rates are progressive. The maximum PIT rate applicable to resident individuals is 32%, for annual income above MZN1,512,000, which is the same rate applicable to entities subject to CIT.

In any case, to the extent that individuals are shareholders in resident companies that are considered tax transparent as per the CIT Code, which includes companies that fall under the definition of professional service firms (please refer to 1.2 Transparent Entities), the taxable profits of those companies are computed as per the CIT Code but attributable to their shareholders and subject to PIT as business income (category two income).

A professional service firm is defined as that incorporated for purposes of pursuing a professional activity considered in the list of Classification of Mozambican Economic Activities by Lines of Business, where all the shareholders undertake the same type of activity and provided that, if considered individually, they would be subject to PIT as business income (category two income).

The tax transparency regime mentioned in 1.2 Transparent Entities and 3.2 Individual Rates and Corporate Rates also applies to certain family-owned companies or closely and privately held companies whose activity is the simple administration of property.

A company for simple administration of property is one that limits its activity to the management of goods or values held as reserve or for the fruition of its shareholders, including the acquisition of real estate to be used as the shareholders’ place of abode, as well as companies established also for other purposes but whose average income in the previous three years in relation to the aforementioned goods, values or real estate exceeds 50% of the average income, in the same period, of the overall income derived by the company.

A resident individual is subject to tax on his worldwide income, including gains on the sale of shares in closely held companies (category three income). The gain is taxable under progressive rates up to a maximum rate of 32%.

Depending on how long the shareholding was held, the taxable gain may be reduced. Only 85% of the gain is taxable for shareholdings held for more than 12 months but less than 24 months, which is reduced to 65% for shareholdings held for more than 24 months but less than 60 months, and further reduced to 55% for shareholdings held for 60 months or more.

Please refer to 3.4 Sales of Shares by Individuals in Closely Held Corporations.

Interest, dividends and royalties paid by Mozambican-resident companies to non-resident companies are generally subject to 20% withholding tax. A reduced 10% withholding tax rate applies in relation to dividends from shares listed on the Mozambique Stock Exchange.

Mozambique has entered into tax treaties with Botswana, India, Italy, Macau (China), Mauritius, Portugal, South Africa, the United Arab Emirates and Vietnam. The primary tax treaty countries that foreign investors use to make investments in Mozambique are Mauritius, Portugal, South Africa and the United Arab Emirates.

The Mozambican tax authorities show concern with treaty shopping practices. Although one cannot confirm if the authorities co-operate with other tax administrations in order to challenge the use of a treaty by non-treaty country residents, it is relevant to note that there is an anti-abuse provision in the Mozambican tax laws according to which the attribution of tax treaty benefits shall be denied in the event of a third party, not resident in the relevant contracting state, using the tax treaty for the purpose of obtaining advantages of its provisions.

Mozambique has had transfer pricing regulations in place since 1 January 2018.

This said, given the very early stages of the application of these transfer pricing regulations, also due to the fact that only in 2019 were companies required to submit their first transfer pricing documentation, it is thus incipient to foresee what are currently the biggest transfer pricing issues.

Please refer to 4.4 Transfer Pricing Issues.

The OECD guidelines do not apply. Although the transfer pricing provisions adopted by Mozambique are closely modelled from the OECD principles, they vary in relevant aspects from the OECD standards, such as the broad concept of related party, which includes situations of significant influence that are not objectively substantiated; the fact that the burden of proof lies with the taxpayer, meaning that if the tax authorities have doubts on whether the price is at arm’s length, the taxpayer should present additional information to sustain its initial assessment; and the fact that it is not possible to execute Advanced Pricing Agreements with the Mozambican tax authorities. Comments addressed in 4.4 Transfer Pricing Issues are also applicable in this section.

The transfer pricing regulations provide that when a third country executes a transfer pricing adjustment as regards a related transaction that may result in double taxation in Mozambique (contrary to international convention rules agreed by Mozambique), Mozambican tax authorities may perform a compensating adjustment, to the extent this is set forth in a double tax treaty entered into by Mozambique and provided that the applicable requisites are met. In relation to domestic transactions, this compensating adjustment is provided for in the Mozambican Income Tax Code but the procedures that would need to be followed are not specifically established in the transfer pricing regulations.

Branches are subject to CIT in similar terms as per local corporations, but only in relation to profits attributable to the branch. Both are required to comply with similar reporting and ancillary obligations.

The above notwithstanding, the following key differences are noted:

  • no tax is due on the allocation of profits by the branch to its head office (technically, it is deemed a transfer of funds within the same legal entity); and
  • general administrative expenditures made by the head office in relation to the branch may be allocated to the latter, subject to acceptable criteria and to the extent that they are within reasonable limits.

Capital gains derived by non-resident companies are subject to tax in Mozambique at a 32% rate if deemed obtained in Mozambique. Gains derived not only from direct transfers but also from indirect transfers, between two non-resident entities, of shares or other participating interests or rights involving assets located in Mozambique are considered to be of Mozambican source regardless of the location of the transaction.

The taxation may be avoided or reduced under an applicable tax treaty.

Please refer to 5.3 Capital Gains of Non-residents. Furthermore, if there is a change of ownership as a result of a merger or demerger, the tax losses of the merged or demerged companies can be deducted and carried forward for five years by the new or acquiring entity but subject to prior authorisation.

The income of a foreign-owned local affiliate is determined and assessed on the same terms as the income of local-owned affiliates.

The CIT Code provides as a general rule that only the business expenses that are proven indispensable for the realisation of the taxable income or gains or for the maintenance of the productive source are deductible for tax purposes.

To the extent that management and administrative expenses incurred by a local affiliate from a non-local affiliate meet this general rule, the same are deductible for tax purposes. Formal requirements should be observed from a supporting documentation perspective. The supply of services should be arm’s length.

Please refer to 2.5 Imposed Limits on Deduction of Interest.

Local corporations are subject to 32% CIT on their worldwide income, including income obtained abroad.

If the foreign income was taxed abroad, the CIT Code sets forth a tax credit method to eliminate the international double taxation; ie, the income generated abroad is included in the taxable income but a tax credit may be granted by way of deduction to the CIT due. The credit should correspond to the lowest of the following amounts:

  • the income tax paid in the foreign country; or
  • the amount of the CIT assessed, corresponding to the income that may be taxed in the foreign country.

Furthermore, if a tax treaty applies, the tax credit should not exceed the tax that should have been borne abroad pursuant to the terms established by the treaty.

The unused credit can be carried forward for five years.

Local business expenses are deductible to the extent they are proven indispensable for the realisation of the taxable income or gains or for the maintenance of the productive source.

Dividends received from foreign subsidiaries shall be included in the local corporation annual taxable income and shall be subject to 32% CIT. Nonetheless, a foreign tax credit may be available as per 6.1 Foreign Income of Local Corporations.

Income obtained by local corporations from the use of intangibles by non-local subsidiaries shall be taxed as per 6.1 Foreign Income of Local Corporations. Please also consider the comments made in 2.2 Special Incentives for Technology Investments.

Profits from non-resident companies resident in a jurisdiction subject to a privileged tax regime, as defined in the CIT Code, are imputed to local shareholder corporations in proportion to their respective shareholding and irrespective of whether they are distributed, provided that the shareholder holds, directly or indirectly, a participation of at least 25% of the non-resident company, or, if the non-resident company is held in more than 50%, directly or indirectly, by resident members, a shareholding of at least 10%.

There is no similar regime in relation to non-local branches of local corporations. However, the non-local branch would nonetheless be subject to CIT in Mozambique as a result of the worldwide income taxation principle, unless a tax treaty were to apply.

There is not much information available on whether the tax authorities have ever taxed corporations based on this type of CFC regime.

There are no specific rules related to the substance of non-local affiliates. However, there is an anti-abuse provision in the Mozambican tax laws according to which the attribution of tax treaty benefits shall be denied in the event of a third party, not resident in the relevant contracting state, using the tax treaty for the purpose of obtaining advantages of its provisions. Furthermore, tax residency in Mozambique is also driven by result of a company having its place of effective management in Mozambique. Therefore, if a non-local affiliate does not meet the substance requirements in the foreign country of residency, there is a risk of the same being deemed tax resident in Mozambique to the extent it has its place of effective management therein.

Local corporations are subject to 32% CIT on their worldwide income, including the gain on the sale of shares in non-local affiliates. A tax credit may be available, as per 6.1 Foreign Income of Local Corporations.

There is no general anti-abuse rule in Mozambique. However, there are specific anti-abuse rules in Mozambique in relation to treaty shopping.

There are no regulations on a routine audit cycle. The tax authorities have discretionary powers to proceed with tax audits deemed necessary.

Mozambique has not adopted the BEPS recommended changes, noting that some of the issues that are intended to be tackled by the BEPS recommended changes do not arise in Mozambique (eg, participation exemption in relation to foreign dividends, and the patent box regime does not exist in Mozambique).

There is no available information on what is the general government attitude regarding BEPS.

Following recent significant projects in the oil and gas sector in Mozambique, it is expected that there will be a higher public profile in relation to international tax cross-border matters.

This firm is not aware of a government agenda in respect of establishing a competitive tax policy regime.

Please refer to the preceding sections.

This firm is not aware of a government agenda in respect of the adoption of regulations for dealing with hybrid instruments.

Mozambique does not have a territorial tax regime. Local corporations are subject to taxation over their worldwide income, including on foreign branches’ profits, without the possibility to elect for the profits attributable to the latter to be exempt from CIT under domestic law.

Please refer to 6.5 Taxation of Income of Non-local Subsidiaries Under CFC-Type Rules.

From the tax treaties that Mozambique has in place, only the tax treaty with India has a limitation on benefits (LOB) provision. There is no anti-abuse rule per se as the principal purpose test (PPT) provision resulting from the BEPS measures in the Mozambican tax treaties. However, since there is a specific anti-abuse provision in relation to tax treaties, an application of a tax treaty may be denied as a result of the existing domestic provision.

Please refer to the comments in 4.4 Transfer Pricing Issues.

Please refer to 9.1 Recommended Changes. Mozambique does not have proposals for transparency and country-by-country reporting.

Please refer to 9.1 Recommended Changes.

Please refer to 9.1 Recommended Changes.

Taxation of offshore IP deployed from Mozambique is generally not an issue in Mozambique. Payments to foreign IP owners generally take the form of withholding tax.

Nonetheless, amounts paid or owed to individuals or companies tax resident in a jurisdiction subject to a privileged tax regime, as defined in the CIT Code, are not deductible unless the taxpayer may prove that the payment corresponds to operations effectively undertaken and that they are not abnormal or of an overstated amount.

This firm is not aware about BEPS being currently on the government’s agenda. However, the tax authorities are getting more familiarised with international tax issues and the potential abusive use of tax treaties that may result in erosion of taxes otherwise due in Mozambique.

Pimenta e Associados

Avenida Marginal, 141
Rani Towers
Office Tower, 7th Floor
T2 Maputo
Mozambique

+258 21 493 050

+258 21 493 042

www.mirandaalliance.com
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Law and Practice

Authors



Pimenta e Associados has earned the status of one of Mozambique's leading and fastest-growing firms since its formation in 2005. Pimenta has a total staff of nearly 30 persons, 18 of whom are lawyers duly admitted to the Mozambique Bar Association. Although the firm has several important Mozambican clients, the majority of its clients are foreign investors doing business in Mozambique. The clients are also very diverse in terms of the industries in which they operate, including agriculture, aviation, banking and financial services, energy, healthcare, insurance, mining, port concessions, real estate, shipping and tourism. The firm also acts for embassies, charities and non-governmental organisations. At a regional level, the firm regularly works with some of the most important South African law firms. Worldwide, the firm is regularly instructed by several leading US, UK and Chinese firms.

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